About real estate: Congress, Obama extend two key tax breaks for homeowners

The “fiscal cliff” legislation that was approved earlier this month restored deductions for private mortgage insurance payments and an important tax rule for owners who sell at a loss.

Q. I am confused. Last year, my former accountant told me that the payments I make for my private mortgage insurance were not tax-deductible. Now, my new accountant says that I can, indeed, write them off on my income-tax return. Who is correct?

A. In an odd way, both accountants gave you the correct information.

Most borrowers who make a down payment that’s less than 20 percent of a home’s purchase price must buy private mortgage insurance, commonly referred to as PMI. The insurance coverage will help to pay for some or all of the lender’s losses if the mortgage goes into default and the bank can’t sell the property for enough to pay off the outstanding balance of the loan.

Payments for PMI were tax-deductible for several years, but the IRS provision that allowed such write-offs expired at the end of 2011. So, when you talked to your previous accountant last year, the information he provided at the time was correct.

Fortunately, the deduction was restored when President Barack Obama signed the legislation to avoid the “fiscal cliff” in early January. It also was made retroactive to cover 2012, so you won’t have any problem writing off any of the PMI payments that you made last year or will make in 2013.

Importantly, the fiscal-cliff legislation also extended the federal Mortgage Debt Relief Act. The act prevents homeowners who are foreclosed upon — or who sell a home for less than they owe on the loan — from having to pay taxes on the amount of debt that the bank might forgive.

Q. In the past six months, I have taken advantage of the federal law that allows homeowners to get one free copy of their credit report every 12 months from each of the three big credit bureaus. I was turned down for a home-equity loan two weeks ago because of some recent credit problems, and the rejection letter from the bank states that I am entitled to another free report from the bureau that it used when evaluating my application. Is this correct, considering that I got my annual free report from the same bureau in November?

A. Yes, you are entitled to a second free report now, even though you received your annual free one from the same bureau just two months ago.

The federal Fair Credit Reporting Act allows all consumers to get a free credit report from each of the three national bureaus — Experian, TransUnion and Equifax — once every 12 months. But it also gives you the right to a free report anytime you suffer an “adverse action,” such as the rejection of a loan application or an increase in the interest rate you pay on a credit card after falling behind on scheduled payments.

The rejection letter you received should include the name and contact information of the credit bureau it used when reviewing the application. You can get the second free report only from that particular bureau: You aren’t entitled to a second freebie from the other two.

Q. We are planning to begin looking for our first home next month. Would it be best to work only with one real estate agent, or three or four?

A. It’s usually best to have only one agent or broker looking for properties on your behalf.

You certainly should interview at least three or four brokers or agents before you start the hunt for your first home. The interviews will help you determine which sales pro has the deepest knowledge of the local market and — just as important — which one makes you most comfortable talking about your finances and housing plans.

Once you have found the best agent, though, it’s wise to work with her or him exclusively. The agent that you have carefully chosen should be able to show you all the properties that fit both your housing needs and budget.

All agents have access to the same list of available properties, so working with more than one likely would mean that you would be viewing the same properties over and over, thereby adding countless hours of time to your search.

Also remember that most agents still work on a commission basis, which means that they won’t collect a nickel if you don’t make your offer through them. If the agent knows that you are also shopping with the help of other brokers, he might not make give you his best efforts to get the right home at the best possible price, because there would be no guarantee that he would eventually get paid for all of his time and hard work.

REAL ESTATE TRIVIA: In another sign that the housing market is recovering, the National Association of Realtors reports that 4.65 million homes were resold last year — up 9.2 percent from the previous year and the highest level of sales since the market peaked in 2007.

Ÿ For the booklet “Straight Talk About Living Trusts,” send $4 and a self-addressed, stamped envelope to David Myers, P.O. Box 4405, Culver City, CA 90231-4405.

© 2012, Cowles Syndicate Inc.