Most people know they can deduce income taxes for a new home loan, however few know about the intricacies.  This post cannot go into details, and a certified accountant should be used for your particular case.

To deduce the loan from your income tax, the new home must be a residence and the person claiming the deduction must be on the title and loan documents.  Another deduction that can be made on a personal residence in most cases are interest paid on a second home loan. 

Homes purchased or substantially improved after 1987 are limited in terms of loan amounts that can be used for interest deduction.  They cannot exceed $1 million for an individual or couple filing jointly.  Married couple filing separately are only allowed $500,000.

Some Home Equity Loans can be deducted and can be added onto the above mentioned limitations for n additional $100,000, or $50,000 is filing separately.  Home equity loans are not a purchase/improvement loan and is usually a junior one.  Normally, any interest paid on any portion if the loan balances, greater than "fair market value" of the residence is not deductible.  The IRS allows you to use a current lender appraisal to assess a property’s increased value.

Thank you Cardinal Pacific Escrow for this tip.

The new tax Alternative To 3.33% California Witholding.

As January 1st, 2007, sellers are required to have 3.33% of the sale price of their new home for income tax purposes as an alternative witholding.

What that means is that the alternative witholding is an estimate of the seller’s taxable liability calculated by multiplying the real capital gain (recognized) by the highest state tax rate for individuals taxpayers.  It also applies for corporate tax rate for corporations and both are regardless of the taxpayers bracket.

This does not affect a 1031 exchange transaction but it applies to non-exempt sellers who may elect to have less then 3.33% witheld. 

You can read more about in CAR’s website under the Standard Forms Advisory Committee or the Assembly Bill No. 2962

It seems everywhere you turn your attention to in the specialized press, lenders are getting a bad rap.  It’s a shame as I know a few who are truly, genuine good people who do not push wrong programs and sincerely work for their clients, no the other way around. 

The management of Coast Financial Holdings Inc., believe they might not have sufficient funds for the loans given to 482 borrowers to complete
construction on the homes.   This is important, as we have seen, construction of new homes influences our economy and trickles down to real estate, effecting prices.  And this time, mortgage fraud is to blame as it inflates home values.

I have already pointed out a few weeks ago in this post about the latest scams and the consequences can be felt far and wide. 

Click here to read more about it at Calculated Risk.