Tax Incentives for Real Estate Home Buyers and Sellers
Tax and Loan Tips for
Real Estate Investors in Silicon Valley
Here are a few helpful links as well as information about tax incentives, deductions and housing loan programs that all home buyers, including first time home buyers, should keep in mind when embarking on a quest to purchase a home in Silicon Valley.
Please remember that some of the key tax deductions related to home ownership include:
- Mortgage interest and costs (including discount points)
- Cost of improvements
- First Time Home Buyers credit
- Energy Tax Credit
For a more comprehensive list of tax deductions, here is a useful link
You can also check out this useful website which outlines local down payment help programs in your area.
The Tax Cuts and Jobs Act Tax Reform Bill (New in 2018)
All individual provisions of the new Tax Bill signed by President Trump are effective after December 31, 2017 for the 2018 tax filing year and will expire on December 31, 2025.
New measures pertaining to real estate taxation include:
Mortgage Interest Deduction:
- The final bill reduces the limit on deductible mortgage debt to $750,000 for new loans taken out after 12/14/17. Current loans of up to $1 million are grandfathered and are not subject to the new $750,000 cap. Neither limit is indexed for inflation.
- Homeowners may refinance mortgage debts existing on 12/14/17 up to $1 million and still deduct the interest, so long as the new loan does not exceed the amount of the mortgage being refinanced.
- The final bill repeals the deduction for interest paid on home equity debt through 12/31/25. Interest is still deductible on home equity loans (or second mortgages) if the proceeds are used to substantially improve the residence.
- Interest remains deductible on second homes, but subject to the $1 million / $750,000 limits.
Deduction for State and Local Taxes
The final bill allows an itemized deduction of up to $10,000 for the total of state and local property taxes and income or sales taxes. This $10,000 limit applies for both single and married filers and is not indexed for inflation.
Exclusion of Gain on Sale of a Principal Residence
The final bill retains current law. The amount of time a homeowner must live in their home to qualify for the capital gains exclusion remains 2 out of the past 5 years.
The Federal Housing Administration (FHA), a section of the US Department of Housing and Urban Development (HUD) can guarantee your loan on a single-family home or a condo up to $679,650. The $679,650 will be the max limit in all Bay Area counties except Sonoma, where it’s going to $648,600 and Solano, where it will hit $460,000.The increase will benefit many borrowers who are pushing up against the current limits because Fannie and Freddie loans are generally easier to get, a little cheaper than jumbo loans and may need only as little as 5% down.
FHA’s 203(k) Loan Program allows home owners to purchase a property including the cost of its rehabilitation. So, if you are not afraid of buying a fixer upper and/or a home in need of repairs but do not have the cash to pay for the renovation, do not forget to ask your loan officer about this program. Please note that real estate investors are no allowed to use the 203K Loan Program.
Currently, The Federal Housing Administration allows borrowers to cancel private mortgage insurance coverage, which is mandatory for loans contracted with less than 20% down payment, under two conditions:
- Borrowers’ loan-to-value ratio reached 78 percent of the original loan balance;
- Borrowers have made payments for five years.
Starting June 3, 2013, FHA will require borrowers to pay the premium as long as the loan is in force. In other words, the only way to stop paying PMI is for the borrower to refinance or otherwise pay off the loan.
On August 26, 2014, the Federal Housing Administration (FHA) issued its final rule to eliminate post-payment interest charges on FHA-insured single family mortgages. The policy change will prohibit mortgagees from charging borrowers interest on their home mortgages after a principal balance pay-off. The final rule will go into effect on January 21, 2015.
On January 9, 2017, FHA also changed its Annual Mortgage Insurance Premium (MIP) Cancellation Policy. This change will stop many homeowners from losing their right to cancel the annual MIP. You can read about these guidelines on the HUD portal.
You can also review all FHA loan programs on the FHA website.
Fannie Mae & Freddie Mac Loan Programs
On December 4, 2014 Fannie Mae and Freddie Mac, announced new loan programs that could make it easier for well-qualified, first-time and lower-income home buyers to purchase a home. Both Fannie and Freddie will back mortgages with down payments of as low as 3 percent.
Fannie Mae “My Community Mortgage,” program is available to first-time buyers, and eligible homeowners who wish to refinance their Fannie Mae-owned mortgage but don’t qualify under the Home Affordable Refinance Program (HARP). Fannie’s program is available since December 13th, 2014.
Freddie Mac “Home Possible Advantage” program is open to first-time buyers and other qualified borrowers with limited down payment savings. Freddie Mac’s program will begin on March 23rd, 2015.Both programs require private mortgage insurance.
California Housing Finance Agency (CalFHA)
If this is your first home purchase ever, the First Time Home Buyers Program from the California Housing Finance Agency (CalHFA) is for you. The California Housing Finance Agency offer low interest rate first mortgage programs and a variety of down payment assistance programs to eligible first-time homebuyers. Here are the top 3 programs applicable to San Jose and Silicon Valley in particular:
- The CalHFA FHA Mortgage Loan Program, which is applicable to properties located in federally designated targeted areas. This program is designed for low and moderate income home buyers. Borrowers do not need to be first time home buyers.
- My Home Assistance Program is a deferred payment option with a simple interest rate subordinate loan. Low to moderate income first-time home buyers can use this loan to make a down payment and/or closing cost assistance up to 3.5% of the sales price or appraised value, whichever is less.
- The CalFHA Affordable Housing Partnership Program (AHPP). CalHFA has partnered with over 300 localities (cities, counties, housing authorities, nonprofit entities and redevelopment agencies) that offer local down payment assistance. This program allows borrowers to combine a Cal HFA first mortgage loan with down payment and/or closing cost assistance from an AHPP.
- The CalFHA Extra Credit Teacher Home Purchase Program (ECTP). The ECTP provides a deferred-payment junior loan for eligible teachers, administrators, classified employees and staff members working in county/continuation or high priority schools in California.
- The CalPLUS FHA program is a first mortgage loan insured by the Federal Housing Administration. The interest rate on the CalPLUS FHA is fixed throughout the 30-year term. The CalPLUS FHA is combined with a CalHFA Zero Interest Program (ZIP), which is a deferred-payment junior loan of 3.5% of the first mortgage loan amount, for down payment assistance.
- CalHFA’s ZIP Extra Down Payment Assistance Program. This new program is designed to reduce the amount of money needed to close on the purchase of a home for buyers who may not yet have the funds for a large down payment, closing costs, or even an upfront mortgage insurance payment. The new program will include an additional $6,500 on top of the 3 percent down payment it currently offers as part of its CalPLUS Conventional with Zero Interest Program (ZIP). The ZIP program provides 3 percent of the loan amount at 0 percent interest on a fixed-rate, 30-year conventional mortgage. The additional $6,500, ZIP Extra, will also be provided at 0 percent interest.
You can review all home buyers programs on the CalFHA website.
Fannie and Freddie Appraisal Alternatives
Consumers who are buying homes or refinancing existing mortgage loans may be eligible for an automated appraisal alternative. Borrowers may be able to realize savings in some instances of approximately $500, and closing times may be reduced by as many as seven to 10 days in cases where Freddie Mac's innovative new capability determines a traditional appraisal isn't needed. Freddie Mac's automated collateral evaluation (ACE) assesses the need for a traditional appraisal by leveraging proprietary models and using data from multiple listing services and public records as well as a wealth of historical home values to determine collateral risks.
If ACE determines that the estimated value of the home provided by the lender is acceptable, the lender may receive immediate representation and warranty relief related to the value, condition and marketability of the property upon delivery of the loan to Freddie Mac. ACE will be available for qualified home purchases beginning on Sept. 1, 2017; it has been available for qualified refinances since June 19, 2017.
Fannie Mae also updated its market-leading automated mortgage underwriting system to allow property inspection waiver (PIW) offers on some purchase transactions.
City Of San Jose Home Buyers Programs
Closer to us in Silicon Valley, you may want to check out programs available to home buyers in the city of San Jose, CA.
You can review all programs on the City of San Jose Department of Housing website
The most notable programs from the city of San Jose are The Teachers Home Buyer Program
and the Extra Credit Teacher Home Purchase Program (ECTP)
Housing Trust Silicon Valley
If you live in Silicon Valley and you are a first time home buyer with low to moderate income, you should check out the loan programs offered by the Housing Trust of Silicon Valley which are as follows:
- The Purchase Assistance Loan Program (PAL) is designed to help low to moderate incomes families acquire foreclosed and abandoned homes or those at risk of foreclosure in the San Jose area only. The program offers a deferred second loan of 20% of the purchase price up to $50,000, providing home buyers have already secured a primary loan. This loan is a 30-year loan with an interest rate of 0%.
- GAP Assistance Program: This new housing program is intended to support low income first-time home buyers purchasing homes in Santa Clara County (SCC). The GAP is a 30-year loan with an interest rate of 3%. Since January 2015, the Housing Trust provides appointments for first time home buyers interested in this program.
- Mortgage Assistance Program (MAP): The Housing Trust of Silicon Valley has established the Mortgage Assistance Program to help home buyers finance their first home, condominium or town home. It is one of the three loan products currently available from the Housing Trust and is an amortizing 30-year second loan.
- Closing Cost Assistance Program (CCAP): This program has helped Santa Clara County's
teachers, engineers, nurses, cooks, and other qualified individuals and
families buy their first home in Santa Clara County by providing 3% of
the purchase price up to $15,000 towards the down payment, closing costs
or other transaction expenses associated with a home purchase. This loan
is due on refinancing or sale of the home or 30 years, with a 3%
deferred interest rate. No interest or principal payments are due during
the term of the loan.
Please note that I am Certified by the Santa Clara County to help you with any of these housing programs if you qualify.
Federal Tax Credits for Consumer Energy Efficiency
As recently as 2016, Federal tax credits were available for energy efficiency improvements made to primary residences. The list of eligible upgrades included heating and cooling equipment, water heaters, windows, insulation and roofs.
In most cases, the energy efficiency requirements associated with the tax credit were met by choosing an ENERGY STAR certified model. Tax credit amounts ranged as high as $500 or even higher, depending on the type of equipment.
The most recent set of energy efficiency tax credits were enacted by Congress as part of the American Recovery and Reinvestment Act of 2009 (also known as the "Stimulus Bill") and expired in December 2016. At this time, there are no known plans to reinstate these federal tax credits.
Today, the only federal tax credits for energy efficiency improvements that remain in effect are for solar energy systems (solar water heaters and solar panels). These federal tax credits remain in effect through December 2021.
For further information on solar energy systems, click here