Advantages to Home Ownership

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If you’re thinking about buying a new home there are many things to consider, including the tax benefits of owning a home. 

Sure, filing taxes may become a little more complicated, but you may be able to deduct home-related expenses and the savings on can add up to thousands or even tens of thousands of dollars. Because the tax rules for homeowners can be tricky, I recommend you consult with a tax professional before deciding what you can and cannot deduct. But in general, you can figure on a number of significant tax breaks associated with homeownership, including:

Mortgage interest. The biggest tax break is reflected in the house payment you make each month since, for most homeowners, the bulk of that check goes toward interest. In most cases, the interest homeowners pay is deductible. This may mean a reduced tax bill overall and a bigger refund.

Property taxes. As a homeowner, you are entitled to deduct payments of real estate tax on your property if you claimed itemized deductions on your tax return. The IRS allows you to deduct real estate taxes on your primary residence and any other homes you own. There are no limits on the dollar amount of real estate taxes you can deduct.

Loan deductions. When homeowners borrow against the equity of their home to finance other investments, the interest they pay on the new loan is also tax deductible, within IRS guidelines. Generally, equity debts of $100,000 or less are fully deductible.

Improvements on your residence: While you generally cannot deduct improvements to your home on your taxes, such items can lower your tax bite down the road. Improvements such as a family room addition, a kitchen makeover, or a pool increase the “basis” of your home – i.e., the purchase price plus improvements. When you go to sell, the higher your basis is, the less you will have to pay in capital gains taxes if you pay at all.

Tax-free profits. The government allows homeowners to keep tax-free profits from the sale of a home that has been their primary residence for at least two years. Single taxpayers don’t owe taxes on the first $250,000 of profit from the sale of a principal residence, while married homeowners get $500,000 when filing jointly.

These tax savings can add up quickly. On a $500,000, 30-year mortgage loan at five percent, for example, a homeowner would end up paying nearly $25,000 in the first year in interest alone. At a 33 percent federal and state income tax rate, the mortgage interest deduction alone would save more than $8,200 in that tax year! But again, tax laws are complicated and everyone’s tax situation is different. Consult your tax professional to see how the rules apply to your situation. In the meantime, if you have any questions about purchasing a home and how much you can afford, feel free to give me a call! 

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How to Know if a Neighborhood is Right for You

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Before you buy a home and make what’s likely to be one of the biggest investments of your life, you owe it to yourself to receive quality information on your new neighborhood. Getting a deal on your dream home can quickly turn sour if the neighborhood doesn’t meet your expectations. Here’s how to research a neighborhood before you buy a home.

LOOK INTO THE CRIME RATES

In addition to the U.S. Census Bureau’s city profiles that list crime statistics, you can try sites like CrimeReports. com, which offers local maps where you can access crime data in near-real time (the site has partnerships with more than 1,000 law enforcement agencies). You might also visit the local police department to ask about crime statistics and what neighborhood watches or alerts are in operation.

CHECK SCHOOL REPORT CARDS

Even if you don’t have children, you should spend some time investigating the area schools (school districts are typically the largest beneficiaries of your property taxes). The reason for this is simple: good schools tend to attract a higher demand for homes, which can affect the value of surrounding properties. One way to research schools in your new neighborhood is to visit the GreatSchools website, a non-profit national organization, where you can find valuable information from local preschools to colleges.

REVIEW MUNICIPALITY AND PUBLIC SERVICES

It can be easy to focus on the condition of your prospective home, but you should also consider the general condition of the streets, sidewalks and parks in your new neighborhood. Take some time to research your new municipality (start with the official website) and the services offered. Don’t be afraid to call your local clerk’s office and ask questions if you can’t find answers on the website. Things like trash collection, street cleaning and general public maintenance can affect your property’s value over time, especially if these services suffer a sharp decline due to budget cuts.

WALK THE NEIGHBORHOOD

Visit the neighborhood at various times of day and on different days. The nature of a neighborhood changes from day to night and from weekday to weekend. Make sure the activity and noise levels are to your liking. If you see residents out doing yard work or walking their dog, ask how they like the neighborhood and tell them you’re considering buying in the area. Sometimes “insider” feedback can give you the real sense of a neighborhood.

When you’re in the market for a new home, it can be easy to get distracted by what lies within the walls. By following these home buying tips, you’ll be much better prepared to make an informed decision about your new neighborhood. That way, a sweet deal is less likely to turn sour. Please call me if you’d like help in further exploring a new neighborhood.

$26 billion Foreclosure Settlement Could Mean Relief for Underwater Homeowners

If you are underwater on your home or were foreclosed upon between 2008 and 2011 there could be some relief coming your way according to an article from CNNMoney today. Federal and state officials have agreed to a $26 billion settlement of potential state charges of home seizures made without required paperwork and improper foreclosure practices based on robosigning by the five largest lenders in the country – Bank of America, JP Morgan Chase, Citigroup, Wells Fargo and Ally Financial.

About $17 billion will be used to reduce the principal for underwater homeowners and could mean a reduction for as many as 1 million people. While this is a start, the average reduction would be about $17,000, so might not go a long way in assisting those upside down on their mortgages. In addition, about 750,000 homeowners who are current on their mortgages will be able to refinance their loans to take advantage of the current record-low interest rates. About $1.5 billion will also go to homeowners foreclosed upon between 2008 and 2011 and who meet other criteria. They will be eligible to receive $2,000 for charges of robosigning.

Negotiations are underway to expand the current settlement to nine other servicers, potentially expanding the settlement to $30 billion.

It is important to note that even though a homeowner may accept settlement from the bank, it does not inhibit their ability to file criminal prosecution charges against the bank.