Thursday, February 16, 2017

Will My Taxes Look Different Now That I Am a Homeowner?

YES!  Here's what you need to know to itemize tax deductions as a homeowner.

Taxes? Gross! Who wants to think about government paperwork, especially when your hand still aches from signing the 977 forms required to buy your first house? But listen up: As a new homeowner, you can typically wave bye-bye to the 1040-EZ form and say hi to itemizing your deductions on Schedule A.

That means you can combine the thousands you’re now paying in mortgage interest and property taxes with what you’re already paying in state and local income taxes. And bam! Suddenly, you’ve got more to deduct than the $6,300 standard deduction.

For recent first-time homeowners Ben and Stephanie London, buying a home in Apex NC, led to tax savings that fattened Ben’s paycheck by $100 every two weeks. If you’re like the Londons, home ownership will give you more deductions, so your taxable income will decrease and you could owe less in taxes.

What Deductions Should I Itemize?

  • Loan costs and fees
  • Mortgage interest
  • Property taxes
  • Private mortgage insurance
Not everyone who buys a home will end up itemizing and owing less in taxes, says Anna Berry Royack, an accountant who sees many first-time home buyer tax returns at her Liberty Tax office in North Carolina.

To find out if you’re eligible to itemize, add up your deductions with your handy home closing paperwork, says Berry Royack. The document you’re looking for is either a HUD-1 Settlement Statement or a Closing Disclosure. (Lenders used the HUD-1 until late 2015, when they switched over to the more consumer-friendly Closing Disclosure.)

Here are the details on what you need to look for:

One-Time Deductions

Loan costs and fees. “Different lenders call their loan costs and fees different things,” Berry Royack says. “Look for an ‘application fee’ or ‘underwriting fee.’ Also, if you paid points to get a lower interest rate, that’s often deductible in the first year. Your lender might have called that ‘buying down the rate’ or ‘discount fee’ instead of ‘points.’ Points are easy to find on the Closing Disclosure because they’re at the top of page 2 and labeled ‘loan costs.’”
Related: New Closing Docs Protect You From Surprise Fees

Recurring Deductions (Woo Hoo!)

1. Mortgage interest. Most homeowners can deduct the interest portion of monthly mortgage payments — not the principle — each year. Exception: When your mortgage is close to being paid off, the interest is less than the principle. So even when combined with other deductions, you might not have enough to exceed the standard deduction. But that’s a loooong way off for most of us.
To see how the mortgage interest deduction plays out in real life, consider first-time homeowners Ben and Stephanie London. They moved from a $1,000-a-month rental apartment to a $368,000, four-bedroom, two-story, 2,300-square-foot house in Apex.

They had some deductions as renters, but those expenses were less than the $6,300 standard deduction they each got ($12,600 for marrieds), so as renters, they opted to take the standard deduction.

When they bought their home, the combination of mortgage interest, property taxes, NC’s 5.75% income tax, charitable contributions, and some un-reimbursed medical expenses incurred during Stephanie’s pregnancy, added up to more than $12,600. Hello, itemization!

All these deductions reduced their income, so they owed about $2,600 less in federal and state income taxes.

Once they knew how much lower their tax bill was going to be, the Londons had two choices:
  1. Leave their payroll tax withholding as it was and get a $2,600 refund the following year.
  2. Adjust their tax withholding so the extra $2,600 wasn’t taken out of their paychecks any more.
The Londons went with No. 2. “I changed my withholding so I get about $100 more [in each] paycheck instead of a big refund,” Ben says. That’s smarter than letting the IRS hold on to that until refund season since the IRS pays zero interest on the money you overpay in taxes.

Tip: You know what would be an even smarter move? Opting to automatically divert that $100 per paycheck into a home repair savings account. Once you’ve saved a tidy 1% of the value of your home, you could use that money to fund your 401(k) or your kid’s college costs.

2. Property taxes. Property taxes are also deductible, but they can be tricky in the year you buy the home because both you and the sellers owned the property during that year. Sadly, you only get to deduct the property taxes you owed for the portion of the year you owned the home; the seller gets the rest of the deduction.

This info shows up on the Closing Document as “adjustments for items paid by seller in advance” or “adjustments for items unpaid by seller.”

Tip: Who pays the property taxes in the year of the sale — the buyer or seller — is negotiable, but not who gets the deduction. Say you live in a sellers’ market and to sweeten the deal agree to pay the full year of property taxes for the seller. Nice negotiating! But you still can’t claim the full year deduction under IRS rules.

Other stuff on the not-so-deductible list:
  • Transfer fees for changing title from the sellers to you.
  • Recordation fees to put the title change into public record.
  • Homeowner or community association fees. They feel like a tax because you gotta pay ‘em, but they’re not.
3. Mortgage insurance. Private mortgage insurance, which many homeowners pay each month if they put down less than 20%, is deductible for many every year you pay it.

Private mortgage insurance protects lenders when they accept low down payments. To claim the deduction, your adjusted gross income (AGI) must be no more than $109,000. The deduction phases out once your AGI exceeds $100,000 ($50,000 for married filing separately) and disappears entirely at an AGI of more than $109,000 ($54,500 for married filing separately).

Other types of insurance, like homeowners insurance, aren’t deductible unless you can claim a portion of the home insurance because you work at home exclusively. “People can get those two confused,” Berry Royack says.

Other Deductions You Might Overlook

As the Londons found, sometimes buying a house is the trigger that, combined with other deductions you might have, makes it worth busting out Schedule A. That stuff you donated so you didn’t have to move it was probably a charitable donation. Those state and local taxes you paid could pay you back via itemization. Hopefully, you don’t have to, but you can maybe tack on medical and dental expenses above 10% of your income and casualty and theft losses.

Special Circumstances to Keep in Mind

If this is your first year doing your taxes as a homeowner, it’s worth splurging on an accountant to make sure everything goes down without a hitch. This is especially true if one of these special circumstances apply:
  1. You work from home. If you take conference calls in the same place your dog lives — that is, your home office is your exclusive, regular place of business — you might be able to deduct a portion of your home ownership costs under the home office deduction. “That’s a $1,500 deduction for a 300-square-foot office. Or you can deduct more if you have a larger office or the actual costs for you home office are higher,” Berry Royack says. The standard home office deduction is $5 per square foot. If you’re self-employed, you’ll be taking this deduction on Schedule C.
  2. Your lender sold your mortgage to a different lender. “That happens to a lot of people about five minutes after they walk out of the closing,” Berry Royack says. “If you’re one of them, you’ll need to remember to look for two sets of year-end disclosures — one from each company that had your loan.”
Add the numbers from both year-end forms to get the amount to deduct. If the numbers don’t look right, call the agency or company that services the mortgage and double-check the figures or ask your accountant to do it. “We see a lot of returns [at our firm], so we usually can tell if your property tax figure looks right, and we know where to check,” Berry Royack says.

I'm providing this info as a helpful guide.  I am not a tax expert, so please see your accountant for more details.

I AM an expert Realtor, though!  I have lots of contacts & information to help you achieve your real estate goals.  Contact me today & I will be happy to answer your questions on our local market.



Elizabeth

Elizabeth Scott, Realtor®, Broker
Diamond Award – High Sales Volume
e-PRO, Strategic Pricing Specialist
Fathom Realty NC, LLC       
Phone: 919.306.9699
http://www.thesmartrealestateagent.com/contact/
Email:  Elizabeth@TheSmartRealEstateAgent.com


Be savvy...Call the Smart Realtor -- I'm never too busy for any of your referrals
 

Tuesday, November 1, 2016

Buying is Now 37.7% Cheaper Than Renting in the US

We see this here in the Triangle, NC area, too.  Average rental price for a 3 bed, 2 bath home in Apex NC is $1704/month.  With a good credit score, a buyer can get a mortgage for $1200/month.  And, we all know that homes that are owned are usually in better condition & better maintained than rentals.  Here is some interesting information:

The results of the latest Rent vs. Buy Report Rent vs Buy Report from Trulia show that homeownership remains cheaper than renting with a traditional 30-year fixed rate mortgage in the 100 largest metro areas in the United States.
The updated numbers actually show that the range is an average of 17.4% less expensive in Honolulu (HI), all the way up to 53.2% less expensive in Miami & West Palm Beach (FL), and 37.7% nationwide!

Other interesting findings in the report include:

  • Interest rates have remained low, and even though home prices have appreciated around the country, they haven’t greatly outpaced rental appreciation.
  • Home prices would have to appreciate by a range of over 23% in Honolulu (HI), up to over 45% in Ventura County (CA), to reach the tipping point of renting being less expensive than buying.
  • Nationally, rates would have to reach 9.1%, a 145% increase over today’s average of 3.7%, for renting to be cheaper than buying. Rates haven’t been that high since January of 1995, according to Freddie Mac.

Bottom Line

Buying a home makes sense socially and financially. If you are one of the many renters out there who would like to evaluate your ability to buy this year, call me today and I will help you find & purchase your dream home!



Elizabeth Scott, Realtor®, Broker
Diamond Award – High Sales Volume
e-PRO, Strategic Pricing Specialist
Fathom Realty NC, LLC      
Phone: 919.306.9699
http://www.thesmartrealestateagent.com/contact/
Email:  Elizabeth@TheSmartRealEstateAgent.com
 

Saturday, April 30, 2016

One More Time - You Don't Need 20% Down to Buy a Home!



A survey by Ipsos found that the American public is still somewhat confused about what is actually necessary to qualify for a home mortgage loan in today’s housing market. The study pointed out two major misconceptions that we want to address today.

1. Down Payment
The survey revealed that consumers overestimate the down payment funds needed to qualify for a home loan. According to the report, 36% think a 20% down payment is always required. In actuality, there are many loans written with a down payment of 3% or less.
Many renters may actually be able to enter the housing market sooner than they ever imagined with new programs that have emerged allowing less cash out of pocket.

2. FICO Scores
The survey also reported that two-thirds of the respondents believe they need a very good credit score to buy a home, with 45 percent thinking a “good credit score” is over 780. In actuality, the average FICO scores of approved conventional and FHA mortgages are much lower.
The average conventional loan closed in March had a credit score of 753, while FHA mortgages closed with a 685 score. The average across all loans closed in March was 722. The chart below shows the distribution of FICO Scores for loans approved in March.



Bottom Line
If you are a prospective buyer who is ‘ready’ and ‘willing’ to act now, but are not sure if you are ‘able’ to, call me today and I will help you understand your true options.



Elizabeth Scott, Realtor®, Broker
Diamond Award – High Sales Volume
e-PRO, Strategic Pricing Specialist
Fathom Realty NC, LLC      
Phone: 919.306.9699
Elizabeth@TheSmartRealEstateAgent.com