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Homeowner seeks FHA rebate advice

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POSTED July 19, 2013 9:01 p.m.

QUESTION: My husband and I purchased a home in October 2010 using a Federal Housing Administration mortgage through Bank of America. We had a 30-year fixed rate mortgage with a private mortgage insurance requiring “up-front” money of $4,635.61 and a monthly premium. Luckily we were able to sell our previous home which was mortgage free and, together with savings, paid off this mortgage in February 2013 — about 28 months into the 30-year commitment. The FHA/HUD website states that a refund of some of the premium money is available if the following three criteria are met:

1. The loan was originated after Sept. 1, 1983.

2. You paid an upfront mortgage insurance premium at settlement.

3. You did not default on your mortgage payments.

As I see it, we met all these criteria, yet when I contacted FHA by phone I was told that there would be no refund, but if we were interested in a new FHA loan within three years, the remainder of our “up-front” money would be used to lessen the amount needed for “up-front” on the new loan. If no loan was applied for within the three years, the remainder is forfeited by us. Their risk is totally gone and I feel as if we have paid insurance on a risk they no longer are taking. Who is correct? If I am correct, how do I resolve this issue?

— Mary

ANSWER: I was not — and am still not — fully versed in FHA refunds. I went online, searched “FHA refunds” and found a lot of helpful material and information.

For example, there is a Web page where you can type in your name and the FHA case number (three digits, a dash and then six more digits) and you will find out if you are eligible for any refund. You can also call 800-697-6967 for additional information.

I also confirmed the three conditions you wrote about. However, if your loan was assumed or refinanced into an FHA refinancing program, no refund will be available. HUD also warns consumers that you do not need to pay anyone else to assist you in collecting your refund.

I would first search the HUD database to confirm whether you are entitled to a refund. If the report comes back negative, I would contact your local FHA representative and demand an explanation. And if all else fails, contact your congressman and U.S. senator.

Q: In 2011, I purchased a house for a family member to rent from me. The relative decided not to rent the house, so now after a new roof, siding and AC/heat pump system, the house is on the market since May 2012. No renters are in this property.

My question is, am I able to claim the interest and real estate taxes on my federal return? My tax guy told me I was not able to since it is on the market and I will have to wait until it’s sold to determine a loss or gain.

— Patty

A: The bottom line: Mortgage interest and real property taxes would be deductible if your property really was on the market for rent — even if no one actually rented it. Your “tax guy” probably considered this to be “investment interest” which is deductible but only up to the extent of any investment income. In that case, since there was no income, you probably could not take the deduction, but can “carry it forward” to when you do have income.

uestion: I read your column about paying capital gains on the profit from the difference between the sales price of an inherited house and value of the property at the time of death. Does the same hold true on a loss; i.e., if the inherited property (now an asset) loses value in the following year, can one take a capital loss?

— James

ANSWER:  Let me begin this answer by a disclaimer: I am not an accountant nor a tax attorney. Accordingly, I can only answer based on my research; you must talk with your own tax and financial advisers about your specific situation.

You can claim a loss on inherited property, if you meet a number of conditions:

1. You did not use the property for personal purposes.

2. You did not intend to convert the property to personal use before you sell.

3. You sold the property to an unrelated person — i.e., not a relative.

If you meet these tests, you can claim a capital loss. This is limited to $3000 per year.

However, if you rent the property, you may be subsequently eligible to claim an ordinary loss (as compared to a capital loss). There is no dollar limit and it is 100 percent deductible. Of course, the numbers have to be legitimate.

But please consult your own professionals on this issue.

Q: I am the president of a small condominium association (18 units). We always attempt to hire independent contractors that have workers’ compensation coverage when working on our common elements. On occasion, our members will hire contractors that do not have such coverage to perform work on their limited common element (our association requires the unit owner to be responsible for and to pay for all work in/on their LCE). My understanding is that the unit owner takes on the liability for any injury to the contractor while working at the versimplified, in a condominium, there are three components:

• Common elements — the lobby, the roof, the elevator.

• Units — the “box” in which owners live

• Limited common elements — areas that are not within a unit but are restricted to less than all owners — such as a balcony or a mailbox.

While your documents impose responsibility on the owner who does work on his/her limited common element, the fact remains that it is still a part of the common elements. Accordingly, should a worker be injured, the unit owner and your association can be sued.

Here’s a suggestion: Whether a unit owner is doing work in the unit itself or in a limited common element, the board should insist on the following: use licensed contractors; obtain all required insurance — including workers’ compensation; indemnify the association against any and all claims or lawsuits stemming as a result of the work; and first submit the proposed scope of work to the board for its approval.

Q: You had a question about inherited property, taxes and basis. In the last sentence of your answer you said, “if you have owned and used the property for two out of the five years before it is sold” you could avoid tax on $500,000 or $250,000 of gain.

However, shouldn’t you have said “used and owned the property as your personal residence for two …”? Owning and using as a rental property or a home for a relative, for example, will not work.

— Joe

A: Thanks for writing and you are technically correct. Under current tax law, if you have owned and used the property as your personal residence for two our of the five years before it is sold, if you file a joint tax return you can exclude up to $500,000 of your gain from taxation (or up to $250,000 if you file a single tax return).

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