Foreclosure Sales Continue to Plummet

For the second month in a row we've seen a dramatic drop in the number of properties sold at foreclosure, or "trustee sale", auctions. Foreclosure sales in California are down 16.7 percent from February to March 2012 and down 53.1 percent from March a year ago. A total of 86,487 sales were scheduled to occur in California, but of those 80.0 percent postponed, and 10.6 percent were cancelled, leaving just 8,392 that were actually sold. Third parties, typically investors, purchased a record 38.6% of the properties that did sell in California.
Foreclosure starts rose in most states, with the largest increases occurring in Washington, California and Nevada. This, at least temporarily, reverses a downward trend, but even with the increase the volume of new foreclosures remains significantly down year-over-year in all the states we cover.

The increase in foreclosure starts is especially interesting in Nevada. Bank foreclosures came to an almost complete halt there after the passage of Assembly Bill 284, which made significant changes to Nevada's foreclosure laws. The increase this month is directly attributable to new foreclosure starts by Fannie Mae, which is one of very few lenders to have filed any new foreclosures in Nevada since September 2011. Even with the increase by Fannie Mae it is still homeowner associations that are initiating the vast majority of foreclosures in Nevada.

Misconceptions about 2 common real estate tax breaks

Some homeowners better off not taking home office deduction

By Tom Kelly - Inman News®

One of the biggest financial advantages of owning a home is the mortgage interest deduction, but the amount many taxpayers submit is often greater than the allowed limit.

And, while home offices have become more popular because of convenience and the downturn in the economy, many homeowners may be better off not taking the deduction because of the depreciation recapture upon sale.

Both the mortgage interest and home office topics need to be double-checked before the April 17 deadline. Why April 17 this year instead of April 15? According to the Internal Revenue Service, taxpayers will have until Tuesday, April 17, to file their 2011 tax returns and pay any tax due because April 15 falls on a Sunday.

In addition, Emancipation Day, a holiday observed in Washington, D.C., falls this year on Monday, April 16. According to federal law, Washington, D.C., holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have two extra days to file this year.

Taxpayers requesting an extension will have until Oct. 15 to file their 2012 tax returns. Remember that an extension of time to file is not an extension of time to pay. You will owe interest on any past-due tax and you may be subject to a late-payment penalty if timely payment is not made.

In a recent column, we discussed the benchmark for the mortgage interest deduction is set at acquisition debt, which is the amount of debt in place when the home is acquired. For example, if you buy a $200,000 home with a $50,000 down payment, your acquisition debt is $150,000.

Many consumers stay in their homes for years, accumulate appreciation and then refinance to put a child through school, mom into a nursing home or attend a much anticipated family reunion. The new debt on the refinance will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing.

For example, let's assume your home is now worth $300,000 and you need to take cash out for college tuition. The balance of your loan before you refinance is $135,000 and you take $100,000 "cash back" for a new loan balance of $235,000.

However, the maximum allowable mortgage interest deduction remains $135,000 -- the acquisition debt, not the bigger number from the refinance.

Another popular deduction that is often taken yet needs additional consideration is the home office deduction. It's relatively easy for taxpayers to deduct the cost of a home office. To qualify for a deduction, the space must be used exclusively and on a regular basis for either the entire business or its administrative and management activities.

If you are an employee, additional rules apply for claiming the home office deduction. For example, the regular and exclusive business use must be "for the convenience of your employer."

A home office deduction is comprised mainly of depreciation, utilities and insurance. For example, if a home has 2,500 square feet and the detached garage now deemed "the office" is 250 square feet, then 10 percent of the utilities and insurance are deductible.

The actual office depreciation is 10 percent of what would be a depreciation deduction if the entire home were being depreciated for tax purposes. (Depreciation is not allowed on a typical principal residence, so the square footage allotted to "residence" would not qualify.) Supplies and other expenses directly related to the home office are fully deductible.

However, all these benefits do come at a price. The tax law originally stated that if you sell your home at a gain, any depreciation for a home office will have to be "recaptured." That means that any profit on the business portion is taxable as capital gain.

On Dec. 23, 2002, the IRS issued new regulations concerning gain on home sales. As long as the home office was in the same structure and not separated from the home, only the depreciation taken for the home office after May 6, 1997, is subject to tax.

Still, that depreciation recapture amount could be a lot more than you expect. It may be worthwhile to simply work from home and not deem the space a "home office."

Tom Kelly's new e-book, "Bargains Beyond the Border: Get Past the Blood and Drugs: Mexico's Lower Cost of Living Can Avert a Tearful Retirement," is available online at Apple's iBookstore, Amazon.com, Sony's Reader Store, Barnes & Noble, Kobo, Diesel eBook Store, and Google Editions

Misconceptions about 2 common real estate tax breaks

Some homeowners better off not taking home office deduction

By Tom Kelly - Inman News®

One of the biggest financial advantages of owning a home is the mortgage interest deduction, but the amount many taxpayers submit is often greater than the allowed limit.

And, while home offices have become more popular because of convenience and the downturn in the economy, many homeowners may be better off not taking the deduction because of the depreciation recapture upon sale.

Both the mortgage interest and home office topics need to be double-checked before the April 17 deadline. Why April 17 this year instead of April 15? According to the Internal Revenue Service, taxpayers will have until Tuesday, April 17, to file their 2011 tax returns and pay any tax due because April 15 falls on a Sunday.

In addition, Emancipation Day, a holiday observed in Washington, D.C., falls this year on Monday, April 16. According to federal law, Washington, D.C., holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have two extra days to file this year.

Taxpayers requesting an extension will have until Oct. 15 to file their 2012 tax returns. Remember that an extension of time to file is not an extension of time to pay. You will owe interest on any past-due tax and you may be subject to a late-payment penalty if timely payment is not made.

In a recent column, we discussed the benchmark for the mortgage interest deduction is set at acquisition debt, which is the amount of debt in place when the home is acquired. For example, if you buy a $200,000 home with a $50,000 down payment, your acquisition debt is $150,000.

Many consumers stay in their homes for years, accumulate appreciation and then refinance to put a child through school, mom into a nursing home or attend a much anticipated family reunion. The new debt on the refinance will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing.

For example, let's assume your home is now worth $300,000 and you need to take cash out for college tuition. The balance of your loan before you refinance is $135,000 and you take $100,000 "cash back" for a new loan balance of $235,000.

However, the maximum allowable mortgage interest deduction remains $135,000 -- the acquisition debt, not the bigger number from the refinance.

Another popular deduction that is often taken yet needs additional consideration is the home office deduction. It's relatively easy for taxpayers to deduct the cost of a home office. To qualify for a deduction, the space must be used exclusively and on a regular basis for either the entire business or its administrative and management activities.

If you are an employee, additional rules apply for claiming the home office deduction. For example, the regular and exclusive business use must be "for the convenience of your employer."

A home office deduction is comprised mainly of depreciation, utilities and insurance. For example, if a home has 2,500 square feet and the detached garage now deemed "the office" is 250 square feet, then 10 percent of the utilities and insurance are deductible.

The actual office depreciation is 10 percent of what would be a depreciation deduction if the entire home were being depreciated for tax purposes. (Depreciation is not allowed on a typical principal residence, so the square footage allotted to "residence" would not qualify.) Supplies and other expenses directly related to the home office are fully deductible.

However, all these benefits do come at a price. The tax law originally stated that if you sell your home at a gain, any depreciation for a home office will have to be "recaptured." That means that any profit on the business portion is taxable as capital gain.

On Dec. 23, 2002, the IRS issued new regulations concerning gain on home sales. As long as the home office was in the same structure and not separated from the home, only the depreciation taken for the home office after May 6, 1997, is subject to tax.

Still, that depreciation recapture amount could be a lot more than you expect. It may be worthwhile to simply work from home and not deem the space a "home office."

Tom Kelly's new e-book, "Bargains Beyond the Border: Get Past the Blood and Drugs: Mexico's Lower Cost of Living Can Avert a Tearful Retirement," is available online at Apple's iBookstore, Amazon.com, Sony's Reader Store, Barnes & Noble, Kobo, Diesel eBook Store, and Google Editions