- The Washington Times - Wednesday, July 9, 2003

Q: Is the amount of interest paid on a home equity loan that qualifies as “tax deductible” limited to $100,000 when refinancing a $500,000 mortgage to take advantage of the current low rates? Some mortgage guys say yes; some say no.

A: Well, it depends. According to IRS Publication 936, “Home Mortgage Interest Deduction,” there are limits on home mortgage interest deductions depending on several factors — not just the dollar amount. You state that you have a $500,000 mortgage. That means your income is pretty high; thus the first limitation.

One limit on your mortgage interest deduction would be based on your income. If your adjusted gross income (AGI) is more than $137,300 ($68,650 if you are married, filing separately) you will have limits, and those are found in the instructions for Schedule A (Form 1040). By the way, all of the forms I’m listing here can be found online at www.IRS.gov.

Second, you would have limits on mortgage interest deductions if the mortgages on your primary and secondary homes exceed $1 million — $500,000 if married, filing separately — on homes purchased after Oct. 13, 1987.

If you are a married filer and you meet the above criteria, it appears your equity loan interest deductions would be allowed on an equity mortgage of $100,000. (Please check with your accountant.)

There’s a simple chart online that you answer with yes and no to determine your deductions: Follow this link: www.irs.gov/forms_pubs/graphics/10426g05.gif.

In addition, here’s an example lifted straight from Publication 936.

The total home equity debt on your main home and second home is limited to the smaller of:

• $100,000 ($50,000 if married filing separately), or

• The total of each home’s fair market value (FMV) reduced — but not below zero — by the amount of its home acquisition debt and grandfathered debt. Determine the FMV and the outstanding home acquisition and grandfathered debt for each home on the date that the last debt was secured by the home.

Example. You own one home that you bought in 1998. Its FMV now is $110,000, and the current balance on your original mortgage, the home acquisition debt, is $95,000. A bank offers you a home mortgage loan of 125 percent of the FMV of the home less any outstanding mortgages or other liens. To consolidate some of your other debts, you take out a $42,500 mortgage loan with the bank. This represents 125 percent of $110,000 minus $95,000.

Your home equity debt is limited to $15,000. This is the smaller of:

• $100,000, the maximum limit, or

• $15,000, the amount that the FMV of $110,000 exceeds the amount of home acquisition debt of $95,000.

Q: The Exclusive Right to Represent a Buyer, a document you sign with real state agents, basically protects the agent, but what about the buyer? I read there is something called Buyers Bill of Rights. Is there any truth to it? If so, where or who do you get it from?

A: The exclusive right to represent a buyer entered the American real estate marketplace about 25 years ago. Obviously, there always have been agents who would represent the buyer. However, it became more common in the 1980s, when consumers demanded it. With this came more forms from local Realtor associations and from some state legislatures.

Most times, the form is to be used to inform you of your rights as a buyer and to let you know who the agent represents in the transaction. Does it protect the agent exclusively? In the markets I’ve seen, not necessarily. It protects the buyer in that it prevents the agent from revealing your personal or financial information to other agents.

Agents are to hold all your information in the utmost confidence and not share it with anyone in the marketplace — including their own office because some markets allow dual agency — unless the buyer client approved giving out such information.

Is there an official real estate industry-sanctioned bill of rights for buyers? It depends on your marketplace. Some companies and agents have devised their own bill of rights for buyers, most of which are about customer service, rather than public edict. The U.S. Department of Housing and Urban Development (HUD) announced it was proposing such a document in 2002, but not much came of it.

You do have certain Fair Housing Rights and those can be viewed at www.HUD.gov.

M. Anthony Carr has written about the real estate industry for more than 15 years. Contact him by e-mail ([email protected]).

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