It was just last summer that Charlotte Perkins made the hardest decision of her life as she and her husband Jim were caught in the vise of the housing bust.

Wanting to downsize their lives as they headed toward retirement, they bought a new house in Mesa, Arizona, before they sold the old one, also in Mesa. Their previous home had been appraised at nearly $400,000 at the height of the market, but as the housing crisis ravaged Arizona, they were told they'd be lucky to get $200,000 for it.

They were carrying a loan of $260,000 on their original home alone, meaning they were well 'underwater,' owing much more than it was worth. Combined with the mortgage on the new house, their housing payments had become an "anchor around our necks," she says, threatening to gobble up all their retirement savings and leave them with nothing.

The couple made a difficult call: They would do a 'strategic default,' and simply stop paying the old mortgage. "We really had to wrestle with it," said Perkins, 60. "We had worked all of our lives to build good strong credit, and we're proud people. But it came down to, 'Can we keep doing this?' We had to say 'No.'"

As the housing bust drags on, many homeowners are thinking like Perkins. Almost 11 million homes are now underwater, says financial information provider CoreLogic. Around 3.5 million homeowners are behind in their payments and another 1.5 million homes are already in the foreclosure process, according to online marketplace RealtyTrac.

As banks start to work through their backlog of distressed properties, the New York Federal Reserve estimates that 3.6 million foreclosures will take place during the next couple of years.

So, the question is: Does it make sense to keep paying a massive mortgage, knowing that it might be decades before a home regains its prior value? Or is that akin to - as columnist James Surowiecki recently wrote in the New Yorker - "setting a pile of money on fire every month"?

"I constantly get the saddest e-mails from people saying, 'I've exhausted all my life savings, my retirement is gone, and now I have to default,'" said Jon Maddux, CEO of YouWalkAway.com,

a foreclosure agency that helps clients with strategic default (and charges a fee for it). "But if they had seen the writing on the wall a couple of years earlier, stopped paying the mortgage and stayed in the home throughout the whole process, they would be in a much better financial position."

Moral Quandary

There's a moral component to that decision, of course. People naturally feel embarrassed about breaking a contract and not paying their bills; no one wants to be branded a deadbeat. But remember that companies default on their obligations when it makes financial sense for them to do so, via the bankruptcy process. Even the Mortgage Bankers Association itself, in a flourish of irony, arranged for a short sale of its Washington headquarters.

It's not personal; it's business. So think of strategic default as a business decision, and do a cold-eyed cost-benefit analysis of whether it makes sense for you, advises Carl Archer, an attorney with Maselli Warren in Princeton, New Jersey.

[Also see: Small Money Missteps That Can Cost You Big]

"People think it reflects on their integrity, and say 'I wasn't raised this way,'" said Archer. "But the more businesslike attitude is to say that there's a contract, there are penalties for violating that contract, and sometimes it just makes financial sense to break it."

The penalties largely revolve around your credit record, which admittedly gets blown up in the near-term. For a few years you can likely forget about qualifying for a mortgage or a car loan. When lenders are ready to take a chance on you again, you'll have to pay for the privilege, with stiff interest rates due to your default history.

What Happens to Scores

Charlotte Perkins watched her credit score go from a pristine 800 to 685, dropping every time she missed a payment. Credit-scoring firm FICO estimates that someone with a 680 score would see that number sink between 85-100 points after a strategic default, and someone with 780 could crater 140-160 points.

Not desirable, of course, but not the end of the world either. For Perkins, for instance, she already had a loan on her Ford Escape, and the mortgage on her new house, before she even started the default process. She hasn't seen any changes on her credit cards since, in terms of limits or interest rates.

Now that the previous home was auctioned off in December, she can start slowly rebuilding her credit, a process that should take about seven years.

Strategic default isn't a decision to be taken lightly, of course. If everyone did it, the housing market -- and the banks -- would be in much worse shape than they already are.

The following are some of the issues to keep in mind:

1. Look to it as a last resort, not a first option. Your financial troubles could be alleviated with a simple refinancing, especially since 30-year mortgage rates are near record lows of below 4 percent. If the banks are hesitant to rework your loan, look into the number of government programs designed to keep you in your home, which can be researched at MakingHomeAffordable.gov.

2. Location, location, location. Each state has its own rules and regulations regarding foreclosures, which affect both the length of the process and what you could be liable for in the end. In so-called 'non-recourse' states like Arizona, California and Texas, a lender cannot come after you for any deficiency (for instance, if your mortgage was $300,000 and they're only able to sell the property for $200,000). In other states they can pursue the difference, in theory - which is why some homeowners opt to file for bankruptcy, to free themselves from those potential obligations as well.

3. Use the interim to save like a demon. If you're in a state like New York or Florida, which require a judicial review of every foreclosure, it might be a couple of years before you actually have to pack up. In the meantime, be extremely disciplined about stockpiling cash. That will help you with a down payment for a rental, to pay for a car in cash if you need to, or to clear up other debts you might have. "Save money as if you were still paying the mortgage," says Archer. "If you don't, then you'll run out of both time and money, and then you'll be in a real tough spot."

4. Know the tax implications. Historically, if you have a debt that's forgiven, the canceled amount is considered taxable by the IRS. In the wake of the housing bust, though, the Mortgage Forgiveness Debt Relief Act was drafted to spare you those taxes. That legislation expires at the end of 2012, though - so if it's not extended, you could potentially face a tax bill for the difference.

5. Talk to a professional. A bankruptcy or real-estate attorney can help you through a very tricky process. The National Association of Consumer Bankruptcy Attorneys, for instance, has a searchable database of lawyers at www.nacba.org.

"Strategic default is not an easy decision, and there's a cost either way," said Gerri Detweiler, director of consumer education for Credit.com. "Would you rather be $200,000 underwater, or would you rather have seven years of damage to your credit report? It depends whether you're finally at the point where enough is enough."

Next week Fannie Mae and Freddie Mac are to announce sweeping changes to the HARP program.  Expected changes include -- Higher LTV's (above 125%), shorter amortization periods (pay down mortgages sooner), and reduced appraisal requirements, to name but a few.   Various other eligibility factors appear to remain unchanged, such as that the loan has to be owned  by Fannie or Freddie prior to and  continually since May 31, 2009. 

We will continue to monitor and advise when all parameters have been issued and rules issued by our various lenders.

Please do not hesitate to contact us should you wish us to contact you directly when these changes are published. 

Happy Veterans Day to all the men and women who have served. 

RISMEDIA, 2011—The economy is improving overall and, as a result, some bright spots are showing up in the real-estate market. However, the foreclosure spike, which began around the same time the recession did, isn’t a distant memory just yet. In many areas, foreclosures are still happening; in some areas, those numbers have increased. Surprisingly, foreclosures have even encroached into some key cities that were formerly thought to be unshakable real-estate markets — like San Francisco, where foreclosures actually rose in 2010 (including in luxury neighborhoods like Pacific Heights, where a condo that sold in 2007 for $2.3 million recently sold for $1.44 million as a foreclosure).

This “second wave” of foreclosures – combined with the fact that many people’s 401(k)s have bounced back with the stock market, and most economists agree that the bottom of the recession has hit – means that competition for these foreclosed homes is, in many cases, fierce. There’s a renewed, final dash to get in on what some perceive as the best real-estate deals they’ll get in awhile. But how do you know which foreclosure is a good buy, and which to walk by? Here are some tips to help guide your clients:

Get it checked out by a pro. Perhaps the most essential point: Never go by looks alone as an indicator of whether a foreclosure is a good buy. A $2 million mansion may look gorgeous on the surface but might have toxic mold hiding beneath, which will require extremely pricey, lengthy repairs. On the other hand, a Mission fixer may look dilapidated but may have excellent bones and can be repaired at reasonable cost. Stipulate to your client that a certified professional home inspector must be contracted to check out a property before making a deal on it, to determine what repairs need to be done — so they can truly assess whether it’s worth it for them. Don’t rely solely on previous inspections, even if relatively recent – a vacant home can deteriorate quite a bit in a short time, especially in an area with climate extremes.

Don’t abandon common real-estate logic. Too many people, when shopping for a foreclosure, abandon their real-estate sense and focus on price alone. Remember, things like a sub-par location, poor light, terrible view, below-average school district, high local crime rate and other negatives might be part of the reason why a home went into foreclosure in the first place. Don’t assume that financial problems of the previous owner are the main reason for every foreclosure. The last owner may have bought the home ignoring some of the aforementioned problems, and seen value sink because of them. Don’t ignore those problems, especially if your client is considering selling in the next 5 to 10 years. Let your client know how long the home has been empty; the longer it has, the more of a chance this isn’t a good deal. Also, if there are plenty of other foreclosures nearby, that’s also a bad sign.

Skip – or, at least, very strongly rethink – the flip. “House-flipping,” i.e., buying at bargain-basement pricing, updating, then selling for much higher – is very 2006… and hasn’t exactly been hot since. Even if a house looks like an incredible flipping opportunity, beware of this temptation unless your client is a pro, with incredible contractor connections. Tell them to automatically triple the amount they think they’ll be spending to fix up the home. Clients should avoid the temptation to make fast money unless they think it through and talk to their real-estate professional, a home inspector, contractors – and possibly even a therapist!

Go over the budget. A fixer-upper means nothing if you can’t afford to fix it up – and that’s especially true for foreclosures, where those fixes can cost a pretty penny. Before buying, make sure your client has an ample budget to do all the repairs needed, after truly taking stock (with the help of a home inspector) of what those needs are. Make sure they have at least half of that money in cash, and preferably all of it. They don’t want to take more loans than needed, especially private loans, which shouldn’t be taking at all – the interest on them will, little by little, chip away at the initial foreclosure bargain.

Do your homework on lenders. Fewer people are getting financing for home-buying than they did before the recession, but good financing is luckily still available to many qualified buyers. Just make sure, as with regular home buying, that you enlist a reputable lender. A good lender will take the time to do a review of your client’s financial life and long- and short-term goals, to truly pick the best solution for them, rather than just spitting out options. Also ask about hidden costs, rate locks, prepayment penalties, origination fees and whether underwriting is done in-house. Make sure everything is explained to them clearly, and recommend that they review all of the answers with a real-estate attorney, who will also be able to check out the lender’s overall reputation. These are things that many people do during the standard home-buying process, but might gloss over when lured by a low foreclosure price tag.

See it in person. Finally, advise buyers never to buy a house without going in person to see it. Ever. Foreclosure or otherwise.

RISMedia, June 16,2011— Fannie Mae (FNMA/OTC) announced the expansion of incentives to encourage sales of HomePath REO properties to owner occupants. Now through October 31, qualified buyers and selling agents can receive financial incentives on sales of HomePath properties, which can be found at www.homepath.com. The incentives are part of Fannie Mae’s commitment to neighborhood stabilization, and are available on sales to buyers who will reside in the home as their primary residence.

“Supporting homeownership and stabilizing neighborhoods are critical to helping the housing market recover,” saya Ed Neill, Senior Vice President for Credit Loss Management at Fannie Mae. “Our previous incentives have been effective in securing owner occupants for these properties. By encouraging homebuyers who will make these properties their long-term home, these expanded incentives will help to stabilize communities.”

The expanded incentives offer qualified homebuyers up to 3.5 percent of the final sales price to put towards closing costs. In addition, selling agents representing the owner occupant buyer can now receive a $1,200 bonus. The incentive must be requested in the initial offer. Eligible initial offers must be submitted after June 14, 2011 and must close by October 31, 2011. Investor sales are not eligible for the incentive.

HomePath properties offer buyers a wide selection of options, including single-family homes, condominiums, and town houses. HomePath properties may also be eligible for HomePath Mortgage and HomePath Renovation Mortgage financing, which offers homebuyers an opportunity to purchase with as little as 3 percent down.

"As an investor in a lowering price market, I look for deals with either a fix-and-flip or rental (potential). I know that if a property won't sell, it will rent."

A recent report from property search site HotPads found that rental listing prices on the site climbed 7.4 percent between April 2010 and April 2011, while for-sale listing prices dropped 8.8 percent.

"We predict investors looking to ride the rental upswing will continue renting properties and will wait for home values to appreciate," the report said.

"Increasing demand for rental properties is an indicator of a growing preference for low-risk housing options, which is closely linked to the broader economic uncertainty."

A rise in rental interest among consumers has also manifested itself in real estate search traffic. Visits to sites that specialize in home and apartment rentals climbed 33 percent in February compared to February 2010, according to Web metrics firm Hitwise.

Investors accounted for an average of 21 percent of transactions in first-quarter 2011, about the same share as in first-quarter 2009, according to NAR survey data. Cash buyers made up an average 33 percent of transactions in first-quarter 2011 — the highest share of any quarter since NAR began keeping track in fourth-quarter 2008. NAR's data does not separate out investors from cash buyers, though the association does say that most cash buyers are investors.

By contrast, first-time homebuyers have accounted for an average 32 percent of purchases for the past two quarters, which is the lowest share since fourth-quarter 2008.

In March, total distressed property sales, including foreclosures and short sales, trended upward to 40 percent of total sales, NAR said. Investors snapped up 54 percent of those distressed sales, according to economic research firm Capital Economics.

"Investors, looking for diversification and an inflation hedge, are looking at deeply discounted homes to generate rental income. The median price of an investor-purchased home in 2010 was cheap — at $94,000," said Lawrence Yun, NAR's chief economist, in the survey report.

"One thing that was lacking for the second-home market in the past two years was mortgages to buy … non-primary-occupant homes — because government-backed mortgages are not there for these properties. An eye-popping 59 percent of investor home purchases were made with cash in 2010."

Only 39 percent of investors used a mortgage to finance their purchase in 2010, compared with 80 percent of primary-home buyers, according to NAR's 2011 Investment and Vacation Home Buyers Survey.

Buyers of investment properties had higher median household incomes than buyers of primary residences — $87,600 compared with $69,600, the survey said. Investors also tended to be older than buyers of primary residences — 45 compared with 37.

Like buyers of primary homes, investors favored purchases in suburbs or subdivisions — 33 percent bought in that type of location. A quarter of investors chose to buy in small towns, compared with 16 percent of primary-home buyers. Both types of buyers bought rural and urban properties at the same rates in 2010 — 17 and 18 percent, respectively.

Also similar to primary-home buyers, investors favored the South (32 percent) and the West (24 percent). Investors lived a median 19 miles from the home they purchased in 2010.

"Having chased 'markets,' the thing I now value most is proximity," said Sean O'Toole, a real estate investor and founder of ForeclosureRadar.

"I truly believe that a good investor should be able to find value in any market, so we believe investors are better off focusing on the market(s) they know, and properties they can easily and regularly visit." Most investors (63 percent) bought detached, single-family homes, followed by condos or duplexes, in buildings with two to four units (16 percent).

The biggest proportion of investors bought their property through a real estate agent (44 percent), while 20 percent bought directly from an owner they knew, and 17 percent bought through a foreclosure or trustee sale. "To rent to others" was the most popular reason to buy among investors, according to the survey. The second most popular reason cited was "to diversify investments/good investment opportunity."

The median length of time investors planned to own their purchase was 10 years. More than half of investor buyers (52 percent) said it was at least "somewhat likely" that they would buy another vacation or investment property in the next two years.

Investors tended to be more confident about the housing market than primary homebuyers: 77 percent of investors said "now is a good time to purchase real estate," compared with 68 percent of primary-home buyers. "Historically speaking, whenever economics favored buying rather than renting, or … were about even, people favored buying because of the perceived benefits of homeownership," said Rick Sharga, senior vice president of foreclosure data site RealtyTrac.

But now a "psychological hangover" is preventing potential buyers from entering the market, Sharga said. "Nobody wants to wind up on our foreclosure list."

RISMEDIA, May 16, 2011—Price declines will end and average U.S. home prices will stabilize by Labor Day. Prices in even the hardest-hit markets will level out by the end of 2012.

That’s the latest prediction from the authoritative Moody’s Analytics and Fiserv, Inc, after an analysis of home price trends in 375 markets tracked by the Fiserv Case-Schiller Indexes.

Fiserv reports that home prices have fallen so far that they are at pre-bubble levels, creating affordable housing relative to income which, coupled with a slowly improving economy, will finally end price declines.

The slide in home prices has greatly improved home affordability. Relative to household income, affordability is at or close to pre-bubble levels in nearly every metro area across the U.S. This dynamic, combined with growing economic strength, leads Fiserv and Moody’s Analytics to project that average U.S. home prices will stabilize in the third quarter of this year. By the end of 2012, home prices in even the hardest-hit housing markets will level out.

However, while Fiserv and Moody’s project the national U.S. home price average will stabilize in the third quarter of 2011, a 3 percent decline is expected in the first half of this year.

“The first step toward restoring confidence in housing markets is an improvement in consumer sentiment, which we expect will increase slowly through 2011 due to stronger job gains and a falling unemployment rate,” says David Stiff, chief economist, Fiserv. “As confidence rises, the decline in home sales that started in 2006 will, finally, come to an end.”

Even as balance returns to the housing market, Fiserv Case-Shiller data forecasts the pace of recovery will be uneven across U.S. metro areas.

“Many metro areas have vast inventories of vacant homes, a consequence of both over-building during the bubble and high rates of foreclosure,” says Stiff. “New data from the 2010 U.S. Census provide estimates of the depth of the overhang of vacant homes in some markets. Between the 2000 and 2010 Censuses, the overall U.S. housing vacancy rate increased by 2.4 percentage points. In metro areas with the largest price bubbles and crashes, housing vacancy rates have jumped by 3 to 7 percentage points.”

The most stressed U.S. housing markets are characterized by unemployment rates that exceed the national average and high housing vacancy rates. Examples include Detroit, Las Vegas and Orlando, where unemployment tops 10 percent and vacancy rates are above 15 percent. Stiff noted the feedback loop that continues to exert downward pressure on home prices in these markets:

“Economic growth in these markets was highly dependent on residential real estate from 2002 to 2006, with many new jobs tied directly or indirectly to booming housing markets. When the bubble popped, these markets suffered the largest job losses. Rapidly falling employment undercut housing demand, causing home price depreciation to accelerate, leading to more job losses in residential real estate.”

The markets that escaped this dynamic are better positioned for more robust recoveries. Examples include Dallas, Milwaukee, Houston, New York, Baltimore and Pittsburgh. Stiff notes that while many of these metro areas did experience double-digit home price declines, their economic growth was more balanced during the boom years, relying less on residential construction. Today, these markets benefit from relatively lower housing vacancy and unemployment rates.

The mean cap rate for office properties slightly increased in the fourth quarter by roughly 40 basis points. This marks a break from the trend after office cap rates experienced significant declines during the prior two quarters. However, though directionally reversed, the magnitude of the change was less than either of those prior two quarters, making this quarter's observation look like an outlier and not a reversal of the trend. The improvement in office fundamentals should signal to investors that the office market is in recovery mode and spur increased demand (and pricing) for office properties. Also, this improvement in the market is likely to further arouse interest from lenders as well. More plentiful debt capital will increase the pool of investors and competition for assets which should also be a tailwind for office cap rates.

It's not usually welcome news when the landlord hikes your rent. But for the housing market, rising rents may be one of the most hopeful signs in years.

The markets for rented and purchased homes usually move in opposite directions. When the housing market is hot and more people are buying homes, rents tend to stay low or go down, because there are fewer renters. But when high interest rates or other factors cool the housing market, more people rent. Since it takes awhile for builders to add more units, the supply-demand mismatch drives rents up.

As with many other things, that natural relationship between rented and purchased homes got upended during the recession. Everybody knows about the housing bust, which got started as builders slapped up too many homes and lenders gave mortgages to millions who couldn't afford them and were doomed to default. In the inevitable shakeout, a record number of foreclosures led to an oversupply of homes and a sharp pullback in lending. And many homeowners became renters. But instead of going up, rents fell, too. That's because of the way people reacted to lost jobs and falling incomes. Young people moved back in with their parents. Others doubled or tripled up to cut living expenses. Spouses in troubled marriages toughed it out for a few more years instead of getting divorced, because they couldn't afford two places to live. Overall, the demand for rental units went down.

Now, all those overfilled households are finally starting to get some breathing room. New renters are emerging at rates similar to the late '90s—when the economy was on a tear—as grown kids finally wave goodbye to their parents and many others move into a place of their own. That's pushing high vacancy rates back down toward levels they were at before the recession—and sending rents back up. Research firm REIS estimates that nationwide, rents will rise an average of 3.4 percent in 2011, which is more than inflation or incomes are likely to rise. In cities like San Jose, Calif., Washington, D.C., Seattle, and New York, rents will go up by more than average. And in a few select neighborhoods, rent increases could exceed 10 percent.

Some tenants, no doubt, will protest that the rent is too damn high. But to economists, that kind of tension is a welcome indication that damaged parts of the economy are returning to normal. As building owners make more money, new construction will pick up, providing badly needed jobs in a sector with sky-high unemployment. And if rents are going up by more than inflation or incomes, renters will start to think about buying, which is just what the dilapidated housing market needs.

The depth of the housing downturn has continually mystified economists, many of whom expected a turnaround by now, thanks to low interest rates and what seems to be a sustainable economic recovery. Yet sales have continued to tumble, pushing the bust into its fifth year. Home prices have already fallen by more than 30 percent since 2006, and most forecasts call for another 5 to 10 percent decline. The high rate of foreclosures is one obvious problem, since it means there's a steady supply of underpriced homes dragging down values. High unemployment has reduced the number of buyers. Banks won't lend to many buyers anyway, since they've gotten religion and are now determined to prevent another spike in defaults. And many potential buyers are waiting for signs that the bust has ended and prices aren't likely to fall any further.

Some renters, especially those on fixed incomes, aren't likely to turn into buyers any time soon. But many renters are the future home buyers of America, just as they always have been. Victor Calanog, chief economist at REIS, points out that about 65 percent of the roughly 1.1 million new jobs created over the last year have gone to young workers between the ages of 20 and 34. More than two-thirds of people in that age group are renters. So the rental boom is being driven by up-and-comers with fresh disposable income and more optimism than older workers facing an underfunded retirement or truncated career that has left them desperate to downsize.

[See how buying a home is likely to change.]

As apartment costs go up, younger renters are likely to react the same way their parents did: by looking around for a better deal. And buying will look pretty attractive. Falling prices and low interest rates have driven affordability to the best levels since 1970, when the National Association of Realtors started tracking it. All the old reasons for buying instead of renting still exist: getting into a good school district once you have kids, enjoying a neighborhood that seems less transient than an apartment building, and doing whatever you want with your home instead of begging the landlord for permission. Plus, renters don't have to worry about selling an existing home that may be worth less than the mortgage.

It won't happen overnight, and a meaningful pickup in home sales will still require easier lending by banks, lower unemployment, and more confident consumers willing to commit to a big purchase. But rising rents are an important first step. So when the landlord comes calling, negotiate hard, but remember that he might be showing the way to a place you can call your own.

Written by: Rick Newman, US News

Ask a roomful of homeowners what's so great about owning versus renting, and you'll hear them holler in unison: "the tax deductions!" And it's true – homeowners who itemize their taxes are able to deduct 100% of their mortgage interest and property taxes from their income tax returns.

That means that if you're in a 28% tax bracket, Uncle Sam effectively subsidizes about a third of your borrowing costs or more, making your home more affordable or allowing you to buy a larger home than you could have otherwise. Also, big chunks of your closing costs are tax deductible, and hundreds of thousands of dollars of any profit (or capital gains) that you realize when you sell your home are exempt from income taxes.

At tax time, it's critical to know what you're entitled to, so you can claim it. So, here are five essential need-to-knows about home-related income tax tips to help you get the most tax-reducing bang out of your home-owning buck – and to avoid hefty home ownership-related tax traps.

1. You Have to Itemize Your Return to Claim Your Deductions

During the recent debate on Capitol Hill about whether the mortgage interest deduction should be eliminated (it won't be, not anytime soon), it came out that nearly 40% of homeowners lose out on their major tax advantages every year when they fail to itemize their income taxes. If you own a home and otherwise have a fairly simple return, it might be tempting just to take the standard deduction – and if your mortgage, property taxes and income are low enough, the standard deduction might outweigh your homeowners' deductions. But you'll never know if you're losing out on the tax advantages of itemizing unless you try; before you grab a pen and start filling in that 1040-EZ grab those forms from your mortgage company and answer the questions on tax software like TurboTax, which will automatically do the math on whether itemizing or taking the standard deduction will result in the lowest tax bill – or the highest tax refund – for you.

2. Plan Ahead and Be Strategic When Taking a Home Office Deduction

According to the Small Business Administration, the average home office deduction is $3,686 – multiply that by your tax bracket – 15%, 20%, 30% or whatever it is, and that's what you'll save on your taxes by writing off your home office. Know, though, that the space you designate as your home office cannot be exempted from capital gains tax when you sell your home later. The $250,000 (single)/ $500,000 (married filing jointly) income tax exemption for capital gains is only good on your personal residence, after all – not including any space in your home you've claimed as your tax-advantaged office. If you foresee selling your home for much more than you bought it in the future, near or far, discuss this with your tax preparer to see if the few hundred bucks you save is worth the capital gains complication later.

3. Tax Relief for Loan Modifications, Short Sales and Foreclosures Is Only Around Through 2012

While the long-term housing outlook is beginning to look up, 2011 is projected to be the peak year for foreclosures during this market cycle. Distressed homeowners who are on the brink of a short sale, loan modification or foreclosure should be aware that normally, any mortgage balance that is wiped out by one of these outcomes is taxed as what the IRS calls Cancellation of Debt Income, or CODI.

Under the Mortgage Debt Forgiveness Relief Act of 2007, the IRS is currently not charging income taxes on CODI incurred through a loan mod, short sale or foreclosure on most primary residences through 2012. But right now, banks are taking many months, or even years, to work out mortgages in all of these ways; the average foreclosure in New York state right now occurs only after 22 months of missed mortgage payments. If you foresee any of these outcomes in your future, don't put things off. Do what you can to get to closure on your distressed home and loan, ASAP, while you won't have income taxes to add as the insult on top of your significant housing injury.

4. Project the Income Tax Consequences of a Refinance or Property Tax Appeal

Homeowners everywhere are working on applying for a lower property tax bill on the basis of the last few years' decline in their home's value. Those who have equity have flocked en masse to refinance their 7% home loans into the 4% to 5% rates of the last few months. These strategies offer some of the heftiest household savings out there for the corresponding investment in time and money they take. But here's a caveat for savvy homeowners who slash these costs: remember that property taxes and mortgage interest, the very costs you're minimizing, are also the basis for the major tax benefits of being a homeowner. So plan ahead for your income tax deductions to go down along with your taxes and interest.

5. Don't Forget Those Closing Costs

If you bought or refinanced your home in 2010, you may be so focused on your mortgage interest and property tax deductions that you forget all about your closing costs. Any origination fees or discount points that were paid to your mortgage lender at closing are tax deductible on your 2010 return, get this – even if the seller paid your closing costs. If you can't figure out exactly what you paid, look for your HUD-1 settlement statement, that legal sized paper full of line item credits and debits that you should have received from your escrow provider or title attorney at, or just after, closing. Can't find it? Drop your real estate agent or mortgage broker an email; they can usually get a copy to you quickly.