Home Ownership Accelerator Home Ownership Accelerator 02-04-10 Copyright 2005-2010, CMG Mortgage, Inc. All rights reserved. Home Ownership Accelerator , the yellow flying house logo, and other marks are registered trademarks of CMG Financial Services, Inc. Content and concepts presented here are proprietary information which is made available for the sole purpose of training and educating CMG-approved agents, and is non-transferrable, non-distributable, and may not be copied or repurposed. Any other use outside CMG=approved educational efforts is unauthorized, except with the express written permission of CMG Mortgage Inc. CMG Home Ownership Accelerator CMG Home Ownership Accelerator ® ® Sales Techniques Sales Techniques HOA Tax Deductibility HOA Tax Deductibility
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Home Ownership AcceleratorHome Ownership Accelerator
02-04-10
Copyright 2005-2010, CMG Mortgage, Inc. All rights reserved. Home Ownership Accelerator , the yellow flying house logo, and other marks are registered trademarks of CMG Financial Services, Inc. Content and concepts presented here are proprietary information which is made available for the sole purpose of training and educating CMG-approved agents, and is non-transferrable, non-distributable, and may not be copied or repurposed. Any other use outside CMG=approved educational efforts is unauthorized, except with the express written permission of CMG Mortgage Inc.
CMG Home Ownership AcceleratorCMG Home Ownership Accelerator®®Sales TechniquesSales Techniques
HOA Tax DeductibilityHOA Tax Deductibility
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Tax QuestionsTax Questions
Topics:
1.How interest is paid and reported.
2.Why losing a tax deduction can be a good thing
3.How the IRS views interest deductibility
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Handling Tax QuestionsHandling Tax Questions
• First things first:– Remind everyone (including yourself):
You are not a tax advisor!
– Recommend strongly that the client involve a tax advisor (usually their accountant) to discuss tax implications.
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Review: HOA Interest RateReview: HOA Interest Rate
• Based on the Wall Street Journal 1-mo LIBOR index
• Published on last business day of month • Applies for the next statement period• Fully-indexed rate = 1-mo LIBOR index +
margin• Maximum rate = starting fully-indexed rate
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So, What does Pub 936 Say About The So, What does Pub 936 Say About The HOA?HOA?
Nothing in particular.
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Why Not? Why Not?
Answer: – IRS doesn’t care what kind of loan is used.– IRS only cares about
• Are you filing a 1040 and itemizing?• Is it secured debt?• Is it a qualified residence (main home or second
home)?• What did you do with the cash?
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What to do? Apply the Rules.What to do? Apply the Rules.
The IRS allows deductibility on two forms of home loan debt:
• Acquisition debt – used to buy or improve a home.
• Home equity debt – used for other purposes:– Debt consolidation– Car, travel, tuition or other expense
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Deductibility LimitsDeductibility Limits
• Acquisition debt– $1 million (married, filing jointly)– Acquisition or improvement
• Home equity debt– $100,000– Non-acquisition, non-improvement– NOT to be confused with the term “HELOC”!!!
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HOA is 2 kinds of Debt, in One Loan.HOA is 2 kinds of Debt, in One Loan.
• Acquisition debt:– Purchase/refi– Usually is payoff amount of prior loan.– Borrower “retires” acquisition debt by depositing
into HOA
• Home equity debt:– Redraws against HOA line– Causes balance to go up– Using equity– For non-improvement expenses (groceries, gas,
bills, etc.) 13
$400 K
$390 K
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Basic ExampleBasic Example
Original loan: $400,000
Pay down to: $200,000
Redraw: $50,000 (boat)
New balance: $250,000
Redraw: $50,000 (car 1)
New balance: $300,000
Redraw: $50,000 (car 2)
New balance: $350,000
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Remember! The same rules applyRemember! The same rules apply
$400K
$200K
Pull $300K out (only $100K is deductible as home equity debt,unless used for improvements)
$500K
New acquisition debt basis($200K deductible)
Orig. acquisition debt basis
Same tax deductibility:-First + HELOC-Cashout refi (Flags beginning in 2010)-Home Ownership Accelerator
Only difference:-HOA: Single loan!
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Tax TimeTax Time
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Simple tax deductibility example:
Original Purchase Price (1/1/07): $700,000Original HOA Line Amount (1/1/07): $550,000Original Acquisition Debt (1/1/07): $400,000Home Equity Draw (buy yacht, on 1/1/07): $140,000Starting balance on 1/1/07: $540,000Regular principal payments of $20,000/mo