• The date the taxpyer took out the mortgage;
• The amount of the mortgage, and
• The use of its proceeds [IRC Sec 163(h)(3)]

With the decline in interest rates, homeowners have refinanced at least once, with a large number refinancing multiple times.  When property values had also substantially increased, homeowners also pulled cash out their homes for a variety of reasons.  A combination of the two events triggers limitations associated with home mortgage interest deduction which includes:

1. Exceeding the allowable acquisition debt.  Acquisition Debt is debt incurred to buy, build or substantially improve a qualified residence.;
2. Creating equity debt that is not deductible against the Alternative Minimum Tax;
3. Using the cash for business purposes in the mistaken belief that home mortgage interest follows the general interest allocation rules; and,
4. In many cases, creating debt where a portion of the debt is not deductible at all.

For simplicity,  lets cover two basic rules:

1. Interest on a home equity loan is deductible only to the extent of $100,000 of the debt.
2. Refinancing generally creates situations where part of the debt may exceed the sum of the acquisition debt and the allowable home equity debt.

The interest on the debt is limited to the interest on the sum of the acquisition debt and the home  equity debt.  Any excess interest would not be deductible as home mortgage interest.

Suffice it to say there are pages of rules and different ways of treating interest that only a tax accountant can appreciate.  If you think you may have a problem,  I recommend you consult with your tax advisor.

• First-time home buyers, who are defined by the law as buyers who have not owned a principal residence during the three-year period prior to the purchase, may be eligible for up to an $8,000 tax credit.
• Existing home owners who have been residing in their principal residence for five consecutive years out of the last eight and are purchasing a home to be their principal residence (“repeat buyer”), may be eligible for up to a $6,500 tax credit.
• All U.S. citizens who file taxes are eligible to participate in the program.

 Income Limits

•  Home buyers who file as single or head-of-household taxpayers can claim the full credit ($8,000 for first -time buyers and $6,500 for repeat buyers) if their modified adjusted gross income (MAGI) is less than $125,000.
•  For married couples filing a joint return, the combined income limit is $225,000.
•  Single or head-of-household taxpayers who earn between $125,000 and $145,000, and married couples who earn between $225,000 and $245,000 are eligible to receive a partial credit.
• The credit is not available for single taxpayers whose MAGI is greater than $145,000 and married couples with a MAGI that exceeds $245,000.

 Effective Dates

• The eligibility period for the tax credit is for homes purchased after Nov. 6, 2009, and before May 1, 2010. However, home purchases subject to a binding sales contract signed by April 30, 2010, will qualify for the tax credit provided closing occurs prior to July 1, 2010.

Types of Homes that Qualify

• All homes with a purchase price of less than $800,000 qualify, including newly-constructed or resale, and single-family detached, townhomes or condominiums, provided that the home will be used as their principal residence. Vacation home and rental property purchases do NOT qualify.

Tax Credit is Refundable

      A refundable credit means that if the amount of income taxes you owe is less than the credit amount you qualify for, the government will send you a check for the difference.

       For example:

• A first-time buyer who qualifies for the full $8,000 credit who owes $5,000 in federal income taxes would pay nothing to the IRS and receive a $3,000 payment from the government. If you are due to receive a $1,000 refund, you would receive $9,000 ($1,000 plus the $8,000 first-time home buyer tax credit).

Fact Sheet Published by National Association Home Builders 11-9-09

The legislation also increases the income eligibility limits for the tax credit from $75,000 to $125,000 for individuals, and from $150,000 to $225,000 for joint filers. The cost of the home cannot exceed $800,000.

The Deed for Lease Program, which Fannie plans to roll out on Thursday, will offer borrowers who fail to complete or don’t qualify for a loan modification or other workout to deed their property to the lender in exchange for a lease. Borrowers-turned-tenants will be able to sign leases of up to 12 months and will pay market rents, which in most cases are lower than the cost of mortgage payments.”

Wall Street Journal by Nick Timiraos 11/5/09

Users can now select the “real estate” option from the “more” button on the top right of any Google Map. They’ll automatically see balloons on the maps of listings, as well as a pop-up real estate refinement panel on the left.

From there, they can refine what they are searching for by checking the boxes for renting or buying, apartment or house, as well as price range, square footage, numbers of bedrooms and bathrooms, and foreclosure listings.

Google is also inviting real estate practitioners to list homes on Google Maps.

Source: eWeek, Clint Boulton (10/30/2009)

The details:
•Income eligibility for first-time home buyers stays at $75,000 for individuals and $150,000 for couples.

•For move-up buyers, income eligibility is $125,000 for individuals and $250,000 for couples.

•There is a minimum 5 year residency requirement in their current home for move-up home buyers.

•The tax credit is the lesser of $7,290 or 10% of the purchase price.

•The credit runs from Dec. 1, 2009 to April 30, 2010, with an additional 60 day period to close escrow. (So end of April to sign contract, end of June to close escrow)

•Expect bill to be signed by Friday.

• The purchase of a principal residence will be permitted with a minimum down payment of 10 percent and minimum representative credit score of 680.
• The purchase of a second home or investment property will not be permitted.
• Cash-out refinances will not be permitted for any occupancy type.

“Within a few weeks we’ll have sufficient data to get to a conclusion on this,” housing secretary Donovan said. “It’s a question of understanding more fully the costs to the taxpayer.”

—NEW YORK (CNNMoney.com) – 10/20/2009

Following is an overview of the four key changes associated with the new requirements. 

1. Good Faith Estimate (GFE) and HUD Settlement Statements (HUD-1) forms will standardize how fees are disclosed – making it easier for borrowers to compare offers between lenders.  Specific enhancements include:

•  All lenders will be required to disclose fees in the same manner
• Loan feature information has been added to the forms
• All lender and mortgage broker fees will be combined and shown as a single amount (fees paid by lenders, property sellers or builders and fees paid outside of closing will be included in the total settlement charges)
• A reconciliation of the GFE to the HUD-1 will be required 

2. Settlement Service Provider List

• Lenders will be required to provide the borrower with a Settlement Service Provider List that includes service provider names. 
• The list must include providers available in the local market
• If the borrower selects a service provider from the list, the lender will be subject to certain fee tolerances for the charges associated with that provider
• If the borrower selects a service provider not on the list, the settlement service is not subject to the tolerance

3. Re-Disclosure Restrictions

Lenders will be bound to fees disclosed on the initial GFE, except in certain situations where there are “changed circumstances” associated with a loan.
Changed Circumstances:

• If a changed circumstance occurs, only those fees tied to the changed circumstance may change
• If the estimates within the GFE are inaccurate but no change circumstance occurs, the lender is bound to the amounts shown on the last disclosed GFE
• If a changed circumstance occurs, the lender must re-disclose within three business days after receipt of the information regarding the changed circumstance or the ability to re-disclose (and change a fee) is lost
• Lenders must retain documentation relating to the changed circumstance and fee change, if re-disclosed, for three years

The definition of “changed circumstances” include the following:

• Acts of God, war or disaster
• Changes or inaccuracies in information relating to the borrower or the transaction that was relied upon in providing the GFE
• Changes to the loan amount or estimated value of the property
• New information regarding the borrower or transaction not relied upon when the initial disclosure was provided
• A lock event (locking the rate or expiration of the lock) or a change in the deal structure requested by the borrower

4. Fee Tolerances

New restrictions will be placed on lenders regarding how and when fees disclosed on the GFE may change. Changes to settlement charges between the final GFE and HUD-1 will be defined in three categories:

    1. Charges that cannot increase at settlement:

•  Origination charges
•  Discount or premium points for a specific interest rate selected
•  Adjusted origination charges (after the interest rate is locked)
•  Transfer taxes

    2. Charges that cannot increase in the aggregate by more than 10% at settlement:

• Required settlement services that the lender selects, such as appraisal services
• Title services and lender’s title insurance (if selected by lender or if the borrower uses a company identified on the Settlement Services Provider List)
• Owner’s title insurance (if the borrower uses a company identified on the Settlement Services Provider List identified)
• Required settlement services (such as Pest Inspections) that the borrower selects from the Settlement Services Provider List
• Government recording charges

    3. Charges that can increase at settlement:

• Required settlement services that the borrower can select, if the borrower selects a service provider not listed on the Settlement Services Provider List
• Title services and lender’s title insurance, if the borrower selects a service provider not listed on the Settlement Services Provider List
• Owner’s title insurance, if the borrower selects a service provider not listed on the Settlement Services Provider List
• Initial deposit for borrower escrow account
• Daily interest charges
• Homeowners insurance