Overnight real estate rates slide

30-year fixed rate at 5.34%; 10-year Treasury up at 4.3%
Long-term mortgage interest rates were lower on Thursday, and the benchmark 10-year Treasury bond yield jumped to 4.3 percent.
The 30-year fixed-rate average dipped to 5.34 percent, and the 15-year fixed-rate edged down to 4.95 percent. The 1-year adjustable was down at 3.71 percent.
The 30-year Treasury bond yield climbed to 4.64 percent.
Rates are current as of 7:15 p.m. Eastern Standard Time.
Mortgage rate figures are according to Bankrate.com, which publishes nightly averages based on its survey of 4,000 banks in 50 states. Points on these mortgages range from zero to 3.5.
In other economic news, the Dow Jones Industrial Average gained 206.24 points, or 2.06 percent, finishing at 10,218.6. The Nasdaq rose 48.65 points, or 2.54 percent, closing at 1,962.41.
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California: Agency Boosts Ceiling for Financing

The ever-soaring cost of residential housing in California has forced the state's affordable housing agency to make yet another round of increases to the maximum price of homes it will finance for first-time buyers. Over the last year, the California Housing Finance Agency has boosted the price ceiling an average of more than 20 percent for homes eligible for below-market interest rate loans and other assistance programs. The latest upward revision leaves Southern California with some of the most dramatic increases over the last 12 months. Qualified buyers now can purchase a home up to $582,000, a 31 percent spike, in Ventura County; $453,000, or 28 percent more, in Riverside County; and $559,000, or 22 percent more, in Los Angeles County. Increases totaling 11 percent established maximum prices of $643,000 in San Francisco, $588,000 in San Diego County, and $453,000 in Sacramento County. Theresa Parker, the agency’s executive director, says the new price limits, which are raised periodically during the year, are the highest possible allowed by federal guidelines. “It’s very exciting to be able to increase these sales limits and provide more opportunities for first-time buyers in our state,” Parker says. “Owning a home is the dream of many Californians, and these revised limits add strength to CalHFA’s programs and will help bring that dream closer for many families."
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Disappointing economy pushes real estate rates lower

30-year fixed drops to 5.8% in Freddie Mac survey
Mortgage rates fell for the third consecutive week as fears of an economic slowdown increased, according to surveys conducted by Freddie Mac and Bankrate.

In Freddie Mac's survey, the 30-year fixed-rate mortgage averaged 5.8 percent for the week ended today, down from last week when it averaged 5.91 percent. The average for the 15-year fixed-rate mortgage this week is 5.36 percent, down from last week when it averaged 5.46 percent. Points on both the 30- and 15-year averaged 0.5.

The five-year, Treasury-indexed, hybrid adjustable-rate mortgage averaged 5.22 percent this week, with an average 0.6 points, down from 5.31 last week. The one-year Treasury-indexed adjustable-rate mortgage averaged 4.26 percent this week, with an average 0.6 point, down from last week when it averaged 4.3 percent.

Interest rates in general have been oscillating with every piece of economic news released lately, said Frank Nothaft, vice president and chief economist. The market is switching its focus between the strength of the economy and the fear of inflation. Thus, although mortgage rates have dropped the last two weeks, that doesn’t necessarily indicate a trend.

That said, April’s mortgage rates are currently lower than those of the previous month. And lower mortgage rates will undoubtedly have a positive influence on housing activity.

In Bankrate.com's weekly survey, mortgage rates fell to the lowest point in two months, and have now dropped four weeks in a row. The average 30-year fixed-rate mortgage dropped from 5.95 percent to 5.86 percent, Bank rate.com reported. The 30-year fixed-rate mortgages in this week's survey had an average of 0.3 discount and origination points.

The 15-year fixed-rate mortgage, popular for refinancing, declined by an even larger margin, falling from 5.55 percent to 5.42 percent. Meanwhile, the average rate for the jumbo 30-year fixed-rate mortgage retreated from 6.13 percent to 6.03 percent. Adjustable-rate mortgages dropped also, with the average 5/1 adjustable-rate mortgage falling from 5.41 percent to 5.31 percent, while the one-year ARM retreated from 4.69 percent to 4.61 percent.

Disappointing economic data spurred another decline in mortgage rates, according to Bankrate.com. Lackluster retail sales and a nearly 18 percent drop in housing starts fueled fears of a broader economic slowdown. Investors responded by moving cash into long-term government and mortgage-backed bonds, pushing yields lower. Mortgage rates are closely related to yields on long-term bonds, which fluctuate with changing outlooks for inflation and the economy.

The following is a sampling of Bankrate's average 30-year-mortgage interest rates this week in some U.S. metropolitan areas.

New York: 5.88 percent with 0.15 point
Los Angeles: 5.88 percent with 0.43 point
Chicago: 5.92 percent with 0.03 point
San Francisco: 5.89 percent with 0.24 point
Philadelphia: 5.84 percent with 0.22 point
Detroit: 5.82 percent with 0.25 point
Boston: 5.94 percent with 0.1 point
Houston: 5.81 percent with 0.6 point
Dallas: 5.87 percent with 0.43 point
Washington, D.C.: 5.76 percent with 0.59 point
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No easy way to avoid tax on profitable vacation-home sale

Principal-residence restrictions get in the way
By: Robert J. Bruss: Inman News
DEAR BOB: After about 14 years of very enjoyable vacation-home ownership, my wife and I have concluded it is time to sell. Market values have greatly appreciated in the vicinity. We can earn at least a $300,000 net profit if we sell now. Realty agents are constantly hounding us to sell. But we only paid about $46,000 so we will have a tremendous tax to pay. Because this is not our principal residence, nor do we rent it to tenants when we aren't using it, how can we avoid tax when we sell? – Wayne T.

DEAR WAYNE: There are several possibilities. One is for you and your wife to move into the vacation home full-time as your principal residence for at least 24 of the 60 months before its sale. Then you can qualify for up to $500,000 principal-residence-sale tax-free profits.

If that doesn't interest you, another alternative is to rent your vacation home before its sale, perhaps on a lease with option to purchase. Then you can sell your rental property and qualify for an Internal Revenue Code 1031 tax-deferred exchange for another qualifying rental property of equal or greater cost and equity.

That's it. If you don't like either of those alternatives, you'll just have to resign yourselves to paying the current 15 percent federal capital gains tax rate, plus any applicable state tax where your vacation home is located. For full details, please consult your tax adviser.

$500,000 PRINCIPAL-RESIDENCE-SALE TAX BREAK CAN BE USED AGAIN

DEAR BOB: We plan to sell our home and use the $500,000 tax exemption that you often discuss. When we purchase our next home, can we take that exemption again after five years? – Leslie R.

DEAR LESLIE: Yes. But you don't have to wait five years to use the Internal Revenue Code 121 principal residence sale tax exemption again.
This wonderful tax break can be used over and over again without limit. However, it cannot be used more frequently than every 24 months.

After you buy your next home, if you have owned and occupied it at least 24 months before its sale, you can use your principal residence sale exemption again to shelter up to $250,000 (up to $500,000 for a qualified married couple filing a joint tax return) tax-free profits. For full details, please consult your tax adviser.

CARRY OVER UNDEDUCTED "SUSPENDED" REALTY TAX LOSS

DEAR BOB: On my recently filed 2004 income tax returns, I had about $34,000 tax loss from my rental property. But the tax law allows me to only deduct up to $25,000 of that loss against my ordinary taxable income from my job. Do I lose the undeducted $9,000 of my tax loss? – Martha W.

DEAR MARTHA: No. You have a "suspended" tax loss. That means your excess $9,000 tax loss from your rental property, probably due to the wonderful non-cash tax deduction for depreciation wear, tear, and obsolescence, must be saved for use in future tax years.

Keep careful track of your suspended, unused tax losses from your rental property. You can deduct such suspended losses in future tax years. Or, as happened to me when I sold some of my rental properties, I used my suspended tax losses to avoid tax on my capital gains. For full details, please consult your tax adviser.

The new Robert Bruss special report "How to Get Started Investing to Earn Big Real Estate Profits" is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at http://www.bobbruss.com/. Questions for this column are welcome at either address.

For more information on Bob Bruss publications, visit his Real Estate Center.
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Savvy real estate buyers crowd path to tax-free profits

Using home-sale exemption to its full potential
By Robert J. Bruss: Inman News
Internal Revenue Code 121, the principal-residence-sale tax exemption, can be used over and over again, without limit, but not more frequently than once every 24 months. Some savvy home buyers have even created a tax-free business by buying a fixer-upper house, living in it at least 24 months, meanwhile renovating it to increase its market value.

If you do this over and over, you will soon become known as a tax-free "serial home seller!" A single person can qualify for up to $250,000 tax-free profits, but a married couple (or two qualified, unmarried co-owner residents) can qualify for up to $500,000 tax-exempt profits every 24 months. The big drawback, however, is living in the home while it is being renovated!

TESTS FOR DETERMINING YOUR PRINCIPAL RESIDENCE. Your IRC 121 primary or principal residence (the IRS calls it your "main home") is not always clear-cut, especially if you own two (or more) homes where you divided your occupancy time.

IRS regulations say your principal residence is "the property that the taxpayer uses a majority of the time during the year will ordinarily be considered the taxpayer's principal residence." Short absences, such as for a vacation, count as occupancy time, such as spending two months in Europe. But a one-year absence from your home won't count as occupancy time (unless you meet the medical care exception explained earlier).

The latest IRS regulations also say: "In addition to the taxpayer's use of the property, relevant facts in determining a taxpayer's principal residence include, but are not limited to the: (1) taxpayer's place of employment; (2) principal place of abode of the taxpayer's family members; (3) address listed on the taxpayer's federal and state income tax returns and driver's license, automobile registration, and voter registration card; (4) location of the taxpayer's banks; and (5) location of religious organizations and recreational clubs with which the taxpayer is affiliated."

A major drawback of these IRS regulations is they might indicate a taxpayer's principal residence is at one home, but the taxpayer spends the majority of time at the other home.

EXAMPLE: Suppose a retired couple spends seven months of each year in their Minnesota condo and five months at their Florida home. The Minnesota home looks like their principal residence based on the majority of time test. However, if the couple files their income tax returns from Florida (which has no state income tax), vote in Florida, have a Florida homestead exemption, have their auto and driver's licenses in Florida, and have their bank accounts with a Florida bank, now it looks like the Florida residence is their principal residence. Based on the minimum 24-month occupancy test within the last five years before sale, either home meets that test.

PRINCIPAL RESIDENCE SALE EXEMPTION CAN INCLUDE PROFIT FROM THE SALE OF AN ADJOINING VACANT LOT. If you separately sell a vacant lot next to your principal residence, and if you sell it within two years before or after selling your principal residence, the lot sale capital gain can be included with the home-sale tax exemption. Of course, if you sell the lot to the buyer of your principal residence, the lot sale profit also clearly qualifies for the exemption.

However, this lot sale exemption only includes a "reasonable amount" of land adjoining your primary residence. This tax exemption cannot be used, for example, to make a tax-free farm sale just because the farm adjoins your home. Only the market value of the residence plus a reasonable amount of adjoining land can qualify.

NO ALLOCATION OF BASIS IS REQUIRED FOR HOME BUSINESS USE UNLESS THAT BUSINESS OPERATES FROM A SEPARATE BUILDING. If you operate a home business from your residence, when selling that property it used to be necessary to, in essence, make two sales – one of your principal residence and the other of your "business area." Fortunately, that is no longer necessary.

Tax advisers used to even suggest that you not claim any home business tax deductions for at least two years before selling your home – again, that is no longer necessary unless your home business is operated from a separate building on your residence property. Then an allocation to the value of the business building is required.

However, home sellers who claimed depreciation deductions for the business area of their residence after May 6, 1997, (the effective date of IRC 121) will have that depreciation "recaptured" (that means taxed!) upon home sale at a special 25 percent federal depreciation recapture tax rate. Home business depreciation deducted before that date is not recaptured and is taxed as long-term capital gain, subject to the $250,000 or $500,000 exemption.

IF YOU OWNED AND/OR OCCUPIED YOUR PRINCIPAL RESIDENCE LESS THAN 24 MONTHS WITHIN THE FIVE YEARS BEFORE ITS SALE, YOU MAY BE ENTITLED TO A PARTIAL $250,000 OR $500,000 EXEMPTION. Internal Revenue Code 121 pas passed by Congress in 1997 included three provisions for partial use of the $250,000/$500,000 exemptions: (1) change of employment location qualifying for the moving expense deduction, (2) health reasons, and (3) unforeseen circumstances. Those first two exceptions didn't cause much confusion. But the third exception, even after clarifying the new IRS regulations, still causes confusion. Let's take a look at each exception:

Change of employment location. If the home seller qualifies for the moving expense tax deduction, then that seller can also qualify for a partial IRC 121 exemption if the principal residence was owned and/or occupied less than the required 24 months during the five years before the home sale. Briefly, the moving expense deduction requires the taxpayer's new work location to be at least 50 miles further from the old principal residence than was the old work site.

EXAMPLE: Suppose your old principal residence was four miles from your old job location. You then changed job locations (whether with the same employer, a new employer, or you became self-employed doesn't matter). To qualify for the residential moving cost tax deduction, you new job location must be at least 50 miles further from your old home than was your old job site. In this example, that means your new work location would have to be at least 54 miles (4 + 50) to qualify. If you meet this test, you then also can claim the partial home-sale tax exemption.


The moving cost tax deduction also has work time tests, such as remaining employed at least 39 weeks during the year after the move in the vicinity of the new job location. For self-employed individuals, the minimum qualifying work time test is 78 weeks during the 104 weeks after the job location change. Either spouse can qualify, but "tacking" work time of one spouse unto another spouse's work time is not allowed.

Health reasons. Just because you think you will feel better living in Arizona rather than Alaska is not a sufficient health reason for selling your Alaska home and claiming a partial IRC 121 tax exemption! Qualified health reasons must usually be based on a physician's recommendation to the homeowner or a family member.

Health purposes can include (1) to obtain, provide, or facilitate the diagnosis, cure, mitigation, or treatment of disease, illness, or injury of a qualified individual, and (2) need to move to care for a family member. But a home sale that is merely beneficial to the general health or well being of the individual does not qualify for the partial exemption.

Unforeseen circumstances. IRS regulations now include several "safe harbor" principal residence sale reasons, which the IRS will not challenge. The first five reasons must involve the taxpayer, spouse, co-owner, or member of the taxpayer's household. In addition, the IRS Commissioner has authority to approve a partial exemption for other unforeseen circumstances. The "safe harbor" unforeseen circumstances are:

(1) Death in the immediate family; (2) divorce or legal separation; (3) becoming eligible for unemployment compensation; (4) change in employment leaving the taxpayer unable to pay the mortgage or reasonable basic living expenses; (5) multiple births resulting from the same pregnancy; (6) damage to the residence from a natural or man-made disaster, or an act of war or terrorism; and (7) condemnation, seizure or other involuntary conversion of the property.

If you qualify, calculate the partial IRC 121 $250,000 or $500,000 percentage exemption based on your number of months of occupancy. If you qualify for a partial exemption, as explained above, it's easy to calculate your percentage exemption. The denominator of the fraction will always be 24 (months). The numerator will be the number of months you occupied your principal residence before moving out for one of the above reasons.

EXAMPLE: Suppose you owned and lived in your principal residence for 16 months before receiving a job location transfer notice from your employer, which qualifies for the moving-expense tax deduction. Your fraction will be 16/24 or two-thirds, which is 66.7 percent of the $250,000 or $500,000 exemption for which you are otherwise qualified. In this example, you therefore can claim up to $166,750 or $333,500 tax-free, home-sale profit, depending on whether you are single or married, meeting the partial-occupancy time test.
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Los Angeles County Continues Reign as Most Populous

Of the 100 fastest-growing counties between July 1, 2003, and July 1, 2004, 60 were located in the South, 23 in the West and 17 in the Midwest, according to a recent report by the U.S. Census Bureau. While Flager, Fla., located along the Atlantic coast, was the nation's fastest-growing county with a 10.1 percent population increase between 2003 and 2004, Riverside (5.0 percent), Placer (4.6 percent) and Madera (3.9 percent) counties, all located in California, were also among the top 100 fastest-growing counties. With 9.94 million residents, Los Angeles County continues to be the most populous county in the nation, according to the report. Orange and San Diego counties are also among the country's top 10 largest counties, with 2.99 million residents and 2.93 million residents, respectively.
Full Article: from U.S. Census Bureau

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U.S. Housing Starts Dip in March

The seasonally adjusted annual rate for privately owned housing starts dropped sharply in March, falling 17.6 percent from February to 1.84 million units, according to a report released by the U.S. Dept. of Housing and Urban Development. Single-family housing starts declined 14.4 percent to a rate of 1.54 million units, while starts for buildings with five or more units reached 258,000. The number of building permits issued, which can be an indicator of future building activity, decreased 4.0 percent to a seasonally adjusted annual rate of 2.02 million permits.
All four U.S. regions posted decreases in the number of new privately owned housing units started in March when compared with the previous month. In the Midwest, housing starts fell 29.3 percent, followed by an 18 percent decrease in the South. In the West and Northeast, housing starts dropped 12.7 percent and 3.6 percent, respectively.
Full Article: New Residential Construction in March 2005

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Five California Cities Improve Air Quality

Five of the top 10 metropolitan areas with the largest improvements in air quality over a 12-year period are located in California, according to the 10th Annual Index of Leading Environmental Indicators, reported by the Pacific Research Institute. The list is based on the Environmental Protection Agency's Air Quality Index (AQI), which rates air quality on a scale of one to 500. AQI readings above 100 identify unhealthy air quality in a specific region. The following California cities are among the top 10 U.S. cities with the largest reduction in the number of days with AQI readings above 100: Los Angeles-Long Beach, San Diego, Riverside-San Bernardino, Orange County and Sacramento. Air quality in these areas improved an average of 59 percent during 1992-2003 when compared with the previous decade.
Full Article: Index of Leading Environmental Indicators 2005
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California: Many Homeowners Head to Retirement

The largest share of Californians who sold their homes in 2004—fortunately for them during one of the hottest real estate markets in the country—cashed out and headed off to retirement. The CALIFORNIA ASSOCIATION OF REALTORS® annual “Profile of Homebuyers and Sellers” reports that 18.4 percent of all sellers said they were retiring or moving to a retirement facility. In addition to retirees, the association says 15 percent of sellers sold because they wanted a larger home, while 13 percent desired a better location. Three out of every four sellers was a baby boomer—the huge generation of graying Americans who are approximately 40 to 60 years old—and the typical seller was 50 years old. Last year’s sellers fared well. The association profile says that sellers received record net gains of $204,386 last year, a 36.3 percent jump from $150,000 in 2003. Seventy-five percent of the state’s sellers planned to purchase another property, the profile indicates. Six out of 10 said they intend to buy a new home outside the county in which they previously lived, and an increasing number of baby boomers said they want to move to Arizona.
The association says the typical seller earned $100,000 annually. More than half were married—54.7 percent—and 31.3 percent were singles. Another 8.9 percent of sellers included two or more related or unrelated individuals while “others” constituted the remainder of sellers.
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Reverse mortgage ignorance a growing trend

Many seniors unaware of home's long-term-care-financing potential
The National Council on the Aging (NCOA) has published a report showing that reverse mortgages can help an estimated 13.2 million elderly homeowners pay for long-term care, allowing many to remain independent in their homes longer..

Of the 13.2 million eligible households, an estimated 9.8 million currently have an impairment that can make it hard to live at home, according to the study, "Use Your Home to Stay at Home: Expanding the Use of Reverse Mortgages to Pay for Long-Term Care."

A reverse mortgage is a loan that enables homeowners 62 years or older to borrow against the equity in their home, without having to sell their home, give up title, or take on a new monthly mortgage payment. The loan proceeds, which can be used for any purpose, may be taken out as a lump sum payment, fixed monthly payment, line of credit, or a combination. The loan amount depends on the borrower's age, current interest rates, and the value and location of the home.

State legislators, Medicare directors, regional associations on aging, faith-based groups, and officials from health and human service organizations recently met to discuss the findings.

"Most policymakers had no idea of the potential for reverse mortgages," said Dr. Barbara Stucki, a Bend, Ore., researcher and the project manager. "The results surprised them mainly because there was a general sense of ignorance about the product."

In total, these households could access as much as $695 billion through reverse mortgages. For individuals, the extra cash could go a long way to help with family caregiving and other long-term care expenses.

For example, a borrower aged 75 years old with a home worth $100,000 could receive a reverse mortgage that could pay a family caregiver $500 a month for almost 12 years, $1,120 a month in adult day care services for almost five years, or $2,160 a month in home care (daily care for at least four hours) for 2.5 years.

"The study shows that reverse mortgages have significant potential to help seniors pay for home healthcare services or to make home modifications that make independent living possible," said Peter Bell, president of the National Reverse Mortgage Lenders Association.

The report is the first in a multi-phased project focused on educating policymakers, the healthcare industry, the aging community and others about the potential use of reverse mortgages to help reform America's long-term-care financing policies. It was funded by the Centers for Medicare and Medicaid Services and the Robert Wood Johnson Foundation. Medicare and Medicaid have been seeking potential relief to mounting financial pressures.

"This is an important study that, for the first time, shows that elderly homeowners, many with chronic conditions, can use reverse mortgages to pay for care at home," said Jim Knickman, vice president for research at the Robert Wood Johnson Foundation. "We hope that these findings will prompt new thinking into how the nation addresses the challenge of financing long-term care."

NCOA projected annual Medicaid cost savings of $3.34 billion nationwide by 2010 assuming four percent of America's eligible seniors used a reverse mortgage to pay for healthcare services, or, if one in four used a reverse mortgage, $4.86 billion would be saved.

A reverse mortgage isn't repaid until the borrower moves out of the home permanently, and the repayment amount can't exceed the value of the home. After the loan is repaid, any remaining equity is distributed to the borrower or borrower's estate. A senior's home doesn't have to be owned free and clear to qualify for a reverse mortgage.

The NCOA study shows that while two-thirds (67 percent) of older homeowners today have heard of a reverse mortgage, only 9 percent indicate that they are likely to use this financing option to pay for assistance at home. Many don't understand the program,feel that they risk impoverishment, or that they won't be able to leave a legacy to their children if they tap home equity. The cost of these loans and current Medicaid policies on how reverse mortgages affect eligibility for long-term care benefits are other perceived barriers.

"We need expanded public education and additional work to explore how to reduce the cost of tapping home equity, to strengthen consumer protections, and promote innovation," Stucki said. "Overcoming these obstacles will mean that reverse mortgages can play an important role in helping many older Americans pay for the supportive services they need to continue to live at home safely and comfortably."

Tom Kelly's new book "The New Reverse Mortgage Formula" (John Wiley & Sons, New York) is available in local bookstores and on amazon.com. He can be reached at news@tomkelly.com.
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Overnight real estate rates fall further

30-year fixed rate at 5.37 percent; 10-year Treasury up at 4.28 percent
Long-term mortgage interest rates continued lower on Monday, and the benchmark 10-year Treasury bond yield rose to 4.28 percent.

The 30-year fixed-rate average dropped to 5.37 percent, and the 15-year fixed-rate sank to 4.96 percent. The 1-year adjustable was down at 3.68 percent.

The 30-year Treasury bond yield edged up to 4.61 percent.

Rates are current as of 7:15 p.m. Eastern Standard Time.

Mortgage rate figures are according to Bankrate.com, which publishes nightly averages based on its survey of 4,000 banks in 50 states. Points on these mortgages range from zero to 3.5.

In other economic news, the Dow Jones Industrial Average dropped 16.26 points, or 0.16 percent, finishing at 10,071.25. The Nasdaq gained 4.77 points, or 0.25 percent, closing at 1,912.92.

Stock and bond figures are current as of 7:30 p.m. Eastern Standard Time.
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California: Home Price Gain of 18.6% Ends Streak

DataQuick Information Systems reports an 18.6 percent gain in Southern California's median home price to $439,000 during the 12 months ended in March. This marks the first time in 14 months that the median price has not posted year-over-year gains of at least 20 percent. However, experts contend that the market remains healthy and that a busted bubble is not likely in the immediate future. Sales in the region hit a near-record high of 32,674 over the same time span, attributable to robust demand, still-low mortgage rates, and a lean supply of properties on the market. The median price shot up 34.8 percent in San Bernardino County, 26.3 percent in Riverside County, 17.3 percent in Los Angeles County, and 16.1 percent in Ventura County. Meanwhile, San Diego County's March tallies are thought to be indicative of the region's future. The county recorded a 12.5 percent gain in the median home price and a 5.5 percent decline in sales. This leads many local housing experts to believe that the Southern California market will not crash, making a soft landing instead.
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Income Tax Time: Value of Homeownership

In the midst of tax season, the California Association of REALTORS® (C.A.R.) has decided to take a closer look at the benefits that go along with homeownership, particularly the consumption and tax benefits. There are generally two primary reasons for owning a home: for consumption purposes and for investment purposes. At this time of year, everyone is doing their tax returns or will have to do so before April 15th. It is crucial to reap all of the tax advantages available to you as homeowners. We will take a quick look at how valuable your homeownership is and how it can add to your bottom line during this tax season.

Our first look at the value of homeownership is the return on investment alone.
Let’s take a look back. Just imagine you bought your home at the median price five years ago. That home would have cost you $227,160 (February 2000 single-family median home price). In just five years, the value of your investment has skyrocketed to $471,620 (February 2005 single-family median home price), thus reaping a 107 percent gain in the value of your home. On average that is a 20 percent per year return, which is in and of itself an amazing return on your investment in any circumstances. In fact, that is nearly 3 times the nation’s return 7 percent per year over the same time period.

That return on your investment does not even take into account that the investment also provides a place to live for you and your family. Because this real estate investment is also your primary residence, you have a vested interest to take the proper care i.e. renovations, maintenance, and repairs, all of which are necessary in any real estate investment. Therefore, the benefits reaped are two-fold: the improvements made to the actual structure and property, and also the improved quality of living for you, your neighborhood, and community overall.

From a pure investment standpoint, if you decided to sell your home in 2004, $250,000 of that profit or equity is tax free if you are single and doubles to $500,000 if you are married and file a joint tax return, as long as you have lived in the home for at least 2 years and it is your primary residence (IRS Publication 523). Let’s take a look at the February 2000 example again. If you purchased your home in February 2000 for the then median price of $227,160 and decided to sell five years later in February 2005 for the going median price of $471,620. The equity gain on the sale of your home would be $244,460 and thus that amount earned would be tax-free.

Along with home equity gains and overall appreciation, there are other huge tax advantages to owning your own home—interest & property tax deductions. Let’s fast forward to those who have purchased a home recently. If you buy a home today at the February median of $471,620, and if property taxes are about 1 percent of the property value, the property tax deduction for that home would be approximately $4,716 in your first. In the first 12 months the interest paid on that home loan would total $26,750 (Interest calculated assuming a 20% downpayment with 5.71 percent FHFB February 2005 composite mortgage rate). Therefore, if you are in the 25 percent tax bracket the total tax savings in the first year of owning the home would be around $8,000 ($31,460 interest paid & property taxes x 25 percent marginal tax bracket). The IRS allows you to deduct the entire amount of interest paid on your home loan as long as you complete a Schedule A on your 1040, the loan is in your name, and the mortgage must be secured by collateral (usually the home itself—IRS Publication 936).

Many homeowners are also taking advantage of the ability to consolidate credit card debt and roll it into a home equity loan. The main advantage to this approach is being able to deduct the interest on the home equity loan as the first mortgage deduction rules apply. Interest on credit card debt is non-deductible and the rates charged are typically higher than that of the current rates charged on home equity loans. By taking advantage of these types of perks, homeowners are able to better handle their debt and improve their financial situations.

Homeowners reap many advantages when tax season comes around. Make sure you squeeze the most out of your homeownership as you can.
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California: Two New Loans for Buyers

The California Housing Finance Agency is unveiling a 35-year, fixed-rate interest-only loan that it believes will allow borrowers to afford a first home in the state's pricey shelter market by lowering monthly mortgage payments by hundreds of dollars.
In addition to its so-called PLUS loan, CalHFA is offering free mortgage protection through its HomeOpeners program, which automatically covers borrowers for six months after a job loss; the policy covers up to $2,500 a month for the first five years of a loan. CalHFA offers mortgage interest that is below market rate to first-time buyers who meet its income, home sale price, and other restrictions; and its loans typically range from $250,000 to $325,000."There are a lot of loan products out there and this is one more avenue to take," says Jim Hamilton, president of the CALIFORNIA ASSOCIATION OF REALTORS®, who adds that condominiums might make good buys in expensive areas.
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