As a mortgage broker I frequently coordinate with realtors, tax planners, accountants, attorneys, investment advisors and other qualified professionals in their respective fields to insure that borrowers maximize any applicable tax benefits associated with their properties. There is a common misconception that many of the fees associated with a mortgage loan purchase or, refinance, are tax deductible. I spoke with William T. Barrett, C.P.A. (505-983-5111)in Santa Fe this morning to seek his counsel on the current rulings concerning some of these matters.

Question: "Exactly which loan fees, if any, are currently allowable as deductions?"

Answer: "The only current allowable deduction for loan associated charges on a real estate purchase is the origination fee paid to the originator. For refinances, the origination fee must be amortized over the life of the mortgage."

Note: Borrowers should always request a Good Faith Estimate of Settlement Charges to see the actual fees associated with their transaction. Many lenders now bundle their fees paid at the time of settlement. Other fees must be itemized as per federal regulations.

Question: " Many people are unclear about the current ruling regarding capital gains on real estate. What is the time frame involved and are their any restrictions?"

Answer: "The current ruling states that you must have occupied the subject property for a minimum of two of the last five years in order to avoid capital gains tax on the sale of that property. For single individuals the maximum gain on the sale is limited to $250,000.00. For married filers the maximum gain is $500,000.00." Second homes and investment properties are not eligible. Any gain in excess of the amounts specified for the filing status is subject to taxation.

Question: "But there are programs to defer the tax on the gain of an investment property, right?"

Answer: "An 1031 exchange may be utilized to defer the tax on the gain from the sale of investment properties. The exchange of the funds must be made through the 1031 exchange and may only be utilized for 'like kind properties'. For example, the proceeds from the sale of raw land held for investment may be applied to the purchase of a non-owner occupied, multiple family apartment building. The 1031 exchange may not be utilized for the purchase of a primary residence."

Question: "What about capital gains earned on investment properties that are not deferred through a 1031 exchange? We've heard a lot recently about current legislation regarding reducing capital gains taxes on investments."

Answer: "The current capital gains tax rate for those types of investments is eighteen percent. However, the tax is on the net gain after depreciation. Be sure to consult with your tax advisor to depreciate the property correctly. This will reduce the basis for the taxable amount of the gain from the sale."

Question: "A previous client of mine informed me that they have not itemized their mortgage interest deduction for their primary residence since their purchase six years ago because a 'friend' told that them it would not be of any benefit to them, given their tax bracket and withholdings. They have since learned that may not have been good advice. What should they do?"

Answer: "As you well know Gary, the home mortgage interest deduction should always be considered in any one's tax filing. Each of us that files taxes has three years in which to file for refunds not collected and/or deductions that were not properly itemized. An amended return may be filed for the previous three tax years. Since we're filing now for 2002, they could go back only as far as the 1999 tax year. They should contact a qualified tax preparer immediately to review their particular situation."

Prospective borrowers should remember there is more to a mortgage loan than just the interest rate. Many people shop by phone to find the lowest rate only to experience the lowest the lowest level of service. Internet lenders may provide competitive pricing but, check them out thoroughly first. Many are not able to deliver loans in a timely manner, especially on purchases, and many require their fees to be collected in advance.

Citivest Mortgage is locally owned and operated. It is my objective to provide comprehensive loan programs that meet your objectives today and in the future. Call me today for a free consultation, toll free, at 877-982-9530. In consideration of those who may have varying work schedules I may be reached on my cell at 505-920-4239. The office is located at 128 Grant Avenue in downtown Santa Fe just north of the intersection of Palace and Grant.