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First-time home buyers' guide to taxes
By Kay Bell • Bankrate.com
There's nothing quite like purchasing your first home. You're on your own. You have a substantial financial investment.
And you now have some different tax considerations.
You're probably well-aware that homeownership affords you several new ways to save on the annual Internal Revenue Service bill.
"Homeownership is one of the best tax benefits that the federal government gives out," says attorney Robin Gronsky, principal of Gronsky Law Offices in Ridgewood, N.J. "People count on it. It's how they calculate their out-of-pocket costs in owning versus renting."
What you're probably less sure of is exactly how to go about taking advantage of all your new house-related tax breaks.
Many first-time homeowners will definitely enter new tax-filing territory with the very first return they file after moving into their new abode. For other new owners, the filing changes might take a little longer to show up.
But all will need to know some basic tax rules that could make their homes a great tax -- as well as an actual -- shelter.
Guide to first-home taxes
You survived the house search and the bidding process. Getting the mortgage on your new home was a piece of cake. But now you've got to file your tax return for the first time since you moved into your first home. Relax. You'll probably find that as a new homeowner, you'll save on your taxes. But there are some specific things you need to pay attention to so that you get every available tax break.
10 tax tips for home buyers
1.
Welcome to Schedule A
2.
Making the most of mortgage interest
3.
Hang onto your HUD-1
4.
Points pay off at tax time
5.
The tax-deduction value of property taxes
6.
Timing is everything
7.
Other deductions, thanks to your home
8.
What's not deductible
9.
Not federal, but tax-related
10.
Planning ahead
Welcome to Schedule AAs a homeowner, regardless of whether you're a first-timer or have owned many residences, you probably immediately think "deductions" when it comes to tax time. That's because you now have the chance to claim several expenses you didn't face as a renter.
The big-three home-related deductions are mortgage interest, any points connected with the loan and property taxes. To claim these, you'll have to itemize.
This deduction method, which requires filing the long Form 1040 and detailing your various deductible expenses on Schedule A, is often a new experience for first-time homeowners.
However, before you rush off to download this new tax paperwork, take a few minutes to evaluate your overall filing circumstances. While many homeowners do benefit by itemizing, that's not the case in every situation.
You want to make sure that the deduction method you choose is the one that gives you the larger deduction amount. If you find that the standard deduction, which on 2005 taxes is $5,000 for single taxpayers and $10,000 for married couples filing a joint return, is greater than the total of your itemized expenses, then by all means take the standard deduction.
Don't worry, you're not stuck using that method forever. You can alternate between the two deduction options every year or you can itemize for several years, claim the standard amount for a few more and then return to itemizing.
The key is to always pick the deduction method that will give you the most tax savings for each filing year.
Wednesday, August 09, 2006
5 homeownership tax myths
http://www.dpol.com
5 homeownership tax myths
By Kay Bell • Bankrate.com
Owning a home tops the dream list for most Americans, and for plenty of good reasons. It's a shelter for your family, a gathering place for your friends and a good long-term investment.
Tax breaks are also frequently cited as motivation for moving from renting to owning, and there are many ways a home can cut your tax bill.
But, as is often the case with the U.S. tax code, homeownership tax benefits are not always clear-cut. That frequently leads to some bad information floating around.
While myths, half-truths and misconceptions may abound, we've narrowed it down to five that, if you buy into them, could cost you.
Half-truths, misconceptions and just plain hogwash
1.Mortgage interest will reduce my tax bill.
2.All costs related to my home are deductible.
3.I must use home profits to buy a new home.
4.Putting my children on the deed is tax-smart.
5.If I take a loss on a sale, I can write it off.
1. My mortgage interest will reduce my tax bill. This is true for the majority of homeowners, but not for all. And this tax break won't work forever.
To take tax advantage of your home loan's interest, you must itemize and come up with a total that exceeds your standard amount. On 2006 tax returns, the standard deductions will be $5,150 for single taxpayers, $7,550 for head of household filers and $10,300 for married couples who file jointly. These amounts increase a bit each year to account for inflation.
"Given home prices these days, most owners are itemizing," says Mark Luscombe, principal tax analyst with CCH Inc. of Riverwoods, Ill. By the time they count mortgage interest, property taxes and other nonhome deductions, such as state taxes and charitable gifts, their itemized totals easily surpass their allowable standard deductions.
But most is not all.
Taxpayers who buy a home late in the year, for instance, might find the standard deduction is more beneficial, at least initially, says Kathy Tollaksen, a CPA at Sikich LLP in Aurora, Ill. In these cases, where you make only a few payments in a tax year, depending on your loan you might not pay much interest, at least not enough to exceed standard amounts.
Timing also could reduce or eliminate other home-related tax breaks.
"Quite a few states have real estate taxes that are calculated in arrears. That is, they have already been paid or mostly paid (by the seller) by the time you buy," says Tollaksen. "In the first year, you're seeing taxes that are someone else's responsibility so you're not getting the full tax value of your real estate taxes."
The benefit of mortgage interest also could be a myth if you've lived in your home for a long time. In this case, you likely are paying more toward your loan's principal instead of interest. So homeowners at the end of a loan term don't get much, if any, from this tax break.
5 homeownership tax myths
By Kay Bell • Bankrate.com
Owning a home tops the dream list for most Americans, and for plenty of good reasons. It's a shelter for your family, a gathering place for your friends and a good long-term investment.
Tax breaks are also frequently cited as motivation for moving from renting to owning, and there are many ways a home can cut your tax bill.
But, as is often the case with the U.S. tax code, homeownership tax benefits are not always clear-cut. That frequently leads to some bad information floating around.
While myths, half-truths and misconceptions may abound, we've narrowed it down to five that, if you buy into them, could cost you.
Half-truths, misconceptions and just plain hogwash
1.Mortgage interest will reduce my tax bill.
2.All costs related to my home are deductible.
3.I must use home profits to buy a new home.
4.Putting my children on the deed is tax-smart.
5.If I take a loss on a sale, I can write it off.
1. My mortgage interest will reduce my tax bill. This is true for the majority of homeowners, but not for all. And this tax break won't work forever.
To take tax advantage of your home loan's interest, you must itemize and come up with a total that exceeds your standard amount. On 2006 tax returns, the standard deductions will be $5,150 for single taxpayers, $7,550 for head of household filers and $10,300 for married couples who file jointly. These amounts increase a bit each year to account for inflation.
"Given home prices these days, most owners are itemizing," says Mark Luscombe, principal tax analyst with CCH Inc. of Riverwoods, Ill. By the time they count mortgage interest, property taxes and other nonhome deductions, such as state taxes and charitable gifts, their itemized totals easily surpass their allowable standard deductions.
But most is not all.
Taxpayers who buy a home late in the year, for instance, might find the standard deduction is more beneficial, at least initially, says Kathy Tollaksen, a CPA at Sikich LLP in Aurora, Ill. In these cases, where you make only a few payments in a tax year, depending on your loan you might not pay much interest, at least not enough to exceed standard amounts.
Timing also could reduce or eliminate other home-related tax breaks.
"Quite a few states have real estate taxes that are calculated in arrears. That is, they have already been paid or mostly paid (by the seller) by the time you buy," says Tollaksen. "In the first year, you're seeing taxes that are someone else's responsibility so you're not getting the full tax value of your real estate taxes."
The benefit of mortgage interest also could be a myth if you've lived in your home for a long time. In this case, you likely are paying more toward your loan's principal instead of interest. So homeowners at the end of a loan term don't get much, if any, from this tax break.
17 ways to save on energy
17 ways to save on energy
By Bankrate.com
Get a home energy audit every couple of years with your power company to find ways to cut costs.
Check with your utility company for rebates whenever you install energy-saving equipment.
Add more energy-efficient insulation to your attic, with the appropriate R-value, or resistance to heat flow, for your climate and the type of heating in your house..
Turn down your home thermostat two degrees and save 24 kilowatt hours a month. It might not sound like much, but it adds up.
Buy a programmable thermostat, especially if your home is vacant most of the day. Set it to turn on a half hour before anyone arrives home.
Adjust your thermostat to a comfortable temperature and wait. Turning your thermostat up or down dramatically wastes energy and increases your heating costs.
Lower your hot water thermostat 10 degrees, but no lower than 120 degrees. You'll still get all the hot water you need and save 25 kilowatt hours a month.
Fix leaky faucets -- one drip a second is 20 kilowatts a month.
Invest in weather-stripping kits if you've got drafty doors.
Trade your standard candescent bulbs for compact fluorescent bulbs. They are more energy-efficient, last for years instead of months, consume little power and generate little heat.
Turn off your computer when not in use, or use the energy-saving "sleep" mode.
Seal energy leaks. Caulk over cracks and small holes around windows and exterior walls. Look carefully around plumbing pipes, telephone wires, dryer vents, sink and bathtub drains and under countertops.
Participate in your power company's special energy-saving program. Some programs shut down electric appliances for short bursts of time during peak hours. You hardly notice the difference -- except in your bill.
Buy major appliances that sport the "Energy Star" sticker. That shows the appliance meets or exceeds standards set by the U.S. Department of Energy and the Environmental Protection Agency.
Consider a front-loading washing machine. They use 50 percent less energy and one-third less water. Plus, they remove far more water in the rinse cycle, and that translates into big savings in dryer time.
When building a home or replacing a roof, select a roof based more on energy efficiency than on how it looks. Light-colored roofs, such as white, galvanized metal or cement tile, do the best job of reflecting the sun, and cool quickly at night.
Landscaping with the right mix of trees and shrubs can lower your energy bills by blocking winter winds or the summer sun.
By Bankrate.com
Get a home energy audit every couple of years with your power company to find ways to cut costs.
Check with your utility company for rebates whenever you install energy-saving equipment.
Add more energy-efficient insulation to your attic, with the appropriate R-value, or resistance to heat flow, for your climate and the type of heating in your house..
Turn down your home thermostat two degrees and save 24 kilowatt hours a month. It might not sound like much, but it adds up.
Buy a programmable thermostat, especially if your home is vacant most of the day. Set it to turn on a half hour before anyone arrives home.
Adjust your thermostat to a comfortable temperature and wait. Turning your thermostat up or down dramatically wastes energy and increases your heating costs.
Lower your hot water thermostat 10 degrees, but no lower than 120 degrees. You'll still get all the hot water you need and save 25 kilowatt hours a month.
Fix leaky faucets -- one drip a second is 20 kilowatts a month.
Invest in weather-stripping kits if you've got drafty doors.
Trade your standard candescent bulbs for compact fluorescent bulbs. They are more energy-efficient, last for years instead of months, consume little power and generate little heat.
Turn off your computer when not in use, or use the energy-saving "sleep" mode.
Seal energy leaks. Caulk over cracks and small holes around windows and exterior walls. Look carefully around plumbing pipes, telephone wires, dryer vents, sink and bathtub drains and under countertops.
Participate in your power company's special energy-saving program. Some programs shut down electric appliances for short bursts of time during peak hours. You hardly notice the difference -- except in your bill.
Buy major appliances that sport the "Energy Star" sticker. That shows the appliance meets or exceeds standards set by the U.S. Department of Energy and the Environmental Protection Agency.
Consider a front-loading washing machine. They use 50 percent less energy and one-third less water. Plus, they remove far more water in the rinse cycle, and that translates into big savings in dryer time.
When building a home or replacing a roof, select a roof based more on energy efficiency than on how it looks. Light-colored roofs, such as white, galvanized metal or cement tile, do the best job of reflecting the sun, and cool quickly at night.
Landscaping with the right mix of trees and shrubs can lower your energy bills by blocking winter winds or the summer sun.
Questions about Homeowners policy
1. Can I drop my homeowners policy? If you have a mortgage, the answer is probably "no." Because you have a lien on the property, most home loans require you to have coverage that the lender finds suitable. If the policy lapses, you can be in mortgage default. If you are having trouble finding an insurer or paying the premiums, call your lender to see if it can offer suggestions and/or work with you to solve the problem.
2. Can I afford to regularly put money into an account to cover any storm damages? This is a necessity if you're going to drop your insurance coverage. Without the emergency self-insurance account, you'll either be stuck not making repairs, borrowing money to make them or putting them on credit cards, which could create additional problems.
3. How large should my self-insurance account be? Sit down and do a worst-case scenario in the event of a natural disaster. Consider what it will cost to repair or replace your home or major parts of it, such as your roof or walls that are more exposed to potential damage.
Then there are your belongings: furniture, clothing, food, exterior buildings, landscaping, and potential costs of debris removal or demolishing partially standing structures that need to come down for safety reasons.
2. Can I afford to regularly put money into an account to cover any storm damages? This is a necessity if you're going to drop your insurance coverage. Without the emergency self-insurance account, you'll either be stuck not making repairs, borrowing money to make them or putting them on credit cards, which could create additional problems.
3. How large should my self-insurance account be? Sit down and do a worst-case scenario in the event of a natural disaster. Consider what it will cost to repair or replace your home or major parts of it, such as your roof or walls that are more exposed to potential damage.
Then there are your belongings: furniture, clothing, food, exterior buildings, landscaping, and potential costs of debris removal or demolishing partially standing structures that need to come down for safety reasons.
Homeowner's Insurance Don't go bare
Homeowners insurance: Don't go bare
By Kay Bell • Bankrate.com
Homeowners all across the United States are doing double takes as they look at their annual insurance policy renewal statements.
A spate of natural disasters, accompanying insurance claims and subsequent premium increases has pushed some homeowners to the breaking point. Out of both personal and financial frustration, some are considering dropping their coverage.
In the insurance industry, it's known as "going bare." And while it might be tempting if you're looking at a policy price that's tripled or quadrupled in the last year, it's not a decision to be made rashly.
"Two types of people might qualify to go without coverage," says George Yates of Dayton Ritz & Osborne, an insurance agency based in East Hampton, N.Y. "The independently wealthy, with an asset so small to them that it wouldn't matter if they lost it, or someone who just can't afford insurance.
"In either case, it's not particularly good risk management."
But sometimes, a homeowner's day-to-day financial management issues are more pressing.
In Florida, for example, homeowners are finding their premiums have skyrocketed. Add to that deductibles that look like they won't be met unless the structure is destroyed. Plus, many insurers have either gone out of business or decided to stop writing policies, limiting customers' comparison-shopping options.
In the end, many homeowners find themselves in the unhappy position of choosing between high premiums or exorbitant premiums. Or no premiums.
By Kay Bell • Bankrate.com
Homeowners all across the United States are doing double takes as they look at their annual insurance policy renewal statements.
A spate of natural disasters, accompanying insurance claims and subsequent premium increases has pushed some homeowners to the breaking point. Out of both personal and financial frustration, some are considering dropping their coverage.
In the insurance industry, it's known as "going bare." And while it might be tempting if you're looking at a policy price that's tripled or quadrupled in the last year, it's not a decision to be made rashly.
"Two types of people might qualify to go without coverage," says George Yates of Dayton Ritz & Osborne, an insurance agency based in East Hampton, N.Y. "The independently wealthy, with an asset so small to them that it wouldn't matter if they lost it, or someone who just can't afford insurance.
"In either case, it's not particularly good risk management."
But sometimes, a homeowner's day-to-day financial management issues are more pressing.
In Florida, for example, homeowners are finding their premiums have skyrocketed. Add to that deductibles that look like they won't be met unless the structure is destroyed. Plus, many insurers have either gone out of business or decided to stop writing policies, limiting customers' comparison-shopping options.
In the end, many homeowners find themselves in the unhappy position of choosing between high premiums or exorbitant premiums. Or no premiums.
Tuesday, August 08, 2006
Annual Percentage Rate
The cost of credit on yearly basis, expressed as a percentage. Required to be disclosed by the lender under the federal Truth in Lending Act, Regulation Z. Includes up front costs paid to obtain the loan, and is therefor, usually a higher amount then the interest rate stipulated in the mortgage note. Does not include title insurance, appraisal, and credit report.
Amortization
Amortization is payment of debt in regular, periodic payments of principal and interest.
Aggregate Adjustment
The adjustment made as a credit to the borrower at closing to avoid an overage in the borrower's escrow account.
Adjustment Interval
For an adjustable rate mortgage, the time between changes in the interest rate charged. The most common adjustment intervals are one, three, or five years.
Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based on an index. Also called a variable rate mortgage.
Acknowledgement
An acknowledgement is a formal declaration before a public official (typically a Notary Public) certifying that one has signed a document. Required before recording real estate legal documents, such as deeds of trust.
Abstract of Title
An abstract of Titleis a historical summary of all the recorded transactions that affect the title to the property. An attorney or a title company will review an abstract of title to determine if there are any problems affecting the property. All problems must be cleared before the buyer can be issued a clear and insurable title.
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