CD6: Real Estate Finance and Tax Issues - 7.5 hours
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Basics of Real Estate Finance

• Define and explain the use of the principal financing instruments: the note, the mortgage, and the deed of trust
• Name major sources of mortgage loan funding in the primary market
• Identify and explain the role of the primary players in the secondary market

Government Influences on Real Estate Finance

• Explain the significance of the Federal Reserve Board as it relates to mortgage lending
• Name and explain the functions of the government agencies most influential in home mortgage financing
• Describe the most significant Congressional Acts that apply to home mortgage lending

Current Trends in Mortgage Lending

• List the benefits and criticisms of the current trend toward computerized loan approvals, including the "drive-by" appraisal
• Name the three major credit repositories and the source of credit scoring most commonly used today
• Describe the factors influencing an individual's credit score and ways to improve scores
• Explain the new concept of "risk-based financing" and its potential influence on the real estate market
• Recognize the influence of the growing immigrant population on today's real estate market

Conventional Mortgage Loans

• Describe the guidelines of the Fannie Mae/Freddie Mac conforming loans
• Explain the purpose of private mortgage insurance (PMI) and alternatives in practice today
• Calculate the borrowing power of a prospective purchaser
• Describe the affordable loan products offered by Fannie Mae and Freddie Mac
• List the components of an adjustable rate mortgage (ARM), the benefits and disadvantages
• Calculate the monthly mortgage payment on any given loan

Government Insured or Guaranteed Loans

• List the guidelines to be followed for both FHA and VA loans, including maximum loan amount, minimum down payment, qualifying ratios, seller contribution, and assumability
• Explain the costs involved and the purpose of the FHA mortgage insurance premium and the VA funding fee
• Make a list of compensating factors that may be considered to enable a borrower to gain loan approval
• Calculate the down payment, loan amount, and monthly mortgage payment for an FHA loan including any mortgage insurance, and for a VA loan including funding fee where required

Special Financing Alternatives

• Explain the various ways that sellers may be able to provide financing for the purchaser of their property
• Describe the essential elements of a lease-purchase contract
• Understand the special problems encountered by a self-employed borrower
• List alternative sources of cash for down payment and closing
• Explain the purpose and implementation of a reverse annuity mortgage

Introduction to Taxation

• Understand the relevance of tax issues to the real estate industry
• Appreciate the effect of recent tax legislation
• Understand the purpose, structure, and features of this course

Home Mortgage Interest Deduction

• Identify the two main requirements for mortgage interest deductions
• Describe the limits on home equity loans when determining tax deductions
• Summarize the differences between acquisition debt and home equity debt
• List the three requirements needed for deducting interest on a qualified residence
• Summarize the general requirements that must be met for home mortgage points to be deductible
• Define the following terms: qualified residence, acquisition indebtedness, home equity indebtedness, interest, points, and secured debt

Taxation of Profit

• Explain the gain or loss formula
• Identify items that may be included in the selling price
• List items that may (or may not) be used as selling expenses
• Explain adjusted basis and why correct determination is valuable in determining gain (or loss)
• Summarize the differences between repairs and capital improvements and how this test applies differently for rental properties and personal residences
• Define the following terms: depreciation, selling price, selling expenses, adjusted basis, option, and capital expenditure
• Define principal residence
• Explain when the gain realized on the sale or exchange of a principal residence is tax free
• Identify the tax planning ideas that have been replaced (i.e., 24-month rollover and over-55 one-time exclusion)
• Summarize the §121 requirements to exclude up to $250,000 or $500,000 MFJ (married filing jointly) from gross income
• Explain what happens when one spouse qualifies and the other does not
• Define the following terms: MFJ (married filing jointly), principal residence, and §121 qualification

Applying the Passive Loss Rules

• Explain RREAs (rental real estate activities)
• Summarize requirements for material participation in rental activities
• Describe the three common tests to define material participation for real estate investors
• List at least three types of taxpayers who will benefit from the 50 percent participation and 750-hour requirements

Office-in-Home Rules