7 Homeowner Tax Advantages

When you’re evaluating how much home you can afford, make sure you factor in the tax advantages of homeownership.

1. Homebuyer tax credits 

If you purchase your first home before April 30, 2010, you’re entitled to a tax credit of up to $8,000. If you currently own a home, but sell it to purchase another home before April 30, 2010, you’re eligible for a federal tax credit of up to $6,500.

2. Deductions for loan fees

Typically, you can deduct the “prepaid interest” you paid when you got your mortgage loan. That includes points, loan origination fees, and loan discount fees listed on your settlement statement, even if the seller paid those fees for you. Each time you refinance your home, you can deduct prepaid interest fees.

 

However, you must meet certain requirements to take the prepaid interest deductions when you purchase or refinance your home. Check with your accountant to be sure you’re following the rules.

 

3. Property tax deductions 

In the year you purchase your home, you’re entitled to deduct the real estate taxes you paid at the closing table. You can continue to deduct the property taxes you pay each year.

 

4. The mortgage interest deduction

 Every year, you can deduct the amount of interest and late charges you pay on your mortgage and home equity loans, though there are limitations. If you’re required to purchase private mortgage insurance (PMI) because you made a downpayment of less than 20% on your home, you can also deduct those premiums as mortgage interest expenses.

 

5. Home office expenses

If you have a home office you use only for business, you may be eligible to deduct the prorated costs of your mortgage, insurance, and other expenses related to that space. The government scrutinizes home-office deductions closely. Be sure you’re entitled to the deductions before claiming them.

 6. The costs of selling your home

In the year you sell your home, you can deduct the costs of selling it, including real estate commissions, title insurance, legal fees, advertising, administrative costs, and inspection fees. You can also deduct decorating or repair costs you incur in the 90 days before you sell your home.

 7. The gain on your home

If you lived in your home for at least two of the previous five years before you sell it, the government lets you to take up to $250,000 of profit on the sale of your home tax free. That amount is doubled for married couples. This deduction isn’t available on rental or second homes.

 The government also allows you to subtract from your home sale profit any amounts you spend on improvements, such as window replacement, siding, or a kitchen remodel. Those deductions are in addition to the tax credits you can receive in 2010 for making energy-saving upgrades. Money invested for routine maintenance and repairs doesn’t count.

 This article includes general information about tax laws and consequences, but is not intended to be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice; tax laws vary by jurisdiction.

 

By:  G. M. Filisko  Published: March 11, 2010

 

Fed Shutdown Won’t Throw Big Wrench in Your Refi or Home Loan Plans

USDA rural loans are another story.

If you’re worried about the federal government shutdown because you’re refinancing your mortgage or buying a home with help from an FHA, VA, or Fannie Mae or Freddie Mac loan program, or you need federal flood insurance, relax. The shutdown isn’t likely to cause problems for you.

That is unless you’re using the U.S. Department of Agriculture 502 rural housing loan program, which helps folks buy homes in rural areas. In that case, you’re toast until Congress agrees to fund the federal government again.

USDA’s rural housing loan program typically runs out of money at the end of the fiscal year (Sept. 30), if not sooner, and then starts making loans again when the next fiscal year starts Oct. 1. This year, there’s no FY 2014 budget agreement so that means no more USDA home loans until Congress funds a budget. However, if your lender got a conditional approval before the shutdown, the lender can move forward on your loan.

Here’s the rundown on the homeownership programs that will stay open even while the federal government is shuttered:

• FHA will continue to insure loans because its guarantees support the health and stability of the U.S. mortgage market. Expect some delays because of staffing shortages.

• The VA’s loan program will go on because it’s funded by veterans' loan fees. As with FHA, expect some delays related to staffing.

• Fannie Mae and Freddie Mac loan programs will be up and running because they aren’t federal agencies (although they’re under federal conservatorship).

• FEMA will continue to sell and service flood insurance policies and fund disaster relief for homeowners, since the program is funded by premiums and not taxes. This won’t affect the flood insurance program rate changes set to kick in on Oct. 1, 2013.

By: Dona DeZube

Published: October 1, 2013

Home Upgrades with the Lowest ROI

File these six upgrades under wish fulfillment, not value investment.

Of course, home owning isn’t just about building wealth; it’s also about living well and making memories -- even if that means outclassing your neighborhood or turning off future buyers. So if any of these six upgrades is something you can’t be dissuaded from, enjoy! We won’t judge. But go in with your eyes wide open. Here’s why: 

 

1.  Outdoor Kitchen

The fantasy: You’re the man -- grilling steaks, blending margaritas, and washing highball glasses without ever leaving your pimped-out patio kitchen.

The reality: For what it costs -- on average $12,000-$15,000 -- are you really gonna use it? Despite our penchant for eating alfresco, families spend most leisure time in front of some screen and almost no leisure time outdoors, no matter how much they spend on amenities, according to UCLA’s Life At Home study. And the National Association of Home Builders' 2013 What Home Buyers Really Want report says 35% of mid-range buyers don’t want an outdoor kitchen.

The bottom-line: Instead, buy a tricked out gas grill, which will do just fine when you need to char something. If you’re dying for an outdoor upgrade, install exterior lighting -- only 1% of buyers don’t want that.

Related: How to Buy a Gas Grill

 

2.  In-Ground Swimming Pool

The fantasy: Floating aimlessly, sipping umbrella drinks, staying cool in the dog days of summer.

The reality: Pools are money pits that you’ll spend $17,000-$45,000-plus to install (concrete), and thousands more to insure, secure, and maintain. Plus, you won’t use them as much as you think, and when you’re ready to sell, buyers will call your pool a maintenance pain.

The bottom-line: If your idea of making it includes a backyard swimming pool, go for it. But, get real about:

• How many days per year you’ll actually swim.

• How much your energy bills will climb to heat the water ($760-$1,845 depending on location and temperature).

• What you’ll pay to clean and chemically treat the pool ($20-$100/month in-season if you do it yourself; $75-$165/month for a pool service).

• The fact that you'll likely need to invest in a pool fence. In fact, some insurance carriers require it.

Related:
Less expensive option: an above-ground pool
Lower maintenance option: natural pools
If you do put in a pool, you can save money by installing a solar heater.

3.  In-Ground Spa
The fantasy: Soothing aching muscles and sipping chardonnay with friends while being surrounded by warm water and bubbles.
The reality: In-ground spas are nearly as expensive ($15,000-$20,000) as pools and cost about $1 a day for electricity and chemicals. You’ll have to buy a cover ($50-$400) to keep children, pets, and leaves out. And, like in-ground pools, in-ground spas’ ROI depends solely on how much the next homeowner wants one.
The bottom-line: Unless you have a chronic condition that requires hydrotherapy, you probably won’t use your spa as much as you imagine. A portable hot tub will give you the same benefits for as little as $1,000-$2,500, and you can take it with you when you move.
Related: What You Need to Know About Installing a Spa

4.  Elevator
Your fantasy: No more climbing stairs for you or for your parents when they move in.
The reality: Elevators top the list of features buyers don’t want in the NAHB “What Buyers Really Want” report. They cost upwards of $25,000 to install, which requires sawing through floors, laying concrete, and crafting high-precision framing. And, at sales time, elevators can turn off some families, especially those with little kids who love to push buttons.
The bottom-line: If you truly need help climbing stairs, you can install a chair lift on a rail system ($1,000-$5,000). Best feature: It can be removed.
Related: 4 Easy-Living Tips for Aging in Place

5.  Backup Power Generator
Your fantasy: The power in your area goes kaput, but not for you. You were smart enough to install a backup power generator. While the neighbors eat cold hot dogs by a flashlight beam, you’re poaching salmon in your oven and pumping out Red Hot Chili Peppers tunes.
The reality: Power outages may seem to go on forever, but they don’t. Fifty dollars worth of batteries can power portable lights, radios, and TVs; a car adaptor will charge your cell phones and iPods; and some dry ice will keep freezer food cold for at least a couple of days.
The bottom-line: If you live in areas where power shortages are the rule, not the exception, spend the money for reliable backup power: Your still-frozen steaks, home office fax, and refrigerated medicine will thank you. But if the power goes out rarely, then installing a standby generator is overkill.
Nationwide, homeowners recouped 52.7% on their average $11,410 investment in a backup generator -- one of the lowest ROIs on the annual Cost vs. Value Report. If you need occasional emergency power, a gasoline-powered portable generator ($200-$650) probably will suffice.
Related: What I Learned About Portable Generators One Dark and Stormy Night

6.  New Windows
The fantasy: Brand new windows that don’t stick, and slash energy bills.
The reality: A $10,000 vinyl window replacement project will recoup about 70% of your investment at resale, and if they’re Energy Star-qualified, they can save you around $300 in energy bills per year.  So, plan to live in your house about another 10 years to recoup the cost of new windows.
The bottom-line: We get it -- new windows are sturdy, pretty energy savers. But unless old window frames are thoroughly rotten, most windows can be repaired for a fraction of replacement costs. And if you spend about $1,000 to update insulation, caulking, and weather-stripping, you’ll save 10%-20% on your energy bill.

By: Lisa Kaplan Gordon

Published: August 26, 2013

Your Top Home Ownership Tax Questions Answered

Which tax benefits do home owners miss? Will you get audited if you take the home office deduction? Find out the answers to these questions and more before Tax Day.

There are a lot of home ownership tax benefits (http://www.houselogic.com/home-taxes-financing/taxes-incentives/) - if you don't forget to take them. To make sure you get your due, HouseLogic asked tax expert Abe Schneier, a senior technical manager with the American Institute of CPAs (http://www.aicpa.org), for tax-filing tips.

HouseLogic: What's the most common home-related tax deduction or credit claimed by home owners?

Abe Schneier: The mortgage interest deduction, [which the NATIONAL ASSOCIATION OF REALTORS® estimates amounts to about $3,000 in tax savings for the average itemizing home owner] and [the deduction for] real property taxes (http://www.houselogic.com/home-advice/property-taxes/property-tax-appeal/).

HL: Which tax provision do home owners often overlook?

AS: You can deduct mortgage insurance premiums (http://www.houselogic.com/home-advice/tax-deductions/deducting-private-mortgage-insurance/) [or PMI] if you were required to get PMI as a condition of receiving financing on your home. Some people will overlook that, although it's typically disclosed on the 1099 that you receive from the bank, along with all the deductible information you need.

HL note: The PMI deduction has been extended through 2013 and is retroactive for 2012.

[Another area of tax-filing confusion is] whether you've correctly treated any points you paid if you refinanced. In a new home purchase, the points can be deducted [in the tax year you paid them]. But typically in a refinancing, you have to amortize and deduct any points you paid over the life of the mortgage, and people tend to forget that after a couple of years.

HL: What's the No. 1 mistake home owners make when filing their taxes (http://www.houselogic.com/home-advice/taxes-incentives/common-tax-mistakes/)?

AS: Because you receive a statement from the bank with details [such as] how much mortgage interest (http://www.houselogic.com/home-advice/mortgage-interest-deduction/mortgage-interest-deductions/) you paid over the year, and how much the bank pays on your behalf in real estate taxes, the number of mistakes has dropped.

But if you're in a state where you pay the real estate taxes on your own - the bank doesn't handle it for you - [people] make mistakes because sometimes real estate tax bills include other items besides pure real estate taxes. It could be trash collection fees; it could be snow removal fees that the state or county is assessing on the real estate tax bill. Since the items are included in the same bill, home owners sometimes deduct [those fees] regardless of whether the items are actually taxes.

HL: What's the single most important piece of advice for people filing their taxes as a first-time home owner?

AS: You have to take a look at your closing statement from when you bought the house. It's commonly called the HUD-1 form and you receive it at the closing. Occasionally, there are fees such as prepaid taxes or interest at closing that can be deductible.

HL: What tax advice do you have for someone who's owned their home for 10 or 20 years?

AS: If you've been a longtime home owner and you've been through refinancings, you have to be careful about how much interest you've deducted, especially if you have a home equity loan (http://www.houselogic.com/home-advice/tax-deductions/deduct-mortgage-interest/) or equity line. A lot of people who've refinanced have sizable equity lines. The maximum outstanding home equity debt that's deductible is $100,000; the maximum deductible amount of interest paid on mortgage debt is $1 million.

HL: What home improvement-related records should home owners keep?

AS: Absolutely keep your receipts for couple of reasons:

1. You want to make sure - if there are any warranties attached to the work that was done - that you maintain those records and you have something to go back to the person who did the work in case something doesn't function properly.

2. If you've added value to the home - you've added a deck, you've added a room, you've added something new to house - you'll need to know what the gain is on that capital improvement when you sell the house.

HL note: Tax rules let you add capital improvement expenses to the cost basis of your home, and a higher cost basis lowers the total profit or capital gain you're required to pay taxes on. Of course, most home owners are exempted from taxes on the first $500,000 in profit for joint filers ($250,000 for single filers). So it doesn't apply to too many people.

HL: How do I tell the difference between a capital improvement and a repair?

AS: Typically a repair is [done] to allow an item, like a home furnace or air conditioner, to continue. But if you were to replace the heating unit, that's not a repair.

HL: Does taking any home-related tax benefits, such as the home office deduction, make a taxpayer more likely to be audited?

AS: Only if numbers look out of the ordinary - for instance, if one year you were writing off $20,000 in mortgage interest debt and the next year you're writing off $100,000 in mortgage interest. Taking the home office deduction in and of itself doesn't usually generate an audit. However, if you claim nominal income and significantly higher expenses in an effort to create artificial losses, the IRS will see that there's something else going on there.

HL: Once filing season is over, when should home owners start thinking about next year's taxes?

AS: Well, hopefully, when you visit your CPA to give information about or pick up [this year's] tax return, your CPA has spoken with you about your plans for [next year]:

          •If any major improvements are scheduled

          •If you're planning on moving

          •How to organize any expenditures for fixing up the home before sale

If you're planning to do any of those things, talk with your CPA so that you're prepared with documentation and so that the [tax pro] can help minimize your tax situation.

 

Article From HouseLogic.com

By: Natasha Padgitt
Published: December 31, 2012

 

Home Affordability Reaches Record High in 2012

With 11 months of data in the books, 2012 is shaping up to be a record year for favorable housing conditions and a strong year for buyers, according to the National Associations of Realtors.

As of November, the Housing Affordability Index released by NAR stood at 198.2. This index takes into account the relationship between median home price, median family income and average mortgage interest rate. A higher index indicates a stronger household purchasing power.

When an index hits 100, it is at the point where a median-income family is making enough money to qualify to buy a median-priced single-family home, assuming 20% is put down and a quarter of gross income is devoted to mortgage principal and interest payments.

NAR predicts that once the December numbers are reported, 2012 will hit a record high 194 on the index, up from 186 in 2011, which was the previous record.

“Rising home prices and a gradual uptrend in mortgage interest rates will offset improvements in family income, but 2013 likely will be the third best on record in terms of household buying power,” said Lawrence Yun, chief economist of NAR. “A window of opportunity remains open for buyers who can qualify for a mortgage.”

NAR expects the housing affordability index to average 160 in 2013, meaning a median-income family would need 160% of the income required to purchase a median-priced single-family home

Gary Thomas, president of NAR, believes the minor erosion in affordability conditions in 2013 could be lightened by bank and regulatory policies.

Thomas says banks could be encouraged to use their massive cash holdings to originate loans if the government begins making clearer rules regarding future lawsuits and buybacks of Fannie and Freddie loans.

“A more sensible lending environment that makes it easier for other financially qualified buyers to get a mortgage would allow many more households to enter the market, boosting home sales as much as 10% to 15%,” Thomas said.

Debt Relief Act Extended

The final act by the 112th Congress to avoid the fiscal cliff was a significant victory for homeowners. As a part of the legislation that cleared the U.S. House of Representatives late last night, Congress extended the cancellation of the mortgage debt relief provision for one year, through the end of 2013. What does this mean? If a lender forgives some portion of a homeowner’s mortgage in 2013, either as part of a short sale or foreclosure, or in a loan restructuring that reduces principal, the owner/seller will not be required to count that forgiven amount as income for tax purposes. Why is this important? Homeowners shouldn’t be forced to pay a tax on money they’ve already lost with cash they never received – and will never receive.  More than 20% of current homeowners with a mortgage are in a distressed financial situation and owe more on their homes than the current market value. The housing market, while recovering, is still fragile enough that this tax relief is necessary to provide stability in the coming year.

The 15 Best Housing Markets for the Next Five Years

By Mamta Badkar | Business Insider – Fri, Nov 30, 2012 3:34 PM EST

• 
  Yahoo! Finance/Thinkstock - Santa Barbara, California

National home prices are expected to climb 0.3 percent in the next year, according to the latest home price report by Fiserv Case-Shiller. But over the next five years, home prices are projected to rise 3.3 percent.

We drew on Fiserv Case-Shiller data to identify the best housing markets for the next five years. The top 15 cities are ranked by the projected annualized change in home prices between Q2 2012 and Q2 2017. We also included the median home price, median household income, unemployment rate, and the change in home prices since their peak to offer a broader view of the local economy and housing market.

Note: The median family income is for Q1 2012, home price data is for Q2 2012. Unemployment data is as of August 2012, and population data is for 2011.

Glens Falls, New York

Google MapsAnnualized expected growth from 2012 - 2017: 7.7 percent

Home prices have declined 7.8 percent in Glen Falls since they peaked in Q4 2008. The median home price is $159,000 which is lower than the national median of $181,000.

Glen Falls has a population of 128,996, an unemployment rate of 9.1 percent, and a median family income of $64,300.


Yuma, Arizona

Google MapsAnnualized expected growth from 2012 - 2017: 7.7 percent

Home prices have fallen 37.1 percent in Yuma since their Q4 2006 peak.

It has a population of 200,870, an unemployment rate of 25.8 percent, and a median family income of $45,400, lower than the national median of $62,900.



Eugene-Springfield, Oregon

Wikimedia CommonsAnnualized expected growth from 2012 - 2017: 7.7 percent

Eugene-Springfield home prices have decreased 22.9 percent since their Q2 2007 peak. The metro has a population of 353,416, an unemployment rate of 8.8 percent, and a median family income of $53,200.




Yakima, Washington

Wikimedia CommonsAnnualized expected growth from 2012 - 2017: 7.8 percent

Home prices in Yakima are down 8.1 percent since their Q1 2009 peak. It has a median home price of $168,800.

Yakima also has a population of 247,141, an unemployment rate of 10.2 percent, and a median family income of $47,800.



Brunswick, Georgia

Wikimedia CommonsAnnualized expected growth from 2012 - 2017: 7.9 percent

Home prices in Brunswick have tumbled 32.3 percent since their Q4 2007 peak.

It has a population of 112,923, an unemployment rate of 10.4 percent, and a median family income of $50,500, that is below the national median.


Tucson, Arizona

Byways.orgAnnualized expected growth from 2012 - 2017: 7.9 percent

Tucson's home prices have plunged 42.6 percent since their Q1 2006 peak, and it has median home price of $153,000.

It also has a population of 989,569, a median family income of $57,400, and an unemployment rate of 7.5 percent.



Gulfport-Biloxi, Mississippi

Ed Schipul / FlickrAnnualized expected growth from 2012 - 2017: 8.0 percent

Home prices in the Gulfport-Biloxi metro area have slipped 20.4 percent since their Q4 2007 peak, and the metro has a median home price of $101,000.

It has a population of 253,511, an unemployment rate of 8.4 percent and a median household income of $52,700.


Napa, California

Google MapsAnnualized expected growth from 2012 - 2017: 8.0 percent

Home prices in Napa have plunged 50.1 percent since they peaked in Q1 2006, and the city has a median home price of $342,000.

Napa has a population of 138,088, an unemployment rate of 8.1 percent, and a median family income of $77,700 above the national median.

Ocala, Florida

Annualized expected growth from 2012 - 2017: 8.0 percent

Home prices in Ocala are down 49.1 percent from their Q3 2006 peak.

But Ocala has a high unemployment rate of 10.1 percent, a median family income of $44,600, well below the national median of $62,900, and a median home price of $105,000.


Santa Barbara-Santa Maria-Goleta, California

Wikimedia CommonsAnnualized expected growth from 2012 - 2017: 8.4 percent

The Santa Barbara-Santa Maria-Goleta metro area has a population of 426,878, a median family income of $69,000, and an unemployment rate of 8.1 percent.

Home prices are down 52 percent from their Q3 2006 peak, and the metro has a median home price of $290,000.


Sebastian-Vero Beach, Florida

Google MapsAnnualized expected growth from 2012 - 2017: 8.7 percent

Sebastian-Vero Beach home prices have fallen 50.9 percent since their Q4 2005 peak.

The metro has an unemployment rate of 10.6 percent, and a median family income of $58,600, while the median cost of a home is $150,000.


Madera-Chowchilla, California

Google MapsAnnualized expected growth from 2012 - 2017: 8.8 percent

Home prices in the Madera-Chowchilla metro area have fallen 54 percent since their peak in the third quarter of 2006.

At 14.2 percent, the unemployment rate is much higher than the national average of 8.1. The metro has a population of 152,925 and a low median family income of $52,700.


Santa Fe, New Mexico

Wikimedia CommonsAnnualized expected growth from 2012 - 2017: 8.9 percent

Santa Fe's home prices have fallen 21.7 percent from their Q4 2007 peak. The city has a population of 145,648, an unemployment rate of 5.4 percent below the national average, and a median household income of $59,600, below the national median of $62,900.



Panama City-Lynn Haven-Panama City Beach, Florida

Wikimedia CommonsAnnualized expected growth from 2012 - 2017: 9.5 percent

Home prices in the Panama City-Lynn Haven-Panama City Beach metro area have fallen 45.3 percent since their Q1 2006 peak. It now has a median home price of $137,000.

The metro has a population of 169,856, an unemployment rate of 8.8 percent, and a median family income of $56,300.


Medford, Oregon

Bailey Weaver / FlickrAnnualized expected growth from 2012 - 2017: 11.2 percent

Medford's home prices have fallen 39.8 percent since their peak in Q2 2006. The metro has a population of 204,822 and median family income of $49,600.

At 10.8 percent Medford's unemployment rate is higher than the national average.