IRS Provides Guidance on Mortgage Modifications

We came across this very detailed article regarding loan modifications and the IRS. Michael Cohn does a great job explaining what can be a difficult topic!

IRS Provides Guidance on Mortgage Modifications
Washington, D.C. (January 24, 2013)

By Michael Cohn
The Internal Revenue Service is offering guidance on mortgage principal reductions in the federal government’s program for mortgage modifications for borrowers who have fallen behind on their payments.
The guidance in Revenue Procedure 2013-16 aims to help borrowers, mortgage loan holders and loan servicers who are participating in the Principal Reduction Alternative offered through the Treasury Department’s and Department of Housing and Urban Development’s Home Affordable Modification Program, also known as HAMP-PRA.
To help financially distressed homeowners lower their monthly mortgage payments, the Treasury Department and HUD established HAMP, which is described at http://www.makinghomeaffordable.gov/. Under HAMP-PRA, the principal of the borrower’s mortgage may be reduced by a predetermined amount called the PRA Forbearance Amount if the borrower satisfies certain conditions during a trial period. The principal reduction occurs over three years.
Under the program, if the loan is in good standing on the first, second and third annual anniversaries of the effective date of the trial period, the loan servicer reduces the unpaid principal balance of the loan by one-third of the initial PRA Forbearance Amount on each anniversary date.
This means that if the borrower continues to make timely payments on the loan for three years, the entire PRA Forbearance Amount is forgiven. To encourage mortgage loan holders to participate in HAMP–PRA, the HAMP program administrator will make an incentive payment to the loan holder, known as a PRA investor incentive payment, for each of the three years in which the loan principal balance is reduced.
The guidance issued Thursday by the IRS provides that PRA investor incentive payments made by the HAMP program administrator to mortgage loan holders are treated as payments on the mortgage loans by the United States government on behalf of the borrowers. These payments are generally not taxable to the borrowers under the general welfare doctrine.
If the principal amount of a mortgage loan is reduced by an amount that exceeds the total amount of the PRA investor incentive payments made to the mortgage loan holder, the borrower may be required to include the excess amount in gross income as income from the discharge of indebtedness. However, many borrowers will qualify for an exclusion from gross income.
For example, a borrower may be eligible to exclude the discharge of indebtedness income from gross income if (1) the discharge of indebtedness occurs (in other words, the loan is modified) before Jan. 1, 2014, and the mortgage loan is qualified principal residence indebtedness, or (2) the discharge of indebtedness occurs when the borrower is insolvent. For additional exclusions that may apply, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals).
Borrowers receiving aid under the HAMP–PRA program may report any discharge of indebtedness income—whether it is included in, or excluded from, gross income—either in the year of the permanent modification of the mortgage loan or ratably over the three years in which the mortgage loan principle is reduced on the servicer’s books. Borrowers who exclude the discharge of indebtedness income must report both the amount of the income and any resulting reduction in basis or tax attributes on Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment).
The guidance issued Thursday explains that mortgage loan holders are required to file a Form 1099-C with respect to a borrower who realizes discharge of indebtedness income of $600 or more for the year in which the permanent modification of the mortgage loan occurs. This rule applies regardless of when the borrower chooses to report the income (that is, in the year of the permanent modification or one-third each year as the mortgage loan principal is reduced) and regardless of whether the borrower excludes some or all of the amount from gross income.
Penalty relief is provided for mortgage loan holders that fail to file and furnish the required Forms 1099-C on a timely basis, as long as certain requirements described in the guidance are satisfied.

Financial Planners Coming Around to Reverse Mortgages Through Re-Education

Here is a great article we came across that looks how more Financial Planners are being educated about using Reverse Mortgages as a retirement planning tool. As Reverse Mortgage specialists we are thrilled to see more people educated about the true facts!

“Take it from Dr. John Salter, who has spent many months studying reverse mortgages in depth to determine their effectiveness as a retirement planning tool: the products will be part of the long term conversation. How long it will take remains a question, but through the research of Salter in his work at Texas Tech University and now his work on an educational campaign to help planners learn the ins and outs of reverse mortgages, the landscape is going to get brighter.

In going in to seminars with the financial planning community, Salter says, one of the biggest hurdles is re-education.

“The first third of the talk is always: ‘They’re expensive.’ And that was our thought too, prior to being educated,” Salter says. His research, conducted along with financial planning guru Harold Evensky, shows the use of the Home Equity Conversion Mortgage Saver as a retirement planning game-changer. The very low upfront fees and credit line growth feature are two points on which Salter says he does much of the educating.

But by the end of a seminar, reverse mortgages are the hot topic.

“Most of the questions at the end of the talk are about reverse mortgages,” he says. “People say they learned a lot. For us, it’s about getting the education across and then up to the planner to listen and make their own judgement as to whether they use it or not.”

Contrary to some belief that communicating with financial planners should involve a conversation about how reverse mortgages add value to financial planners, Salter says it absolutely should not come up in the conversation.

“That’s just another potential way to give the industry a black eye. It will come across as ‘this is a way for you to make more money as a financial planner,’” he says. “Everyone should be required to do what’s in the client’s best interest. It’s no different from the talk about paying an originator [on the loan amount]. You should just get paid for selling.”

Among both financial planners and his own clients, Salter says the reception has been very positive once the misinformation stands corrected and the benefits are seen to outweigh the costs. Above all, however, the financial planners still stand as one of several reverse mortgage “gatekeepers,” like adult children or other potential influencers of those in the decision-making chair. 

“The thing about educating planners is, people trust their planner,” Salter says “If we say this is something we should look at, they’ll probably listen.” In addition, looking at the product as a one-size-fits-most solution is also probably not going to provide much of an outcome. 

“When it comes to your financial situation, the averages don’t work. There are rules of thumb, and they apply to people with 2.3 kids and 3.1 cars—not an individual person. It’s taking those principles, though, and applying them.”

Written by Elizabeth Ecker

Orignal article can be found here.

Is Now the Time to Buy Your First House? .

We are asked “Is now the time to buy” by clients daily. The Wall Street Journal took a look at this question and answered it both ways; yes and no. What do you think?

“It’s been a scary few years for the housing market. But at some point, the nightmare has to end (please?). Is now the time? Should first-time home buyers consider jumping into the market?

After all, home prices have fallen 34% from their 2006 peak and mortgage rates are hovering at or near record lows.

On one side are those who argue that homes are more affordable than they have been in decades, based on how much monthly income a mortgage consumes and whether owning is less costly than renting.

An uptick in home buying by investors already is under way, they say—an indication that those who wait may miss out on a good buying opportunity. 

On the other side, pessimists insist that the housing slump is far from over, and that prices will continue falling—perhaps as much as 20% or more.

Excess inventories, they say, are the problem, and some estimate it could be four years before the market absorbs all of that extra supply.

Eric Lascelles, the chief economist at money-management firm RBC Global Asset Management Inc., says this is a remarkable time to be a first-time home buyer. A. Gary Shilling, president of A. Gary Shilling & Co., an economic consulting firm in Springfield, N.J., says buying now is a terrible idea. 

Yes: It’s a Rare Opportunity

By Eric Lascelles

This could be the best time in a generation to be a first-time home buyer.

RBC Global Asset ManagementERIC LASCELLES: Investors ‘understand that this is the mother of all buyer’s markets, and won’t last forever.’

Cheery views such as this are out of vogue and easy enough to dismiss as the ravings of a serial optimist. And yet this opinion isn’t based on any heroic economic assumptions. To the contrary, it is constructed upon a more curmudgeonly foundation: In my estimation, the stock market probably underestimates Europe’s woes, U.S. economic growth may fall short of expectations, and—of greatest relevance—the overall housing market is likely still several years from normality.

Nevertheless, this is still a remarkable time to be a first-time home buyer. Affordability is the best it has been in 30 years, thanks to the combination of a 34% decline in prices since the 2006 peak and a historically low 4% average rate for a 30-year, fixed-rate mortgage.

The two affordability metrics that truly matter are how much monthly income a mortgage consumes, and whether this is less costly than renting. On the first count, I calculate that home prices are now an astonishing one-third cheaper than the historical norm. On the second, real-estate website Trulia figures that buying is cheaper than renting in 98 out of America’s 100 major markets. That is practically a clean sweep.

Rock-Bottom Rates

Investors get this. While households dither, investors ramped up their home buying by 64% across 2011. They understand that this is the mother of all buyer’s markets, and won’t last forever. The prospect of making a profit by flipping these properties is still rather distant, so they lay in wait for an eventual rebound and in the meantime make money by renting out their properties for more than the monthly mortgage payment.

The Wall Street Journal

Yet most people are sitting on their hands, frozen not by the fundamentals but by psychology. For those able to overcome their phobias, a blazing contrarian opportunity exists.

Here’s a dirty little secret about recessions: They aren’t bad for everyone. They can even be downright beneficial if played right. Roughly one in 30 Americans is unemployed as a result of the financial crisis. The rest have sidestepped this blow, and what’s more have been given the gift of extraordinarily low interest rates.

The long arc of history reveals no other sustained period of real interest rates this low. It is mind-bending that American home buyers can now borrow for 30 years at a cheaper rate than either General Electric Co. or the Australian government. And unlike their counterparts in most other countries, Americans can lock in today’s borrowing costs for the full life of their mortgage, enjoying perfect certainty about future payments.

The finances of most households have had a rough go over the past several years. Many were ravaged by financial markets. Others are trapped beneath an illiquid and possibly underwater home.

However, the situation for first-time home buyers is different. They largely skated through the past few years. They weren’t yet in the housing market, and so escaped that devastating hit. And with an average age of 30, they hadn’t yet accumulated sufficient assets to truly suffer when markets fell.

A significant part of this cohort’s savings has been generated in just the past five years, and while markets have been enormously volatile over that period, a monthly savings plan would have generated a 26% return in equities and 22% in bonds. First-time home buyers may not be so hard up for their down payment after all.

Heck of a Deal

But is it wise to take the plunge in this era of economic uncertainty? While the economy remains very fragile, it has become less so since the fall. Still, say the worst happens—you buy a home and then immediately lose your job: The foreclosure backlog provides breathing room, and there is ample evidence that the newly unemployed are regarded preferentially by employers over the poor souls in long-term unemployment purgatory.

Associated Press

Do home prices still have room to fall? Or is now the time to buy?

Could home prices fall further? Yes they could. The home-inventory overhang is still quite large and credit availability remains poor. Home prices are unlikely to bloom in earnest for quite some time. But inventories are finally shrinking and mortgage availability has at least stabilized, and if you wind up buying a house on sale for one-third off its fair value instead of discounted by 40%, you still got one heck of a deal.

Arguably, the bigger risk is rising interest rates, which could erode affordability and snuff out this buying opportunity.

What if you are presently unemployed, or a grim-faced banker has rejected your mortgage application? Alas, your decision has been made for you. But for viable first-time home buyers—those with a stable job and a preapproved mortgage—this opportunity is ripe for the picking. Investors are already eating your lunch.

Mr. Lascelles is the chief economist at money-management firm RBC Global Asset Management Inc. He can be reached at reports@wsj.com.  

No: The Fall Isn’t Over

By A. Gary Shilling

Don’t buy your first house now unless you’re willing to lose 20% of its market value in the next several years. Maybe more.

 A. GARY SHILLING: ‘Buying a house now would be a disastrous investment if prices fall another 20% or more.’

It will take a 22% drop to return median single-family house prices to the trend identified by Robert Shiller of Yale University that stretches back to the 1890s and prevailed until the housing bubble began. (It adjusts for inflation and the tendency of houses to get bigger over time.) And corrections usually overshoot on the downside just as bubbles do on the upside.

The problem is excess inventories. They are the mortal enemy of prices, and we’ve calculated an excess of two million housing units, over and above normal working levels of inventories of new and existing homes. That is huge, considering that before the housing market collapsed, about 1.5 million new homes were being built annually, a figure that shrank to 568,000 in February. At current rates of housing starts and household formation, it will take four years to work off the excess inventory, plenty of time for those surplus houses to drag down prices.

Excess inventories, of course, were spawned by the earlier housing boom, which was driven by a host of factors—including low interest rates, almost nonexistent lending standards and government attempts to put even those who couldn’t afford chicken coops into four-bedroom houses. But most of all, the housing bubble was driven by the conviction that home prices never fall—they hadn’t on a nationwide basis since the 1930s—so any bad purchase would eventually be reversed.

As such, the homeownership rate expanded to 69.3% by late 2004, from the earlier norm of 64%. But now, homeownership has retreated to 66% as foreclosures mount, lending standards stay tight and many worry about their jobs and/or the responsibilities of homeownership. Everyone knows that house prices can and do fall.

Pushing Up Inventories

The optimists will tell you that home inventories have stabilized, but their thinking is flawed.

Our estimate of two million excess homes takes into account those on the market as well as hidden inventories, such as foreclosed homes not yet listed for sale and those withdrawn from the market because owners couldn’t stomach the bids they received. A U.S. Census Bureau category that measures such hidden inventories has leapt by one million units since 2006.

Additionally, our inventory estimate doesn’t even include future foreclosures, some five million of which are waiting in the wings. The 49% drop in new foreclosures since the second quarter of 2009 is a mirage, and was partly due to the Obama administration pressuring mortgage lenders to try to modify troubled mortgages to keep people in their homes. (They were largely unsuccessful.) Then lenders refrained from foreclosing to avoid even more bad PR during the robo-signing flap that highlighted inadequate foreclosure procedures.

Now that mortgage servicers have reached a $25 billion settlement with Washington and state attorneys general, foreclosures are likely to roar back. That likely will trigger the additional price decline, since the National Association of Realtors says foreclosed houses sell at a 19% discount to other listings, and sizable sales of real estate owned by lenders drag down the entire market. The total peak-to-trough decline in single-family house prices then would be more than 50%.

If those foreclosed out of their abodes move to rentals, they’re occupying other housing units, so there is no change in overall inventories. But if they double up or move in with their parents—as statistics show they have been doing—even more excess inventory results.

A Disastrous Investment?

Sure, the always optimistic National Association of Realtors tells you that based on mortgage rates, incomes and house prices, single-family houses have never been more affordable. But according to their index, that was also true in December 2008, and prices have fallen 9.2% since then. Ugh! Home prices may have dropped 34% since the peak in early 2006, but that doesn’t make them cheap if prices continue to decline.

 Waiting for housing prices to rebound? Don’t hold your breath… so says SmartMoney’s Jack Hough who pulls up a chair on Mean Street and points out the truth in numbers. Photo: Getty Images.

Many have realized that an abode and a great investment are no longer combined in a single-family house. Instead of straining to buy a house, young families should rent until their kids are old enough to really need a single-family home.

Yes, apartment rental rates are rising and vacancies are falling, but by past standards, house prices remain high relative to rents. But even if homeownership was cheaper than renting, as some claim, buying a house now would be a disastrous investment if prices fall another 20% or more.

The homeownership dream of an appreciating asset and huge ATM has been replaced by the nightmare of a liability that is expensive to own and falling in value. Act accordingly.

Mr. Shilling is president of A. Gary Shilling & Co., an economic consulting firm in Springfield, N.J. He can be reached at reports@wsj.com.”

 

Full article:  http://online.wsj.com/article/SB10001424052702304299304577348083297932466.html#mjDropdown

FHA To Maintain Current HECM Limit

Good news for now! The U.S. Department of Housing and Urban Development just published Mortgagee Letter 2011-29, which maintains the current HECM loan limit of $625,500 through December 31, 2011. That means that borrowers who are planning on doing a HECM Reverse Mortgage in 2011 and have a home with a higher value may have more options. The end of this year we should expect to see what 2012 has in store for us!

The $625,500 limit applies to all HECMs made in the continental United States, as well as high-cost areas, such as Hawaii, Alaska, Guam and the U.S. Virgin Islands.

To see the full Mortgage Letter Click HERE.

For more information about Reverse Mortgage please feel free to call or email one of our Reverse Mortgage Specialists Tracy Kline,  Dennis Harter or  check us out online!

Sequoia Pacific Mortgage Supports the 2nd Annual Seniors In. Chili-Fest

Ken Ogden and Tracy Kline joined many other Sonoma County residence in support of the new senior center being built in Santa Rosa at the 2nd Annual Seniors, Inc. Chili-Fest on Sunday, July 17, 2011. There was wonderful Musical Entertainment; Information on Senior Services; Giveaways; Face Painting; and Sampling of the Best Chili in Santa Rosa!

To learn more about the Sequoia Pacific Mortgage Team check out our Website!

Tracy Kline and Ken Odgen Supporting the New Senior Center

More About the Senior Center:

The senior center is far exceeded by the energy and active contribution of the many individuals, young and old alike, who have taken what was a mere figment of a concept to the stage of an active and full-blown process that will result in a new facility geared to seniors. A place where they can meet and pass on their knowledge, experience and skills to help others, as well as themselves, continue to grow in all aspects of their lives.

During the spring 2002 a group of interested seniors approached the City of Santa Rosa to discuss mutually beneficial interests in replacing the current Santa Rosa Senior Center with a new facility that would provide adequate and modern facilities designed to meet the current and future needs of the senior population living within our geographical area.

Since our early beginnings the City has unanimously supported our Mission by modifying the General Plan to include a specific location at the Finley Center at the corner of Stony Point/Marlow Roads and College Avenue on which the new center will be built. Additionally, they have agreed to accept this new building, paid for by community donations, as a gift from Seniors, Inc. and to provide ongoing staffing and maintenance of the facility.

At this time, Seniors, Inc. is actively raising funds to complete the final phase (phase three) of the new Senior Wing at Finley Community Center in Santa Rosa. The required figure is $1.1 million to complete the interior of the 25,000-square-foot addition. Previous funding for Phase 1 & 2 came from private donations, park development fees, and corporate sponsors.

In December of 2004, Santa Rosa’s City Council Resolution Number 26146 passed and Seniors, Inc. signed an agreement with Simons & Brecht to act as the design and construction management firm for the new senior wing project. Prior to the passage of the Resolution, Mr. Larry Simons, a well known local architect, committed to donate $500,000 from the Larry & Gudrun Simons Fund to Seniors, Inc. to fund the creation needed to complete the senior wing addition to the Finley Center and to fund the retention of a construction management firm.

To show your support for the new senior center contact Seniors Inc.

Tracy Kline of Sequoia Pacific Helps Raise Funds for Sonoma County Youth

This years event was a great success! 70 people joined us for a fun filled night of great food, wine and fantastic entertainment! A big thank you to all who showed up and supported this great cause. Thanks to the young people who gave us such great entertainment, Thank you also to those generous people and businesses who donated to our silent auction, and a final BIG Thanks You to the volunteers who made the entire event happen!

This event could not have even gotten off the ground without those people who went over and beyond to donate their time and energy. The SRGC Staff, The Optional Gymnastic Team, The Interact Club and a few hard working Rotarians including Tracy Kline, Kris Lepore, Darcie Fellow and Casey Williams…plus the many rotarians that came out in support of this great event! You ALL were amazing and I am forever thankful for your generosity in time, sweat and contributions! The event successes and credit goes to you!

One more big round of thank you’s to our entertainment…….

SRGC Optional Team, Montgomery Cheer and Dance Team, SREC Rec. Cheer Team, Alina Goodrum, Leigh McAllister, Irene Gomez, Luke Woodruf and Jenna Bates!!!

These young adults were absolutely amazing! The amount of talent inside each one of them is mind blowing! We are very thankful to them for sharing it with us! The night was truly about “Showcasing The Youth In Our Community.”

The final number, of the amount of money raised is roughly $4,500! What a great event for some amazing kids! 

Learn more about the Sequoia Pacific Mortgage Team check out our Website!

CoreLogic® Home Price Index Shows Second Consecutive Month-Over-Month Increase

Here is a some good news for home prices!

CoreLogic® Home Price Index Shows Second
Consecutive Month-Over-Month Increase

Home Prices Down 7.4 Percent

Home prices in the U.S. increased by 0.8 percent in May 2011 compared to April 2011, the second consecutive month-over-month increase. On a year-over-year basis, home prices declined by 7.4 percent in May 2011 compared to May 2010 after declining by 6.7 percent* in April 2011 compared to April 2010. Excluding distressed sales, year-over-year prices declined by 0.4 percent in May 2011 compared to May 2010 and by 0.8* percent in April 2011 compared to April 2010. Distressed sales include short sales and real estate owned (REO) transactions.

Highlights as of May 2011

• Including distressed sales, the five states with the highest appreciation were: New York (+4.4 percent), Vermont (+3.9 percent), North Dakota (+3.8 percent), Hawaii (+2.5 percent) and the District of Columbia (+0.5 percent).
• Including distressed sales, the five states with the greatest depreciation were: Idaho (-16.4 percent), Michigan (-12.9 percent), Arizona (-12.1 percent), Illinois (-11.8 percent) and Nevada (-11.6 percent).
• Excluding distressed sales, the five states with the highest appreciation were: West Virginia (+10.1 percent), Hawaii (+9.0 percent), North Dakota (+8.6 percent), Vermont (+6.3 percent) and New York (+6.1 percent).
• Excluding distressed sales, the five states with the greatest depreciation were: Nevada (-9.8 percent), Idaho (-7.9 percent), Arizona (-7.0 percent), South Dakota (-6.1 percent) and Minnesota (-5.0 percent).
• Including distressed transactions, the peak-to-current change in the national HPI (from April 2006 to May 2011) was -32.7 percent. Excluding distressed transactions, the peak-to-current change in the HPI for the same period was -21.2 percent.
• Of the top 100 Core Based Statistical Areas (CBSAs) measured by population, 91* are showing year-over-year declines in May, unchanged from April.

“Two consecutive months of month-over-month growth and continued relative strength in the non-distressed market segment are positive seasonal signs in the housing market. Slowly declining shadow inventory and stabilized negative equity levels are also positive signs.” said Mark Fleming, chief economist with CoreLogic. “Nonetheless, the fragile economic recovery is still critical to the long-term recovery in the housing market.”

*April data was revised. Revisions with public records data are standard, and to ensure accuracy, CoreLogic incorporates the newly released public data to provide updated results.

New visitors: Register here to download the full May HPI data report.

Returning visitors: Click here to download the full May HPI data report.

Most Current, Most Comprehensive HPI Data

CoreLogic HPI monthly updates offer the quickest HPI collateral valuation information in the industry—complete HPI datasets five weeks after month’s end—and leverage the full authority of CoreLogic’s industry-leading real estate databases, covering 6,521 Zip codes, 609 Core Based Statistical Areas (CBSAs), and 1,126 counties in all 50 states and the District of Columbia.

CoreLogic HPI covers 6,521 ZIP codes, 609 Core Based Statistical Areas (CBSA) and 1,126 counties in all 50 states and the District of Columbia.

HPI for the Country’s Largest Core Based Statistical Areas (CBSAs):

	May 2011 12-Month HPI
	Change by CBSA
CBSA	Single Family	Single Family Excluding Distressed
Chicago-Joliet-Naperville IL	-12.8%	-3.8%
Phoenix-Mesa-Glendale, AZ	-11.4%	-7.3%
Atlanta-Sandy Springs-Marietta, GA	-6.8%	-0.7%
Los Angeles-Long Beach-Glendale, CA	-5.3%	2.7%
Riverside-San Bernardino-Ontario, CA	-5.1%	-2.2%
Houston-Sugar Land-Baytown, TX	-3.5%	5.3%
Philadelphia PA	-3.3%	-1.2%
Washington-Arlington-Alexandria, DC-VA-MD-WV	-1.5%	3.9%
Dallas-Plano-Irving, TX	-0.6%	5.8%
New York-White Plains-Wayne, NY-NJ	3.0%	4.6%

Source: CoreLogic

For more information please feel free to call one of our loan officers here at Sequoia Pacific Mortgage Company 707-575-3220

Annual Outlook for Local Contruction Sector

Here is another new annual outlook for the local construction sector, prepared by Moody’s Analytics for the Economic Development Board.

•                 This forecast indicates that the construction industry inSonomaCountyis beginning to show some indicators of recovery, including increasing employment, and will help lead the county economy out of the recession.

• Improving demographic trends will bode well for housing demand. The population has been increasing and is expected to continue to increase. The population of those aged 25 to 39, the prime home buying years, is stable for the first time in decades.

• SonomaCountystill has a large share of homes in the foreclosure processes, and distress sales and bank auctions will challenge pricing. Existing-home prices are expected to begin rising in 2012 and at a faster pace than that of the nation.

Here’s the link:

Construction Iindustry Insider 2011

Local Economy Update

Here’s the new  forecast for the local economy, provided by Moody’s to the Economic Development  Board.

It’s the most optimistic in literally years, with technology, construction, and tourism slated to lead the economy out of the recession. Wine will be growing, too.

It’s a good read; here’s the link:

local_economic_report_2011_spring

Reverse Mortgage Tax Deduction

This was a very informative article we thought we would share!

Tax tips: Reverse mortgage deductions

 Raphael Tulino is the spokesman for the IRS in the Orange County/San Diego area, and he’s volunteered to answer your tax questions …

Q. I recently (in 2010) went through a reverse mortgage. There were a lot of closing costs including a new home appraisal. I know I cannot take a deduction for interest, but can I deduct any of these various closing costs off my income taxes?
A. A reverse mortgage is, in essence, a loan advance and not income, so the amount you receive from it is not taxable. Also you are correct with the interest deduction. However, IRS Publication 936, Home Mortgage Interest Deduction says, “Any interest (including original issue discount) accrued on a reverse mortgage is not deducible until you actually pay it, which is usually when you pay off the loan in full.”

As for your question, closing costs are generally not deductible. You are normally allowed to deduct home mortgage interest and (sometimes/often) points from a qualified home loan. For more on that, see Page 10 in IRS Publication 530, Tax Information for Homeowners.  Read the section under “Items not added to basis and not deductible” on Page 10 for specifics on the various costs involved .