More parents finance their kids’ mortgages

By Sandra Block, USA TODAY

In 1991, Dan Driscoll of Towson, Md., and his wife, Theresa, wanted to buy a house, but the lowest mortgage rate they could find was 9%. Meanwhile, Driscoll’s parents, who were retired, were earning 3% on their savings. At Driscoll’s suggestion, his parents financed his $75,000 mortgage at a 6% rate.
Now, Driscoll has taken on a different role. Earlier this year, Driscoll’s son Dan, 31, expressed interest in buying a larger home in his father’s neighborhood. Instead of paying 4.5% for a traditional mortgage, Dan borrowed the money from his father at a 4.25% rate. The arrangement also enabled Dan to avoid paying closing costs, appraisal fees and other expenses charged by a traditional lender, Driscoll says.

Family mortgages work, Driscoll says, “if your children are honest, trustworthy and responsible.”
If financing a family mortgage was a savvy strategy in 1991, the logic is even more compelling now. Returns from the types of low-risk investments favored by retirees are tiny: The average rate on a one-year certificate of deposit is 0.4%. Mortgage rates also are at record lows, but tight lending standards have made it impossible for many young home buyers to take advantage of them.

For Baby Boomers who are unwilling to risk their money in the stock market, financing a child’s mortgage “is an opportunity to create a win-win,” says Timothy Burke, chief executive of National Family Mortgage, a company that sets up and services intrafamily loans.

To date, National Family Mortgage has helped families finance more than $12 million in loans, ranging from an $18,500 down payment to a $1.17 million refinancing.

Jie Jiang, 33, and his wife, Natalie Leong, learned how tough the lending market has become when they applied for a loan to buy a condo in Los Angeles.

Leong recently graduated from medical school and has started her medical residency at UCLA, while Jiang is pursuing a post-doctoral fellowship in biomedical engineering. The couple had enough money for a 20% down payment but were rejected for a loan, Jiang says.
“Before the financial crisis, (banks) were giving everybody a loan,” Jiang says. “Now, unless you have a 9-to-5 job, they won’t bother with you.”

One bank officer suggested that they get one of their parents to co-sign the loan, but that would have resulted in a mortgage rate of 5% to 5.25%, Jiang says. So instead of co-signing, Leong’s father offered to finance the loan. With help from National Family Mortgage, they set up a 30-year mortgage with a 3.85% interest rate. The couple moved into their condo in August. Based on their expected future income, they plan to pay off the loan in 10 years.

Burke says intrafamily loans have enabled some of his customers to make all-cash offers, an important advantage in the increasingly competitive market for foreclosed properties. “They were getting beaten to the punch by other cash buyers,” he says.

Banks need to get approval from several parties before selling a home in foreclosure, and a cash offer makes the process much easier, he says. In addition, they don’t have to worry about whether the buyer will qualify for a mortgage, says Erin Lantz, director of Zillow Mortgage Marketplace, an online mortgage-shopping site.

When ‘gifts’ are loans

Most parents don’t have the wherewithal to finance an entire home purchase for their children. But even parents of modest means may be able to help their kids come up with a down payment, and many do.

Erin Attardi, a Realtor in Sacramento, recently closed a sale for a young couple who received $20,000 from their parents toward the down payment and closing costs. The couple relocated from San Diego and recently had their first child, Attardi says.

The gift allowed the couple to take advantage of soft housing market prices and record-low interest rates, Attardi says. “In a few years, we don’t know what interest rates will look like, and prices in Sacramento don’t have anywhere to go but up from this point.”

Increasingly, borrowers need to come up with a 20% down payment to qualify for the lowest interest rates on mortgages. In some cases, they may need a down payment of 20% or more to qualify for a mortgage at all. The Center for Responsible Lending estimates that it would take a typical household 14 years to raise enough money to meet that requirement.

In 2010, 9% of first-time home buyers who made a down payment received a loan from a relative or friend, up from 6% in 2009, according to the National Association of Realtors annual Profile of Home Buyers and Sellers. Twenty-seven percent said they received a gift from a friend or relative, up from 22% in 2009.

Burke believes that a significant percentage of those “gifts” were actually loans. “I have a hard time believing 27% (of home buyers) got a no-strings-attached gift,” he says.

Home buyers who borrow money for the down payment may have trouble qualifying for a mortgage. Lenders fear the obligation could prevent borrowers from making their mortgage payments. Many lenders require borrowers to provide a letter attesting that the money doesn’t have to be repaid, Attardi says. The lenders also may require borrowers to show that the gift came from a family member, Attardi says.

Short of prohibiting gifts, though, there’s no way for lenders to prevent borrowers from quietly repaying parents or other family members who help them with their down payments, Burke says.

Such subterfuge isn’t necessary for some types of mortgages, Burke adds.

The Federal Housing Administration, which insures mortgages that are popular with first-time home buyers, allows buyers to borrow funds for their down payments from their parents or grandparents. National Family Mortgage has structured several family down-payment loans for FHA-insured mortgages, he says.

Risks and pitfalls

When Dan Driscoll proposed a family-financed mortgage 20 years ago, his father was in favor of the idea, but his mother had qualms. She was afraid he wouldn’t be able to repay the loan.

Those concerns were unfounded. Driscoll not only repaid the loan, he did it in seven years. However, parents who decide to finance a child’s mortgage — or take the less-costly step of lending them money for a down payment — need to consider the possibility that their child will default. That could lead to some uncomfortable Thanksgiving dinners.

“If it doesn’t go well, that’s not something you can walk away from,” says Bill Emerson, chief executive of Quicken Loans. In addition, he says, parents don’t have the same remedies in the case of default as a traditional mortgage lender.

Loss of flexibility is another drawback to a family-financed mortgage, Lantz says. “You’re locking up a pretty big chunk of cash in an illiquid investment asset.”

Some parents may be better off getting their own mortgage, buying a house and renting it to their children, Lantz says.

While interest rates for investor-owned properties typically are higher than those for primary residences, they’re still at record lows, she says. Lenders on Zillow Mortgage are offering rates as low as 4.375% for investor-owned properties, vs. 3.75% for owner-occupied residences, she says. This strategy would let families take advantage of a soft housing market and low interest rates without tying up all of the parents’ cash, she says.

Parents who decide to finance a child’s mortgage or help with the down payment also could run afoul of the IRS. Potential problems:

•Gift taxes. Federal gift taxes are designed to prevent wealthy taxpayers from escaping estate taxes by giving away all of their money before they die. In 2011, taxpayers can give away $13,000 per person without worrying about gift taxes. A married couple can give away $26,000 per person without filing a gift tax return.

Taxpayers who exceed that amount must file a gift tax return and the amount will be counted toward the total they’re allowed to give away during their lifetimes, tax-free. For estates of individuals who die in 2011 or 2012, the lifetime exclusion is $5 million; however, that amount could fall back to $1 million in 2013.

The easiest way to avoid gift tax problems is to stay within the annual exclusion, which is expected to remain at $13,000 in 2012.

•A loan with terms that are too generous. A loan can trigger gift tax problems if the interest rate is less than the government’s applicable federal rate (AFR) at the time of the loan. The IRS adjusts short-term, medium-term and long-term AFRs monthly. For October, the long-term AFR, which applies for loans of more than nine years, is 2.95%.

•Missing out on tax deductions. Interest paid on an intrafamily loan is tax-deductible as long as the loan is registered with a government authority. An attorney can draw up the appropriate documents, or families can pay a company such as National Family Mortgage to do so.

Driscoll hired an attorney to prepare the documents for his son’s mortgage and file them with the county courthouse. Financing a mortgage for a child “isn’t a risk-free thing,” he says. “But it’s an option people should consider.”

Read Full Post »

Tax consequences of refinancing

By Stephen Fishman
Inman News™
With home mortgage interest rates at historic lows, many homeowners are seeking to refinance their mortgages. If you are planning to refinance, knowing the interest deduction rules and how they apply to your property may help you maximize your tax savings.

Interest deduction

If the old mortgage is paid off, but no additional cash is received by the homeowner, all of the interest payments on the new loan are tax deductible up to a loan limit of $1 million.

The rules differ if the new mortgage is larger than the original mortgage — that is, the homeowner refinances the old loan and also obtains additional cash. That portion of the new loan that is used to replace the original loan is treated the same as the original loan — the interest paid on the amount is fully deductible.

Tax treatment of the portion of the new loan used to obtain cash depends on what the cash is used for. If the cash is used to improve or remodel the house, the interest is fully deductible.

However, if the cash is used for some other purposes — for example, to pay for a child’s college education or medical bills — the interest is deductible only up to a loan amount of $100,000.

Deducting points

Points paid to obtain a refinanced mortgage must be deducted over the life of the loan. To figure the annual deduction amount, divide the total points paid by the number of payments to be made over the life of the loan.

Usually, this information is available from the lender. For example, a homeowner who paid $2,000 in points on a 30-year mortgage (360 monthly payments) could deduct $5.56 per payment, or a total of $66.72 for 12 payments. Taxpayers may deduct points only for those payments actually made in the tax year.

A homeowner who uses part of the refinanced mortgage money to pay for improvements to the home, and meets certain other requirements, may generally deduct the points associated with the home improvements in the year paid, spreading out the rest of the points over the life of the loan.

When refinancing for a second time, or paying off a loan early, a homeowner may deduct all the not-yet-deducted points from the first refinancing when that loan is paid off.

Closing costs

Other closing costs, such as appraisal fees and processing fees, generally are not deductible.

Prepayment penalties

Some loans contain a clause that charges a penalty if the mortgage is paid off early. This penalty is generally deductible as a mortgage-interest expense in the year that it is paid.

Internal Revenue Service Publication 936: Home Mortgage Interest Deduction has more details on deductions related to refinancing.

Read Full Post »

Low Rates Are Good—and Bad

Borrowers breathed a collective sigh of relief when the Federal Reserve said earlier this month that it would hold interest rates at rock bottom for the next two years. But savers were far from happy.

“The news was a little depressing” for savers, says Jim Chessen, chief economist at the American Bankers Association. “It means low savings rates will be par for the course for the next couple of years.”
A divided Federal Reserve conceded Aug. 9 that the economy was weak, with “downside risks” on the rise, and announced, surprisingly, that it would extend near-zero short-term interest rates another two years.

The Fed sets a “target rate” that banks follow closely when setting the “federal-funds rate” they charge each other for overnight loans as well as the competitive interest rates they charge consumers and businesses.

A Sting for Savers…

The Fed’s move was aimed at goading consumers and businesses to look again at leverage as a means of investing in the economy — either through big-ticket purchases like houses, cars and large appliances, or, for businesses, in equipment, new systems and even workers. The Fed’s thinking is that if interest rates stay low enough, people and businesses won’t be afraid to borrow, which could shake this stagnant economy back into growth mode.

But it stings if you’re on a fixed income facing rising costs for energy and food, or if you’re so wary of your money disappearing in the stock market that you’re sitting on a bank savings account full of cash. Most bank-savings rates are below 1%.

Low interest rates hurt, too, if your retirement is dependent on interest income from certificates of deposit. Interest rates on a one-year CD have plunged to 0.42% from 2.38% just three years ago, according to Bankrate.com. Most money-market mutual-fund yields are at 0.01%. And at those rates, there’s no wiggle room for inflation, which was 3.6% in the last year.

“It doesn’t matter if your money is liquid or tied up in a CD, the yields right now do not compensate you for inflation,” says Greg McBride, senior financial analyst at Bankrate.

Though the interest is adding only dimes and nickels to many savings accounts now and for the next two years, a federally insured bank is still a good bet to stash your cash.

…But a Win for Homeowners

If you’re a homeowner with, say, a 5-1 adjustable-rate mortgage that’s already past five years of the fixed-rate portion, you’re in pretty good stead for the next couple of years.

Ditto on those home-equity lines of credit, which carry variable interest rates mostly based on the prime rate, which also trends with the federal-funds rate.

Low interest rates also have contributed to 50-year troughs in mortgage rates, which are determined by a variety of interest-rate benchmarks. Freddie Mac reported the average rate on a 30-year fixed-rate mortgage rose modestly last week to 4.22%, after seven straight weeks of declines. A year ago, the 30-year fixed-rate mortgage stood at 4.36%. The 5-1 ARM slipped to 3.07%, a record low.

Low interest rates are a positive for credit-card holders, unless, of course, you don’t pay your bills on time and get slapped with high penalty rates. Thanks to the Credit Card Accountability, Responsibility and Disclosure Act, most banks reset their annual percentage rates to variable terms, meaning they could rise — and fall — along with the prime rate.

“It doesn’t look like there’s going to be any cost-of-funds pressure on credit-card issuers to increase” annual percentage rates, says Ben Woolsey, director of consumer research at CreditCard.com. The cost of funds refers to the rates banks charge each other on overnight loans. “It appears that banks are opening up more credit to people with excellent credit.”

A low-interest environment makes it even more important that you pay off your credit-card balances, however. Because you’re earning very little return on savings accounts and CDs, the amount you pay in interest-rate charges has more impact on your total budget and cash flow. Generally, interest earned on savings accounts can help offset the interest paid on credit cards.

Read Full Post »

IRS’s top 10 tax tips for home sellers

By Stephen Fishman
Inman News™
From time to time the IRS releases tips designed to help people with their taxes. Some of these are quite useful.

Last week the agency released “Ten Tax Tips for Individuals Selling Their Home,” (IRS Summertime Tax Tip 2011-15).

Here are the IRS’s top 10 tax tips for home sellers:

1. In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.


2. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).


3. You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.


4. If you can exclude all of the gain, you do not need to report the sale on your tax return.


5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.


6. You cannot deduct a loss from the sale of your main home.


7. Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.


8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.


9. If you received the first-time homebuyer credit and within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. The full amount of the credit is reflected as additional tax on that year’s tax return.


10. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.

These tips can be found on the IRS website at http://www.irs.gov/newsroom/content/0,,id=104608,00.html.

Read Full Post »

Four Energy Conservation Myths Costing You Money

Trying to cut back on energy costs? Your “money-saving” tricks may actually be costing you more in long haul.

Myth: Programmable Thermostats Save You Money
Well, they do, but only if you program them to do so. Many people mistakenly believe that these computer-chip, electronic devices will automatically set themselves to operate in the most energy-efficient way. But they don’t. You have to program them so that they stop your ducted air conditioning coming on when it isn’t really needed – at night or when you’re at work or on holiday. So read the manufacturer’s instructions carefully and learn how to set your thermostat to suit your particular needs – lowering it by just 1°C can reduce your bill by up to 15 percent.

Myth: Fans Cool a Room
Fans do not actually cool the air in a room, they cool the people in it by creating a wind-chill effect on their skin. So there is no point leaving a fan on when you’re no longer in a room. Instead, treat it like a light and turn it off when you leave the room. Otherwise, you will just be wasting electricity and running up a large bill.

Myth: Computer Screensavers Save Energy
All a screensaver does is prolong the life of your monitor by displaying a moving image while you are not using your computer, as any fixed image left on would eventually “burn” itself into the screen, ruining it. Screensavers do nothing whatsoever to save electricity – in fact, they burn up quite a lot. If you want to save energy, without turning your computer off, check if it has a special energy-saving mode: go to your operating system’s control panel or preferences and explore the power-management options available.

Myth: Stand-By Costs Less Than Turning On and Off
This is certainly not true. Leaving a machine constantly in stand-by mode consumes a surprisingly large amount of electricity. If you want to save energy – and money – you should always turn your computer off at night or when you will be away from it for a long period of time. Remember also to switch off other computer hardware, such as scanners, printers and external hard drives and speakers at the mains. If they are powered via a plugged-in transformer, that will remain on even when the power button on the appliance has been switched off.

Read Full Post »

Gov’t in Talks to Rent Out Foreclosures

The Obama administration is considering a plan that would take foreclosed homes off the market and rent them out–in a move aimed at clearing the glut of unsold foreclosed homes and preventing home values from falling any more, The Wall Street Journal reports.

The talks come at a time when national rents are on the rise and home prices have been falling. By taking advantage of these higher rents, lenders would be able to cover the costs of holding the properties until the homes can be resold once the market stabilizes, and maybe even make a profit on it later, experts note.

Nationally, sales of distressed homes, which are often sold at steep discounts, continue to pull down home values. Removing some of the high number of foreclosed homes for sale is “worth looking at,” Federal Reserve Chairman Ben Bernanke said last week in testimony to Congress.

Just reducing Fannie Mae and Freddie Mac’s foreclosed property sales from its current rate of 50,000 each month to 30,000 could lessen total distressed sales by one-third and help avoid a further 3 percent to 5 percent decline in home prices, analysts at Credit Suisse estimate.

However, turning foreclosed homes into rentals could place lenders and the government in an unknown role of playing landlord.

Another idea being tossed around, according to The Wall Street Journal: Federal officials selling thousands of foreclosed properties to private investors who would agree to rent them out, and who could then work with property management firms and handle the day-to-day tenant demands.

Read Full Post »

Seven Out of 10 Renters Say Owning a Home is a Top Priority

Washington, DC, July 06, 2011

Most Americans still believe that owning a home is a solid financial decision, and a majority of renters aspire to home ownership as a long-term goal. According to the 2011 National Housing Pulse Survey released today by the National Association of Realtors®, 72 percent of renters surveyed said owning a home is a top priority for their future, up from 63 percent in 2010.

Seven in 10 Americans also agreed that buying a home is a good financial decision while almost two-thirds said now is a good time to purchase a home. The annual survey, which measures how affordable housing issues affect consumers, also found that more than three quarters of renters (77 percent) said they would be less likely to buy a home if they were required to put down a 20 percent down payment on the home, and a strong majority (71 percent) believe a 20 percent down payment requirement could have a negative impact on the housing market.

“Despite the economic setbacks Americans have experienced in today’s current climate, it is clear that a strong majority still believe in home ownership and aspire to own a home,” said NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I. “However, achieving the dream of home ownership will become increasingly difficult for buyers if they are required to make a 20 percent down payment, which may be a reality for many of tomorrow’s buyers if a proposed Qualified Residential Mortgage rule is adopted. That is why Realtors® are strongly urging regulators to go back to the drawing board on the proposed rule.”

Defining the QRM rule is important because it will determine the types of mortgages that will generally be available to borrowers in the future. As currently proposed, borrowers with less than 20 percent down will have to choose between higher fees and rates today – up to 3 percentage points more – or a 9-14 year delay while they save up the necessary down payment.

Over half – 51 percent – of self-described “working class” home owners as well as younger non-college graduates (51 percent), African Americans (57 percent) and Hispanics (50 percent) who currently own their homes reported that a 20 percent down payment would have prevented them from becoming home owners.

Pulse surveys for the past eight years have consistently reported that having enough money for a down payment and closing costs are top obstacles that make housing unaffordable for Americans. Eighty-two percent of respondents cited these as the top obstacle, followed by having confidence in one’s job security.

The survey also found respondents were adamantly against eliminating the mortgage interest deduction. Two-thirds of Americans oppose eliminating the tax benefit, while 73 percent believe eliminating the MID will have a negative impact on the housing market as well as the overall economy.

“The MID facilitates home ownership by reducing the carrying costs of owning a home, and it makes a real difference to hard-working American families,” said Phipps. “Home ownership offers not only social benefits, but also long-term value for families, communities and the nation’s economy. We need to make sure that any changes to current programs or incentives don’t jeopardize our collective futures.”

When asked why home ownership matters to them, respondents cited stability and safety as the top reason. Long-term economic reasons such as building equity followed closely behind. On a local level, respondents said neighbors falling behind on their mortgages and the drop in home values were top concerns. Foreclosures also continue to remain a large concern, with almost half of those surveyed citing the issue as a problem in their area.

The 2011 National Housing Pulse Survey is conducted by American Strategies and Myers Research & Strategic Services for NAR’s Housing Opportunity Program. The telephone survey polled 1,250 adults nationwide, with an oversample of interviews of those living in the 25 most populous metropolitan statistical areas. The study has a margin of error of plus or minus 3.1 percentage points.

NAR’s Housing Opportunity Program, http://www.realtor.org/housingopportunity, was created in 2002 to encourage local Realtor® associations to create initiatives that help increase housing opportunities available to consumers and make affordable housing more readily available in their communities.

Read Full Post »

NAR Supports Mortgage Finance Reform Bill

The long-term viability of America’s housing finance market requires comprehensive reform of the secondary mortgage market. Toward that end, the National Association of REALTORS® supports H.R. 2413, the “Secondary Market Facility for Residential Mortgage Act of 2011.”

“REALTORS® want a secondary mortgage market that will serve home owners today and in the future, as well as support a strong housing market and economic recovery,” said NAR President Ron Phipps. “An efficient and affordable restructured mortgage finance system is in the best interest of taxpayers, and to accomplish that, Congress must enact comprehensive housing finance reform legislation.”

H.R. 2413 was introduced yesterday by Reps. Gary Miller (R-Calif.) and Carolyn McCarthy (D-N.Y.). The bill offers a comprehensive strategy for reforming the secondary mortgage market and gives the federal government a continued role to ensure a consistent flow of mortgage credit in all markets and all economic conditions.

While the return of private lenders is necessary for a healthy market, having only private capital as the sole source of housing finance could severely restrict mortgage capital and result in a system that is dominated by a few large banks that are “too-big-to-fail” at the expense of consumers.

“We strongly support the efforts of Reps. Miller and McCarthy in developing a well thought-out strategy for reforming the secondary mortgage market. Continuing government participation and establishing an entity that will provide liquidity during all market conditions will help ensure that qualified home buyers can obtain safe and sound mortgage financing products even during market downturns, when private entities have historically pulled back,” Phipps said.

The entity would have no shareholders and would exclusively serve a national mission to facilitate the flow of mortgage capital and provide liquidity during all market conditions. The proposal also spells out plans to protect taxpayers and ensure safety and soundness through appropriate regulation and underwriting standards.

“We applaud the efforts of Reps. Miller and McCarthy to create a structure that opens the door to lenders of all sizes without favoring large lenders over small and mid-sized institutions,” said Phipps. “Other hybrid proposals with private profits and government guarantees would only replicate the same incentive structure and mistakes of Fannie Mae and Freddie Mac before the government takeover.”

NAR has and will continue to advocate comprehensive housing finance policies that will ensure qualified borrows can obtain safe and sound mortgage finance products rather than piecemeal approaches that would introduce uncertainty into the housing finance market and slow the fragile housing recovery.

“REALTORS® thank Reps. Miller and McCarthy for their dedication and work on this bill, and we look forward to working with Congress to ensure that comprehensive and effective housing finance reform legislation is enacted. We must do this to preserve and strengthen the American dream for future generations,” Phipps said.

Read Full Post »

Hopeful attitudes about housing market sour

Americans are more negative on their expectations for the housing market, according to the results of a Fannie Mae survey released this week.

Those surveyed expected prices to fall by 0.5% over the next year. That’s a turnaround from the 0.7% increase participants expected in May.

“We see a continued lack of confidence among consumers on home prices, the ability to sell their homes, and the state of their personal finances — all of which point to housing as a continued downside risk to economic growth going forward,” said Doug Duncan, vice president and chief economist of Fannie Mae, in a news release.

Interestingly, the attitudes come at a time when prices rose a bit over the second quarter, according to another report from Clear Capital.

According to the Fannie Mae survey, 25% of the 1,000 American adults polled expect prices to fall in the next year, up from 19% who said the same in May.

Read Full Post »

IRS Raises Gas Mileage Tax Deduction

IRS Raises Gas Mileage Tax Deduction
In a rare midyear move, the Internal Revenue Service is increasing the tax deduction you can take for using personal vehicles for business.

On July 1, if you use your personal vehicle for business, you’ll be able to deduct 55 cents a mile from your taxable income. That marks a 4-cent increase from the beginning of this year.

While the IRS normally updates mileage rates once a year during the fall for the next calendar year, the tax agency decided to raise the gas mileage tax deduction earlier due to high gas prices. (The average gas price currently is $3.61 a gallon, which is up from $2.74 last year, according to AAA.)

“This year’s increased gas prices are having a major impact on individual Americans,” IRS Commissioner Doug Shulman told USA Today. “The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices. We are taking this step so the reimbursement rate will be fair to taxpayers.”

Read Full Post »