WHAT IS TAX DEDUCTIBLE IN THE LOAN PROCESS?

• 1. Home acquisition mortgage loan fees.
  When you bought your primary home, you obtained a mortgage to finance the purchase. That mortgage is called an “acquisition mortgage” because it enabled the purchase of the residence. You paid a fee to obtain that acquisition mortgage- usually called points, origination, lender fees- and some of those loan fees qualify as an itemized interest deduction. With the new guidelines, this number will be found on line 803 on your HUD-1 (Settlement Statement). HOWEVER, there is a disagreement between some mortgage companies and Tax Advisors of whether the entire amount of line 803 is tax deductible or only the origination fee and discount points (not lender fees). Service First Mortgage will be mailing you a 1098 Mortgage Interest Statement on or before January 31, 2013 with the amount of only the origination and discount points paid (not lender fees)- please consult with your Tax Advisor to see if they allow the deduction of the lender fees also.
• 2. If you bought or sold property in 2012, remember to deduct prorated real estate taxes.
  A major tax deduction many real estate buyers and sellers overlook is the prorated property tax they paid at the closing. Even if the other party remitted the payment to the tax collector, but you were charged a prorated portion of the tax bill, be sure to deduct your share on your 2012 return.
• 3. Deduct prorated mortgage interest in the year of property purchase or sale.
  Similarly, if you bought a residence and took over an existing mortgage, don’t forget to deduct your prorated interest share for the month of the sale. Your Final Closing/Settlement Statement (also called a HUD-1) shows your prorated share of the mortgage interest.
• 4. Home construction loan interest.
  If you built a new home in 2012, or are building one now, don’t forget to deduct the construction loan interest paid. This is deductible if the construction period does not exceed 24 months before occupancy of your principal residence. Note that this only applies if you paid the construction loan interest, not the builder.
• 5. With the passing of the “Fiscal Cliff” on January 1, 2013, Monthly PMI/MIP is now again tax deductible with households that have income less than $100,000. It is important again that you contact your tax advisor or visit the IRS website at www.irs.gov or http://www.irs.gov/pub/irs-pdf/p530.pdf

WHAT IS TAX DEDUCTIBLE YEARLY ON YOUR MORTGAGE?

• 1. Real estate taxes.
  A major tax deduction many real estate buyers overlook is the taxes that they paid on their home. You should use your tax statements that you received from the county/city to document these deductions.
• 2. Mortgage interest paid for the year.
  You will receive a 1099 showing the amount of interest paid on the mortgage. Make certain that you use this documentation to support your “write off” of your mortgage interest paid.
• 3. With the passing of the “Fiscal Cliff” on January 1, 2013, Monthly PMI/MIP is now again tax deductible with households that have income less than $100,000. It is important again that you contact your tax advisor or visit the IRS website at www.irs.gov or http://www.irs.gov/pub/irs-pdf/p530.pdf

IF YOU PURCHASED OR REFINANCED YOUR HOME IN 2012 AND IT IS A PRIMARY RESIDENCE

To be eligible for the homestead exemption for 2013, the property owner must be living in the home on January 1, 2013 and not already receiving the homestead exemption on another property. To qualify, a property must meet four basic criteria:

• 1. the person(s) claiming the exemption must own the property on
  January 1, 2013
• 2. the property must be designed or adapted for human residence;
• 3. the owner must use the property as a residence; and
• 4. the property must be the primary residence of the owner.

The homestead exemption is available through your local appraisal district, and reduces a portion of the property taxes assessed against your home. Best of all, this homestead exemption doesn’t cost you any money- it can only save you money! Important Note: If you get a postcard or letter offering to file your homestead for a fee, don’t pay it. The county will do it for free.

For information on this and other exemptions for which you may qualify, as well as an application to take advantage of the potential property tax savings on your home, please contact your county’s Central Appraisal District:

Important Note: We find that approximately one out of 20 transactions are not recorded properly with the county, causing the homestead exemption not to be automatically filed. Therefore, we do urge you to take a few moments to verify this information with the above phone number or website. Also note that to take advantage of the homestead exemption for this year, you must typically apply for it between January 1 and April 30, 2013.

IF YOU PURCHASED A NEWLY BUILT HOME IN 2012 THAT HAD ESTIMATED IMPROVED (Land+House) TAXES

If you purchased a home in 2012 where your improved taxes were already estimated in your payment (generally those build jobs that closed in October, November and December 2012), your payment will adjust to exact figures approximately in June or July, 2013 when the county assesses your area. This will be retroactive to January 1, 2013. If your mortgage company has not notified you of the adjustment by August 2013, contact the county at the phone numbers or website indicated in this letter.

IF YOU PURCHASED A NEWLY BUILT HOME IN 2012 THAT HAD UNIMPROVED TAXES (Land Taxes Only)

If you purchased a home in 2012 that had unimproved taxes (i.e., a build job that had land only taxes calculated), make certain that you increase your escrow payment on January 1, 2013 to cover the difference between the unimproved and improved taxes (or put that money aside in a savings account), even if your payment coupon does not yet show the change. This was discussed with you during your loan application and at closing and it is very important that you stay on top of this. As we discussed, the county generally comes out to the area between March and May 2013 and updates the status. Generally, it takes until June- August before the mortgage company is notified of the “improvement” (i.e., the house value) + the land. Therefore, starting with your January 2013 payment, it would be wise to add the approximate amount that we estimated your improved taxes to be (or you can use an estimate of 2.5% x the sale price of your home, divided by twelve months-understand that this is an estimate only) to your payment (or again, put this additional money aside in a savings account so you will have it when you get the shortage notification). Please note that your servicer may not accept additional amounts for escrow until they have received notification of the “improved” status or may accidentally apply the extra amount towards principal, so it is important that you stay on top of this and call your servicer to verify (or again, just put the extra money in savings until you get notification that the shortage is due).

IMPORTANT NOTE: In some cases, the county does not “catch” that the property is now improved and will wait fourteen to sixteen months later (or ever later) to retro back to January 1, 2013 for improved taxes. This will cause a HUGE escrow shortage. If you have not been notified by your mortgage company by August 2013, my suggestion would be to contact the county at the phone numbers or website indicated on page one of this letter.

In addition, several clients have contacted us whose current lender refunded to them the extra amount that they had paid. If you get a refund, contact your provider and let them know that you no longer qualify for a non-improved status on the property and that another escrow analysis needs to be re-calculated.

HOW DO I DISPUTE MY TAX VALUE?

If you have purchased a home in which the value on the tax rolls is more than you paid for the property (or you feel that the tax value is just too high), you may want to file a dispute. Understand that it does not mean that you will win, but it is worth the effort to do so. Most of the websites shown on page 1 of this letter have a dispute form that can be downloaded. If the website does not, then contact the tax office using the number shown. Typically, you will complete the form and send in to the tax office along with a copy of your HUD-1 (Settlement Statement) that you received at closing. Disputes must be sent in by the end of May, so time is of the essence.

Article Courtesy of

CJ Winchester 972-562-0096, cjwinchester@servicefirstmtg.com

Senior Loan Officer

NMLS# 209335

Service First Mortgage – NMLS #166487

The Davidson Group – NMLS#226135