The Lawhead Team recently sent an email to Barbara Boxer and Diane Feinstein in the US Senate asking for her support in continuing to allow mortgage interest as a tax deduction so millions of Americans can enjoy the benefits of home ownership and live the American Dream.

We received messages back from both Barbara Boxer and Diane Feinstein in regards to allowing mortgage interest as a tax deduction and wanted to share the responses with all our readers:

Dear Mr. Lawhead:

Thank you for taking the time to write and share your views with me.  Your comments will help me continue to represent you and other Californians to the best of my ability.  Be assured that I will keep your views in mind as the Senate considers legislation on this or similar issues.

If you would like additional information about my work in the U.S. Senate, I invite you to visit my website, http://boxer.senate.gov.  From this site, you can access my statements and press releases about current events and pending legislation, request copies of legislation and government reports, and receive detailed information about the many services that I am privileged to provide for my constituents.  You may also wish to visit http://thomas.loc.gov to track current and past federal legislation.

Again, thank you for sharing your thoughts with me.  I appreciate hearing from you.

Sincerely,
Barbara Boxer
United States Senator

Dear Creighton:

Thank you for contacting me to express your concerns about proposals to limit the mortgage interest tax deduction.  I appreciate the time you took to write, and I welcome the opportunity to respond.

As you know, Congress is currently debating ways to increase revenue and cut spending in an effort to address our national debt.  One proposal to raise revenue would limit the value of itemized deductions, specifically for high income earners.  President Obama proposed limiting the mortgage interest tax deduction in his Fiscal Year 2013 (FY2013) budget as part of an effort to reduce federal tax expenditures and address our growing debt and deficit.  It is important to know that his proposal would have only reduced the tax deduction for individuals who earn over $200,000 and married couples filing jointly who earn over $250,000. 

Congress voted on January 1, 2013 to pass the “American Taxpayer Relief Act” (H.R. 8), which temporarily averted sequestration spending cuts required by the Budget Control Act (Public Law 112-25) and prevented the implementation of significant tax rate increases on middle class Americans.  Specifically, this legislation permanently maintains current tax rates for all Americans on income under $400,000 for individuals and $450,000 for couples.  This legislation did not create new limits on deductions, though it is important to note that it did reinstate the Pease provision, which will, in effect, limit the value of tax deductions for certain upper income earners.  It is also possible that future negotiations to reduce the debt will include proposals to limit tax deductions. 

Like you, I strongly believe the federal government must do more to help distressed homeowners and stabilize the housing market.  I am also concerned that with home prices in California high relative to the rest of the country, proposals to limit this deduction– depending on how they are structured – could disproportionately impact middle class Californians.  Please know that I have made careful note of your support for this deduction, and I will keep your thoughts in mind as I work with my colleagues to address our national debt in ways that do not unduly harm California homeowners. 

Once again, thank you for writing.  If you have any additional questions or concerns, please do not hesitate to contact my Washington, D.C. office at (202) 224-3841, or visit my website at http://feinstein.senate.gov. Best regards.

Sincerely yours,
Dianne Feinstein
United States Senator

Tax time is upon us and what better time than now to share an article about the tax benefits of owning a home.

The Lawhead Team would like to share an article from Realtor.com written by John Adams about tax benefits for homeowners.

They say there are only two things you can count on in this world: death and taxes. But when it comes to owning a home, it appears there may be a third. And that is the favorable treatment of home ownership by the Internal Revenue Service.

Tax Benefit for the purchase – When buying your own home, most of the expenses are not tax deductible. But there is one exception that is worth finding for tax benefits.

The IRS says you can deduct interest in the year that it is paid, and that is usually part of each monthly loan payment. In addition, if the day you purchase is on any day other than the first of the month, you will likely pay a charge for “daily interest” between the day of closing and the end of the month. Look on line 901 of your HUD settlement statement.

Much more importantly, the IRS says that, in most cases, loan discount points and origination fees are tax deductions to the buyer, regardless of who pays them. Look at lines 801 and 802 of your settlement statement and see if you hit the jackpot. This is a particularly unusual deduction because you get the benefit even if the seller paid your closing costs. And because origination fees of 1% and more are common, this can amount to a lot of cash and huge tax benefits.

Mortgage interest tax benefits – In general, you can deduct interest charged on a loan used to acquire or improve your principal residence in the year that it is paid. In the early years of a loan, most of your monthly payment is interest, so this can really add up. If you are in a 28% federal tax bracket, this can have the effect of lowering your borrowing costs by almost a third, depending on which state you live in. This is truly nothing more than a subsidy to home owners, and it’s a very popular deduction.

In addition, you can always deduct interest on an additional $100,000 of mortgage debt, which can be used for any purpose. This is called the “Home Equity Loan” exception, and it allows you to tap into your home equity for any purpose. This gives home owners the ability to do what is called “debt-shifting.” For example, if you live in an apartment and have a credit card balance of $10,000 at 18% interest, none of that interest would be deductible. But if you bought a house, obtained a home equity loan for $10,000 and paid off the credit card, then ALL of the interest expense becomes automatically deductible. Furthermore, the rate on the home equity loan is likely to be around prime plus one or two, usually much lower than credit card rates. This same technique works with any and all personal debt, from car loans to consolidation loans – with only one hitch. In every home equity loan, you have pledged your house as collateral for the loan. If you fail to pay the payments as agreed, you could lose your house to foreclosure. So be careful in using this technique for tax benefits.

The sale – This is the best. In fact, I can hardly believe this myself. Here’s how it works:  If you have owned and occupied your principal residence for at least two of the past five years, you can earn up to $500,000 on the sale of that house and pay no federal income tax whatsoever. That’s assuming you are married – singles get up to $250,000 tax free. And here comes the kicker:  You can do this as often as every two years for the rest of your life.

This is as good an excuse for getting married as I have ever heard for tax benefits. Buy a fixer-upper in an up and coming neighborhood, work on it nights and weekends for two years, then sell it at a nice profit and pocket the cash, totally free of federal taxes. And most states recognize the federal exclusion, so you put the cash away totally tax free. You don’t have to re-invest, you don’t have to be age 55, and you can do this every two years forever. No, I’m not kidding.

The one restriction for these tax benefits is that you MUST own and occupy the house as your principal residence, so don’t try this on a rental property by pretending you live there when you don’t. And there are some unclear rules about how you can take a partial exclusion if you live there less than two years, but we don’t really know what they mean yet, so I recommend you stay there two years.

Many of these benefits came into being with the 1997 tax law, but lots of folks are just finding out about them now, so buy and sell to your heart’s content. Just don’t plan on staying forever!

Read the entire article about tax benefits here: http://www.realtor.com/basics/buy/closepossess/taxbenefits.asp?source=web