Obama Signs New Bill To Avoid "Fiscal Cliff"

On January 1, both the Senate and House passed H.R. 8 legislation to avert the “fiscal cliff.” The bill was signed into law by President Barack Obama on Jan. 2. (Source: National Association of Realtors). The new bill states that the tax rates would remain the same for most households and the extension of mortgage cancellation relief.

Here is the summary of Real Estate related provisions in the bill: (Source: National Association of Realtors).

• Mortgage Cancellation Relief is extended for one year to Jan. 1, 2014

• Deduction for Mortgage Insurance Premiums for filers making below $110,000 is extended through 2013 and made retroactive to cover 2012

• 15 year straight-line cost recovery for qualified leasehold improvements on commercial properties is extended through 2013 and made retroactive to cover 2012.

• The 10 percent tax credit (up to $500) for homeowners for energy improvements to existing homes is extended through 2013 and made retroactive to cover 2012.

Anytime a lender cancels, or forgives a debt, that debt is considered as income to the debtor.  Thus, making that income taxable unless an exception applies. Without the extension of Mortgage Cancellation Relief, the debt forgiven will be taxable.

The Mortgage Insurance Premiums are payments for the insurance policy which compensates in case the borrower defaults on a mortgage loan. The deduction for Mortgage Insurance Premiums is considered a tax break and it is applied for mortgage insurance policies issued on or after January 1, 2007.  The deduction is extended through 2013 and made retroactive to cover 2012.

Capital Gains stays at 15% for a maximum of $400,000 (for individuals) and $450,000 (for joint filers). Beyond those amounts, any gains will be taxed at 20%. The $250/$500K exclusion for sale of principal residence remains in place.

The Estate tax will be exempted for the first $5M in individual estates and $10M for family estates.  After that the rate will be at 40%, up from 35%.

The new bill will avert the effects of "fiscal cliff".  Homeowners can still enjoy some of the tax benefits from the previous year.  Although this is a temporary fix, the new bill has put the minds of the Homeowners at ease - at least for this year.

If you have any questions, please don't hesitate to contact me.

Home Loan Basics

Home loan makes the dream of owning a house come true.  By obtaining a home loan, owning a home is made easier and quicker for an average income earner.  To have your loan approved quickly, make sure that you have a good credit score and you have all the necessary documents readily available. And once you get approved, it's important to read and understand the loan document clearly.  You have to know all the ins and outs of a home loan.  This will save you time and money in the future.  Here are the basics of home loan to get you started:

1. Fixed-rate mortgage 

A fixed-rate mortgage is a mortgage with a fixed interest rate for the entire term of the loan. The benefit of a fixed-rate mortgage is that the homeowner will have a constant loan payment amounts all throughout the loan term. 

2. Adjustable Rate Mortgage or ARM

An adjustable rate mortgage is a mortgage which has an interest  rate that changes periodically. When you find a document  titled "NOTE" at the top and it says, "ADJUSTABLE RATE NOTE" at the top in big letters, then this means that your loan is an Adjustable Rate Mortgage. A common adjustment schedule might be 2/2/5, meaning, the rate won't adjust for 2 years after  you got your loan, it can go up or down a maximum of 2% a year and caps out at a maximum of 5% higher than your initial rate. In general, interest rates on ARMS will be lower than the interest rates on fixed products in order to compensate the borrower for the added risk of having a variable payment in the future.

3. Mortgage Insurance 

A mortgage insurance is an insurance policy that protects the mortgage lender in case the borrower defaults on the loan. Mortgage Insurance is also referred as Private Mortgage Insurance or PMI. The mortgage insurance is required when the borrower makes a down payment of less than than 20% of the home purchase price. However, the insurance can be cancelled out once the homeowner reaches 20% home equity. This will have a significant effect on your savings per month.

4. Loan Programs

There are different types of loan programs available for different kinds of borrower. To learn which type of loan program that is best suitable for you, please visit http://www.alaskausamortgage.com/programs/

5. Prepayment Penalty

A prepayment penalty is a penalty enforced on a borrower once he/she pays off the loan earlier than scheduled. In practice, the borrower has agreed to pay a certain amount of interest over a certain amount of time. If the borrower, pays the loan off sooner than originally agreed, then there is less interest to pay. Therefore, the lending institution stands to lose money. It is important to understand the prepayment penalty clause should you decide to sell or refinance before the penalty expires. 

For further questions on home loans, please contact your local mortgage lender or call me for a list of reputable lending companies that might be able to help you.