Real Estate Tips

Save on your taxes, Buy real estate

Buying a home saves you money on your taxes in these basic ways:

• Mortgage interest on loans up to $1 million is completely deductible for the year in which you pay it to buy, build or improve your principal residence plus a second home.
• Points, or loan origination fees, also are deductible no matter who pays them, the buyer or the seller.
• Most homeowners, except the wealthy and those living in high-priced markets, no longer need to worry about capital gains taxes. The exemption has been raised to $500,000 for married couples and $250,000 for single owners. It can be taken every two years. Homeowners should always keep all receipts of permanent home improvements and of mortgage closing costs. If you do have to pay capital gains taxes, these costs can be added to your adjusted cost basis.

To find out more about how this works, as well as tips and details on additional tax considerations, see the following information or talk to an accountant or financial advisor.

REMEMBER! This information is provided as a service to you and is not intended to take place of financial advice from your accountant or financial advisor. Please consult a financial professional before making decisions based on this information.

Addition Tax Information

• Tax Rates
• Equity Loans
• Points
• Interest
• Second Homes
• Local Taxes
• Moving
• Gains
• Rentals
• Depreciation
• 1031 Tax-Deferred Exchanges

Tax Rates

Tax Facts: Tax rates favor homeowners. Numerous deductions, especially mortgage interest and property taxes, help lower homeowners’ taxable income. Here is the tax rate schedule for income.

Rates are different for married couples who file separately and for heads of households. The effective tax rate may be higher than shown because of limits on itemized deductions and personal exemptions for higher incomes. Also, state income taxes often increase your taxes by 5% or more.

Tax Advice: Many homeowners overpay taxes simply by overlooking deductible items. Get one of many tax preparation books available in bookstores that lists deductible items to jog your memory.

Equity Loans

Tax Facts: Interest is fully deductible on home equity loans up to $100,000 - in contrast to other types of loans - regardless of how the proceeds are used. A home equity loan, including a second mortgage or equity credit line, is a loan secured by a primary or second home. The loan, when added to other debt secured by the residence, can’t exceed the fair market value of the property.

Tax Advice: Interest paid on credit cards or other types of personal loans is not deductible. For many owners, it makes tax sense to pay off this kind of debt with a home equity credit line or loan.

Points

Tax Facts: For home buyers, deductible expenses include settlement charges for points. Deductible points are upfront charges from the lender. One point equals 1% of the loan amount. Points paid by either the buyer or seller are deductible by the buyer in the year of purchase.

Tax Advice: The IRS announced in April 1994 that seller-paid points can be deducted as a Schedule A mortgage expense by buyers who purchased a principal residence since December 31, 1990.

Interest

Tax Facts: Interest payments on a residential mortgage - assuming the mortgage isn’t larger than the purchase price of the house - are fully deductible in most circumstances. That’s a key reason why home ownership is a superb tax shelter. Mortgage interest on a second home is also deductible, as explained in the Second Homes section below. If you own a third home for personal purposes, the mortgage interest is treated as “consumer loan” interest and is not deductible. Interest on home equity loans (see Equity Loans section) is deductible, with some limitations.

Tax Advice: If you are planning to buy a home with a large amount of cash, consider carefully if you plan to ultimately finance the property. For interest to be deductible on a financing more than 90 days after closing, it will be limited to the acquisition loan balance plus $100,000 under home equity loan rules.

Second Homes

Tax Facts: Second homes and vacation homes have separate tax rules depending on the owner’s personal use days. A residence is a second home if it is used personally more than 14 days or 10% of the days it is rented (if rented more than 140 days). It’s a vacation home if personal use is no more than 14 days or 10% of the days it is rented.

For a second home, all mortgage interest and property taxes are deductible as additional itemized deductions. If there’s rent income, other property expenses may be deductible, but only up to the amount of the rent income (losses are not allowed).

Owners of vacation homes may claim rent expense deductions other than interest and taxes, including depreciation of the property, even if it results in a loss. When personal use of a vacation home is involved, deductions are determined by allocating expenses, including interest and taxes, between the rental and personal use periods.

Tax Advice: if the property is vacant part of the year, the courts support a method of calculating the portion of interest and taxes (deductible as an itemized deduction anyway) charged to the rent activity that is very favorable to the taxpayer: multiply total interest and taxes by the percentage of total rent days divided by 365. See your tax advisor about this. Once you exceed the maximum personal use days described above, you’ll get the largest tax deductions by increasing your personal use days in relation to rental days.

Local Taxes

Tax Facts: Real property taxes and state and local income and personal property taxes are fully deductible.

Tax Advice: If you sold or bought property during the year, you may have paid real estate taxes without being aware of it. See closing statement.

Moving

Tax Facts: If you moved to a new home because of a new job or a job transfer, you may qualify for a moving expense deduction. The distance between the old home and the new job must be at least 50 miles more than the distance between the old home and the old job. The location of the new home is not considered. Whether a homeowner or renter, you may deduct the cost of moving household goods and the direct cost of moving you and your family. You may deduct expenses for lodging during the move but not the cost of meals.

Tax Advice: While REALTORS^®‘ commissions, lawyers’ fees, and other closing costs are no longer deductible, these costs can reduce capital gains by adding to the cost basis or reducing the adjusted sale price. See IRS Publication 530, “Tax Information for Homeowners.”

Gains

Tax Facts: The profit on selling a home owned is a capital gain, subject to federal and state capital gains tax. The profit, or capital gain, is reduced by the original cost of the property, selling expenses and outlays for improvements over the years of ownership.

The tax law enacted in 1997 provides tax relief on the sale of your home. You may avoid paying taxes altogether on the first $250,000 (for single taxpayers) or $500,000 (for married taxpayers) of gain realized at sale.

This rule replaces both the “rollover exclusion” that allowed you to avoid tax so long as you purchased a new residence at equal or greater price than the old one, and the “over-55 exclusion” that provided a one-time $125,000 exclusion on gain if you were 55 of older at the time of sale.

To qualify under the new rule, you must have owned the home and occupied it for any 2-year period out of the last 5 years prior to selling. You can only use this provision once every 2 years, but if you move after a shorter stay than 2 years due to a job change or health problem, you can prorate the credit for the time you actually owned/lived in your home.

Gains above $250,000 / $500,000 are taxed at a 15% capital gains rate, down from the former 20% rate.

Tax Advice: Contact your tax preparer for more information about this new law. You should continue to maintain records of improvement expenses in the event your gain exceeds the $250,000 / $500,000 profit cutoff.

Rentals

Tax Facts: If you have adjusted gross income of $100,000 or less (not counting any loss from “passive activities,” deductions for IRA contributions or taxable Social Security benefits), you may deduct up to $25,000 in losses from rental real estate against income from other sources - as long as you own at least 10% of the property and “actively participate” in its management. (If you choose the tenants and approve outlays for maintenance, for example, that’s considered “active” participation.) If your adjusted gross income is between $100,000 and $150,000 you may still deduct some or all of your losses from rental real estate, depending on the amount of the loss.

Tax Advice: Don’t forget that if any rent losses were “suspended” in prior years, they are fully deductible in the year the property is sold.

Depreciation

Tax Facts: Depreciation is an expense deduction that allows the taxpayer to deduct capital investments in income-producing activities. A homeowner might decide to turn a second home into rental property, for example, and would then be able to claim a depreciation deduction. Residential structures put in service after December 31, 1986 are depreciated over 27 years using the straight-line method (equal amounts of depreciation deducted each year). Property already in service before that date continues the method already in use.

Tax Advice: Depreciation provisions are changed frequently. What’s more, it’s often confusing as to what constitutes a repair versus a capital improvement. Before making large outlays to buy or improve a rental property, consult your tax advisor to find out what portion of your costs are capitalized and depreciated, and what portion are treated as expenses for tax purposes.

1031 Tax-deferred Exchanges

Tax Facts: Section 1031 of the Internal Revenue Service Code allows investors to defer (postpone) paying income taxes on gains from the sale of investment real property if the proceeds are reinvested into “like-kind” property. In order to qualify, the old property must have been held for investment or for productive use in a trade or business. Details follow:

Like-kind property means real estate investment property: vacant land, rental property, office building, etc. Residences do not qualify.

You must exchange up in value or equity in order to fully defer taxes. If you exchange down in value or equity, you will have received non-qualifying property (”boot”) and tax is computed on the amount of boot received.

In the past, it was a requirement that you exchange the old and new property simultaneously. Today, delayed exchanges are common provided you meet specific requirements: you must use a “facilitator” to coordinate the sale and buy, you must identify 3 potential new properties to buy within 45 days after selling the old property and you must close on the purchase of one of those 3 properties within 180 days after selling the old property.

Tax Advice: Remember that this is not available on your residence. Because of the stringent requirements, professional tax counsel is essential. Judy can direct you to capable local advisors in the area.

1. Develop a family budget. If you have never done this before, use your receipts from the last six months to develop it so you can better determine what you are spending. In addition to predicatable costs like car payments and rent, this method will allow you to factor in unexpected expenses such as illnesses and car repairs.
2. Eliminate, or at least reduce, debt. As a general rule, lenders look for a total debt load of less than 36% of your take home income. Since this percentage includes your mortgage, which should be less than 25%-28% of your take home, you need to lower the rest of your debt (preferably eliminate your debt) including loans on your car, student loans, and credit-card balances to less than about 10% of your income.
3. Reign in expenses. Rent and utilities are easy to budget for. However, little expenses can also add up. Keep a spending journal or use a cash envelope system to track your spending. You may find some great ways to “trim the fat” or get big bargains.
4. Increase your income. Taking a second, part-time job may be necessary to qualify. However, paying down your other debt and/or taking a higher paying job may be a better option.
5. Save for a larger downpayment. With the many options for zero-down or low-down mortgages, it can be easy to get a loan. However, a larger down payment of 20% or more can earn you a better rate a lower overall cost.
6. Create a home fund. Be intentional with your savings. Designate a set amount each month to save towards your home. Treat it like a bill. When you buy a home, apply your additional savings to your monthly principal to shorten the life of your loan.
7. Keep your job. While you don’t need to be in the same job forever to qualify, having a job for less than two years may mean you have to pay a higher interest rate.

Contact us to find homes that fit your budget and match your lifestyle.

You put your home up for sale and it simply didn’t sell. Undoubtedly, this has created a lot of stress, inconvenience and anxiety for you and your family. Perhaps you already bought another home. Maybe you needed this home sold because of a job change. Regardless of the reason, it’s certainly a burden!

What Should You Do?

The first thing to do is take a step back and analyze the situation. Try to assess what factors led to your home not selling. Below are the top four reasons why homes tend to languish on the the market:

Is the Property Overpriced?

Overpricing your property is usually the number one reason it did not sell. Assuming your neighborhood or area has homes with similar features (number of bedrooms and baths, lot size, etc.) on the market for a lower price, buyers will naturally buy those properties first. The price of your property should be competitively priced with these other homes. That means if you want to sell your home, price the home at or slightly below the comparables. Your real estate agent will help you establish the best price based on the competition. Again, pricing your property above comparable properties can easily cause it to languish.

Another problem with pricing higher than competitive properties is the price reductions. Most homeowners will reduce the price once they realize their home is priced higher than the competition. When your real estate agent enters the price reductions on the MLS, the property is probably at or near where it should have been priced in the first place. The problem now is you missed a lot of the buyers the first round that bought comparable homes for the same price you have just reduced your home to.

To overcome this situation, you are going to have to make sure your new, reduced price is exteremly competitive. If your price reduction still leaves the asking price of your home higher than any comparables, your home will probably continue to languish. Your real estate agent will help you assess the competition and help you establish an asking price that will get the home sold.

Condition of the Property

All of the cosmetic things, such as paint, landscaping, window coverings and flooring should be in good shape. The house should be spotlessly clean inside and out! It’s amazing how most buyers refuse to see “through” superficial, cosmetic shortcomings. To illustrate this point, most buyers can walk into a “perfect” home that is priced below market. However, if the house is cluttered, the carpet is worn, or the house has a strong pet or smoke odor, they move on to look at the next house. And making these cosmetic improvements costs little… mostly your time! To get the house sold, make a small investment in:

1. Landscaping: Make sure lawn is in good shape and trees and shrubs neat and trimmed. Make sure gutters are clear. If you don’t have the time to do it, pay someone.
2. Exterior of home: Make sure there is no chipping paint, dirty windows, or clutter in the yard. Most importantly, remember that most buyers will notice the condition of the front door when they walk in.
3. Interior: Make sure the carpets are clean and attractive, the walls painted (if it needs its) and clean (no smudges!) , the kitchen clutter-free and the windows are spotless. Also, remove excess furniture (rule of thumb is put half the furniture in storage or the basement.) Excess furniture makes rooms appear much smaller. Make sure all clothes are off the floor and organized in closets. And finally, make sure the smell of the home is appealing. Vanilla scent works very well with most buyers.

Was Your Property Aggressively Marketed?

Another primary reason for homes languishing on the market in a simple lack of exposure. In a very hot market, a listing in the Multiple Listing Service along should generate an adequate number of buyers. However, if your market is anything less than red-hot, the amount of inventory will increase and your home needs aggressive marketing.

Most buyers work with real estate agents. A good real estate agent will make sure your property is exposed to the active real estate agents in your areas by presenting your property to many of the area offices. Also, most active real estate agents have a strong network of other agents, and they’re usually on the phone pushing the property to the other agent’s buyers.

Make sure your property is advertised in home magazines. Many buyers pull these off the racks of grocery, convenience and drug stores when they are actively looking to buy a home. Most importantly, make sure your property is advertised in the heavily trafficked web sites like Realtor.com. Well over 80% of buyers use the internet to look for homes!

Finally, and Most Importantly
Did You Hire The “Right” Real Estate Agent?

Like any profession, there are very effective and ineffective agents. Many agents work hard and employ strong marketing techniques. Many agents have a strong network and access to buyers. Many agents simply work hard to get your home sold. However, many do not. Did your agent simply place the house in the Multiple Listing Service? Or, did she or he inform their network of buyers about your property? How about presenting your property at sales meetings both at her or his office and other company offices? Did she or he promote your property at the local real estate board meeting, where many agents gather to share inventory? Did she or he use aggressive advertising, including real estate magazines and heavily trafficked Internet web sites?

Ask yourself, was your agent passionate about selling your property? If not, now is the time to find the agent who will get your home sold.

I hope this information report was informative. As your local real estate professional, I am available to answer any questions you have about properly packing your home to get it sold. You can call me any time for advice, and please remember that you are under no obligation or pressure of any kind.

I work by referrals!

Real Estate Agents know how to get top dollar for their own homes. After all, they package, market and sell homes for a living. In detail, here’s what they do to their own homes to prepare them for sale:

The Exterior

Agents understand the importance of “curb appeal”. To beautify the exterior of the home, they focus on the driveway, entranceway, landscaping and front door.

1. The front lawn and shrubs are manicured. Gardens are mulched.
2. The clutter is removed from the front lawn.
3. Cracks in teh driveway and walkway are fixed.
4. Gutters and downspouts are cleared and in good working order.
5. Chipped or fraying paint on door and window frames is removed, and fresh paint is added.
6. The front door is painted or replaced, if needed.
7. The exterior of the house is painted, if needed.

The Interior

1. Walls are cleaned so there are NO smudge marks. If the paint is dingy, the walls MUST be painted. Light colors are used to make the house appear larger.
2. Carpets are clean and in good condition. Otherwise, get rid of them.
3. The windows are thoroughly cleaned. Buyers like to look outside the windows. The windows and screen doors easily open and close and are in good shape.
4. All clutter is removed.
5. All clothes are placed in the drawers or neatly in closets.
6. The kitchen is thoroughly cleaned. The cabinets, counters and appliances are thoroughly spotless. All clutter is remved. Dishes and glass are neatly stacked in the cupboards. There are NEVER any dirty dishes in the sink or on the counter.
7. The closets are reorganized so they appear larger. Some clothes are removed if necessary.
8. Furniture is removed and either put in the basement or into storage. This makes the home appear much larger. You NEVER want to make it difficult to walk through all the rooms in the house….clear the pathways!
9. Electrical and plumbing are in working order.
10. Broken appliances are fixed.
11. The garage door works perfectly.
12. Curtains are always opened, window shades always up and lights always on (including lamps, hallway lights, etc.) when the home is being shown (even during the day). The combination of sunlight and artificial light helps make the home appear larger and open.
13. A fresh scent is always used to appeal to buyer’s senses. Vanilla is one of the most frequently used scents in builder’s model homes. You can buy vanilla air fresheners that fit directly on your air filter (available at Home Depot).
14. Pet odors are always eliminated!
15. Soft jazz or classical music is always playing on the stereo when buyers come through.

Caution! Never do excessive work!

Many sellers think the more fix-up work they do, the higher the price they will get. That’s not true. Beyond the necessary fix-ups, you can easily start wasting your money. Never do any unnecessary fix-ups prior to selling.

I hope this informational report was informative. As your local real estate professional, I am available to answer any questions you have about making your home “perfect” prior to putting it on the market. You can call me at any time for advice, and please remember that you are under no obligation or pressure of any kind. I would very much like to help you.

Finding a home that is priced below market value and navigating through the mechanics of the real estate transaction are not easy! If you have a tax question, or need legal advice, you seek a professional. When it comes to finding the right house for hundreds of thousands of dollars, and making sure the transaction goes smoothly, you need your real estate professional!

Best Part Is, It doesn’t Cost You A Dime!

When you buy a house through your real estate agent, she or he is taking care of you at NO COST TO YOU. The seller typically pays your agent, so you get representation for free! That’s a bargain, considering all of the services your agent will provide to you:

Finding Your Home

Your real estate agent has access to the right resources and networks to find homes that are “undervalued”. Of course, you can find homes on the Internet or through local ads…but houses that are placed on the market below market value often don’t ever make it to the MLS, let alone the Internet! Real estate experts know that less than 15% of the homes sold in America are ever advertised in the newspaper or in a magazine. Your real estate agent is privy to these “steals”. She or he is in constant contact with the other agents who have listings coming onto the market. Working through your agent, you can get “first crack” at these properties before they are advertisied to the public.

In addition, your agent can find you the “right” home while you’re at work and tending to your other responsibilities, and show them to you at YOUR leisure! What’s your time worth? Your agent can save you plenty of time!

Making the “Right” Offer and Negotiating

A lot of thought and analysis needs to go into your “offer”. Factors like comparable properties on the market, recently completed transactions, location and the seller’s circumstances all play a part in the amount of the offer. Your real estate agent will help you present the most reasonable offer. In addition, your real estate agent is an accomplished negotiator who can make sure the deal moves smoothly to closing (making sure the deal doesn’t fall apart is critical!)

Obtaining Financing

Most real estate agents work closely with one or several good lenders. Your real estate agent can help explain the myraid of loans (VA, FHA, Conventional, ARMs, etc) and set you up with a good mortgage lender. This person will help steer you through the application process and the paperwork maze. Most importantly, this person should help get the best loan for you. Take advantage of your real estate agent’s team - which usually includes a good mortgage lender.

Due Diligence & Settlement

Due Diligence is the process of trying to discover potential problems in the house you are buying before you buy. These problems can range from structural or cosmetic (for example, termites or leaky roof) to problems with the title, taxes or homeowners association. Your agent has experience uncovering these problems, and can save you a lot of money and grief. Furthermore, your agent typically has preferred structural and termite inspectors that are a part of her or his “team.” This inspector can help uncover any problems that may cost you money and grief later on. Also, your agent will make sure you bring everything you need (paperwork, the exact monies, etc.) to the settlement table. They’re job is to make sure the settlement goes smoothly!

Building a New Home

Many new homebuyers erroneously believe that if they buy a home from a builder with out going through a buyer’s agent, they will save money. The fact is, most builders pay a commission, and if you do not use an agent, the builders simply keep that money for themselves as profit. The worst part is, in this case, you will forgo FREE representation!

Negotiating without representation can be a disaster! Most builders do not fall under state real estate commission laws, and therefore do not have to use approved commission purchase contract forms. Most likely, the builders had their own purchase contracts drafted in their own interest… NOT YOURS. Most real estate agents are familiar with these contracts, and can recommend inclusions and exclusions to save you trouble. Agents can also help negotiate important points like “final walk throughs”, contingencies, and closing dates. Best of all, real estate agents have experience negotiating, and may for example, be able to get the builder to do upgrades at no additional cost!

Be certain to work with a broker that can act as your advocate. Most states have a broker relationship known as a buyer’s agent. Avoid working with agents that are neutral such as transaction brokers, dual agents or seller’s agents and sub agents, as they do not represent you. Become familiar with the types of agency available to you in your agrea and ask your real estate professional to guide you.

I hope this informational report was informative. As your local real estate professional, I am constantly aware of “good deals” on the market, and can help you determine what type of house and location is “right” for you. You can call me at any time for advice, and please remember that you are under no obligation or pressure of any kind. I would very much like to help you.

I work by referrals!

I would love to help any of your family members, friends or colleagues buy or sell their homes.