10 COMMON ERRORS HOME OWNERS MAKE WHEN FILING TAXES
February 27, 2012
10 Common Errors Home Owners Make When Filing Taxes
By: G. M. Filisko
Published: January 5, 2012
Don’t rouse the IRS or pay more taxes than necessary — know the score on each home tax deduction and credit.
Sin #1: Deducting the wrong year for property taxes
You take a tax deduction for property taxes in the year you (or the holder of your escrow account) actually paid them. Some taxing authorities work a year behind — that is, you’re not billed for 2011 property taxes until 2012. But that’s irrelevant to the feds.
Enter on your federal forms whatever amount you actually paid in 2011, no matter what the date is on your tax bill. Dave Hampton, CPA, tax manager at the Cincinnati accounting firm of Burke & Schindler, has seen home owners confuse payments for different years and claim the incorrect amount.
Sin #2: Confusing escrow amount for actual taxes paid
If your lender escrows funds to pay your property taxes, don’t just deduct the amount escrowed, says Bob Meighan, CPA and vice president at TurboTax in San Diego. The regular amount you pay into your escrow account each month to cover property taxes is probably a little more or a little less than your property tax bill. Your lender will adjust the amount every year or so to realign the two.
For example, your tax bill might be $1,200, but your lender may have collected $1,100 or $1,300 in escrow over the year. Deduct only $1,200. Your lender will send you an official statement listing the actual taxes paid. Use that. Don’t just add up 12 months of escrow property tax payments.
Sin #3: Deducting points paid to refinance
Deduct points you paid your lender to secure your mortgage in full for the year you bought your home. However, when you refinance, says Meighan, you must deduct points over the life of your new loan. If you paid $2,000 in points to refinance into a 15-year mortgage, your tax deduction is $133 per year.
Sin #4: Failing to deduct private mortgage insurance
Lenders require home buyers with a down payment of less than 20% to purchase private mortgage insurance (PMI). Avoid the common mistake of forgetting to deduct your PMI payments. However, note the deduction begins to phase out once your adjusted gross income reaches $100,000 and disappears entirely when your AGI surpasses $109,000. Also, unless Congress acts to extend the PMI deduction again, 2011 is the last tax year for which you can take this deduction.
Sin #5: Misjudging the home office tax deduction
This deduction may not be as good as it seems. It's complicated, often doesn’t amount to much of a deduction, has to be recaptured if you turn a profit when you sell your home, and can pique the IRS’s interest in your return. Hampton’s advice: Claim it only if it’s worth those drawbacks. If so, here's what to know about what you can write off.
Sin #6: Missing the first-time home buyer tax credit
While the original home buyer tax credit deadline passed in April 2010 (and isn’t available in 2012), military families and some government workers on assignment outside the U.S. were given an extension until April 30, 2011, to get a home under contract and take advantage of up to $8,000 in tax credits for first-time buyers and $6,500 in credits for repeat buyers.
It applies to any individual (and, if married, the individual’s spouse) who serves on qualified official extended duty service outside of the United States for at least 90 days during the period beginning after Dec. 31, 2008, and ending before May 1, 2010.
Sin #7: Failing to track home-related expenses
If the IRS comes a-knockin’, don’t be scrambling to compile your records. Many people forget to track home office and home maintenance and repair expenses, says Meighan. File away documents as you go. For example, save each manufacturer's certification statement for energy tax credits, insurance company statements for PMI, and lender or government statements to confirm property taxes paid.
Sin #8: Forgetting to keep track of capital gains
If you sold your main home last year, don’t forget to pay capital gains taxes on any profit. However, you can exclude $250,000 (or $500,000 if you’re a married couple) of any profits from taxes. So if you bought a home for $100,000 and sold it for $400,000, your capital gains are $300,000. If you’re single, you owe taxes on $50,000 of gains. However, there are minimum time limits for holding property to take advantage of the exclusions, and other details. Consult IRS Publication 523.
Sin #9: Filing incorrectly for energy tax credits
If you made any eligible improvement, fill out Form 5695. Part I, which covers the 30%/$1,500 credit for such items as insulation and windows, is fairly straightforward. But Part II, which covers the 30%/no-limit items such as geothermal heat pumps, can be incredibly complex and involves crosschecking with half a dozen other IRS forms. Read the instructions carefully.
Sin #10: Claiming too much for the mortgage interest tax deduction
You can deduct mortgage interest only up to $1 million of mortgage debt, says Meighan. If you have $1.2 million in mortgage debt, for example, deduct only the mortgage interest attributable to the first $1 million.
This article provides general information about tax laws and consequences, but shouldn't be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice; tax laws may vary by jurisdiction.
HOW TO APPEAL YOUR LOS ANGELES COUNTY PROPERTY TAX BILL
February 27, 2012
Now that we’re experiencing declines in property values after the huge run-up in prices for the last few years, it’s time to take a look at the procedures for disputing property tax assessments in the Los Angeles County area.
California’s Proposition 8 is a constitutional amendment that allows a temporary reduction in assessed value when a property suffers a “decline-in-value”. As defined by Proposition 8, ”a decline-in-value occurs when the current market value of your property is less than the current assessed value as of January 1″. This means that you have to look at the value of your home as of January 1, not today’s value, in appealing your property tax bill.
Before You File An Appeal
It’s best to call the Los Angeles County Assessor’s Office prior to filing an appeal. If there is an error on your bill, they may be able to correct it over the phone. Sometimes assessments are added for additions or improvements to a property that were permitted but never completed, and these should be eliminated from your property tax bill without having to go through the formal appeals process.
The Property Tax Dispute Process
The property tax dispute process is actually quite easy!
- Complete a Decline in Value Reassessment Application form.
- Provide information on sales of comparable properties supporting your claim for a reduction in value. You can search the Los Angeles County Assessor’s database for recently sold properties in your area here. A local real estate agent or title agent can also be a valuable source of information.
- You must select two comparable sales that sold as close to January 1 as possible, but no later than March 31 to enter onto the application form.
- File the form with the Assessor by December 31 of the current tax year.
- Be sure to pay your property taxes ON TIME, even if there is an appeal pending.
Using Comparable Sales to Prove Decline in Value
Finding comparable sales (comps) for your home is relatively easy if you’re living in the Santa Clarita area, since most housing tracts are clearly defined. Here are a few guidelines to follow when looking at comparable sales:
- Be sure that all transactions used are “arm’s length” transactions, meaning that the homes were sold on the open market. Don’t use foreclosure sales or other distress sales for comps. And don’t use sales where the home was sold to a family member.
- Make sure the homes used for comps are similar to yours, preferably the same model within your tract. If there has been limited activity in your area, expand your search to homes close to yours both geographically and in age, and that have similar square footage (lot size and living space) to yours. Also take views, pools and other improvements into consideration.
- You can use price per square foot as a measure of value, but realize that this is only a portion of the property’s value. You must also take into consideration any simiilarities and differences between your home and any other home that you choose to use as a comparable sale.
Appealing the Assessor’s Decision
After the Decline in Value Reassessment Application form is filed, it will be reviewed by the Los Angeles County Assessor’s Office. If you don’t agree with their decision, you can of course file an appeal with the Assessment Appeals Board. You must file your appeal between July 2 and November 30.
The Decline in Value Determination is Only Temporary!
Proposition 8 property tax reassessments are not permanent, but last at least one year. Reassessment values will continue to increase by an annual inflation factor of no more than 2% per year. Therefore, it may be necessary to file a request for reassessment in subsequent years as well.
What NOT to Expect
The property tax appeals board only has limited authority. They cannot reduce your property tax bill simply because your neighbors are paying less than you are. They cannot remove penalties or interest for paying your taxes late. They cannot extend property tax filing periods. And they cannot change the decision of another appeals board.
REFINANCING: IS IT TIME TO ACT?
February 27, 2012
Mortgage rates have been hovering at historical lows for months—but some homeowners are waiting for even better deals before they take the plunge and refinance.
Experts say that could be a mistake.
Associated Press
Townhouses in Beaverton, Ore.: Many homeowners who are able to refinance are still holding out.
The average rate for a 30-year fixed-rate mortgage fell to a record low of 3.87% for the week ended Feb. 2, according to mortgage-finance giant Freddie Mac. Rates on fixed-rate 15-year loans dropped to 3.14%.
Many homeowners who are able to refinance are holding out because they believe rates still have more to fall.
Jason Riggs, a consultant to a San Francisco nonprofit, is grappling with whether he should refinance the $560,000 mortgage on his duplex. The 38-year-old wants to get a better rate than his current 5%, but says, "I'm really wary of spending the time and money to do this and then have rates go lower."
Adding to the optimism over the prospects for lower rates: President Barack Obama's recent appeal to Congress for new legislation to allow homeowners who are current on their mortgages the chance to refinance at bargain-basement rates.
Already Near Bottom?
Yet in the short term, the administration's proposal isn't likely to lower rates, experts say. In a report this month, Barclays Capital called it more "bark than bite."
Some economists predict the Federal Reserve will embark on a third round of bond-buying known as "quantitative easing" to target mortgage rates directly. In this scenario, the Fed would buy large quantities of mortgage bonds to drive down rates.
But many economists don't think such a program would move the needle significantly. "It's going to take heroic measures in the short term to do much more with rates," says Brad Hunter, chief economist at Houston-based Metrostudy, a housing-market research firm.
If anything, with the economy improving, albeit slowly, the odds are better that rates will tick a bit higher in coming months, economists say.
The upshot: "This is an excellent time to refinance," says Greg McBride, a senior financial analyst at Bankrate.com, a consumer information site.
Mortgage rates vary by region, but they are down around the country for borrowers with top-notch credit. Homeowners in Chicago can get a 3.625% rate on a 15-year fixed-rate mortgage from Bank of America. Citigroup, meanwhile, is offering a 3.875% rate on 30-year fixed mortgages and 3.250% on a 15-year fixed-rate loans. EverBank Financial of Jacksonville, Fla., is offering San Diego residents a 3.88% rate for a 30-year fixed mortgage.
To be sure, brewing fears about Europe's instability could damp rates a bit, Metrostudy's Mr. Hunter says. But it would take an economic catastrophe there to send rates plunging from these levels, economists say.
Homeowners who are waiting to see whether a new quantitative-easing program will lower rates further are going to be disappointed, say housing economists. That is because the Fed's future bond-buying spree already is being reflected in the markets. Mortgage-backed securities are trading near record-low yields, which move in the opposite direction of prices.
Even so, mortgage rates haven't moved in kind. Historically, average rates on 30-year-fixed mortgages tend to be around 1.68% higher than the yield on the 10-year Treasury note. This month, the spread is 2.0%, according to John Burns, president of research firm John Burns Real Estate Consulting.
That spread isn't likely to get squeezed much further, Mr. Burns says. "Rates don't have much further to fall," he says.
When considering a refinance, of course, it is important to factor in closing costs, marginal tax rates and the number of years left on your mortgage. Many experts say it doesn't make much financial sense to refinance unless you can reduce your rate by at least one point.
Your "break-even" threshold, which is when the savings surpass your upfront costs, shouldn't exceed two years, experts say, unless you are sure you will remain in the house longer than that.
To help defray the upfront costs, homeowners can try to persuade lenders to cover the bill for their fees. Regional lenders are more likely to agree to cover the costs on loans backed by Fannie Mae and Freddie Mac.
"It's in no way a freebie, but for some homeowners, it works," Mr. McBride says.
Shorter-Term Loans
Another way to save is to refinance into a shorter term to cut the total interest payments. For instance, you could ditch a 30-year-fixed mortgage for a 15-year loan.
Say you have 25 years left on a $400,000 fixed-rate loan at 5%. By jumping into a 15-year fixed-rate mortgage at 3.375%, your monthly payment would jump by about $687, but you would save more than $200,000 in total interest payments.
Ellen Richard, a 34-year-old stay-at-home mom in Arlington, Va., traded in her 30-year fixed-rate mortgage at 5.5% for a 3.375% 15-year loan in December. Even though her monthly payments went up by $978.25, she will save $160,671 in interest over the life of her loan.
Says Ms. Richard: "It was such an excellent decision."
FIX IT ANYWAY
February 27, 2012
"If it isn't broke, don't fix it" is certainly popular advice, but if you've ever had a serious plumbing leak, you certainly wished you had taken care of the problem earlier.
Washing machines, like all appliances, are supposed to work and when they don't, it's time to have them fixed or replaced. However, there is a critical connection from your water supply that may even be older than your washing machine itself.
Ask someone whose hose broke while they were asleep or out of town and you'll hear stories of how quickly the water can damage walls, flooring and furniture. Almost anyone can replace the hoses with a pair of pliers for under $30.00 to avoid this potential catastrophe.
As you're shopping for the replacement hoses, consider the braided stainless steel connectors. The advantage is that the stainless steel offers additional protection should a soft spot develop in the hose beneath. They'll cost a little more but offer considerably more protection for a nominal price.
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April 04, 2012
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MID LIMITED PER RESIDENCE
April 09, 2012
MID Limited per Residence
A recent U.S. Tax Court ruling clarified the IRS position that the $1.1 million limit for mortgage interest deduction applies per residence and not per taxpayer as some high-priced homeowners were hoping.
A married homeowner filing jointly can have fullly deductible interest on a mortgage of up to $1,000,000 of acquisition debt and up to an additional $100,000 of home equity debt. If the married couple files separately, each party is limited to deducting the interest on half of those maximum amounts.
The court case came about when two unmarried individuals who owned a home together as joint tenants felt that they were entitled to deduct the interest on $1.1 million of debt each. IRS did not agree with their understanding and neither did the Tax Court. The Court ruled that the limits apply per residence, not per taxpayer even if a home is co-owned by unmarried taxpayers.
The result for the taxpayers in this case was that their deduction was cut in half resulting in much more income tax due. While this situation only affects a few taxpayers, homeowners in this position should have a discussion with their tax professional.
BEFORE YOU CALL THE REPAIRMAN
April 09, 2012
Before You Call the Repairman
Have you ever had a service company to your home to repair something and find out that it really wasn't "broken"? It probably conjured up ambivalent feelings of joy that it wasn't something serious and frustration that you had to pay a service call for something so simple.
Before you call the repairman next time, keep these things in mind to see if it is something simple:
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- Disposer not working - check to see if the reset button has been thrown. It is usually on the bottom of the disposer. If the disposer is making a humming sound, the blades may be stuck. While the disposer is turned off, use a wooden broom handle as a lever to gently rotate the blades. Remove the broom handle and turn on the disposer to see if it works properly.
- Air conditioner not working - check to see if a breaker has thrown on your electric panel. You might need to flip the breaker completely off and flip it back on.
- Electrical outlets not working - Electrical plugs in bathrooms or outside, especially on a porch or patio, are many times connected to a ground fault interrupter. The GFI will be a wall outlet and it may be located in the garage. Locate the outlet and reset the button that may have tripped.
- Clogged drain - a simple way to correct a slow or clogged drain is to use the water pressure from a garden hose. You'll need a helper to turn on the water full-blast once you have safely placed the hose in the drain and are holding a hand-towel around the hose to direct the water to the drain. Be prepared to tell your helper to turn off the water when needed.
Whether it's preparing a home to market or arranging repairs required by the sale, REALTORS® know reputable, reasonable and reliable service contractors. We're here to share our contacts with you to help make home ownership better.
DON'T MISS THE RECALL
April 09, 2012
Don't Miss the Recall
Occasionally, you hear about an important recall on a product you have and you take care of it immediately. However, if you were to miss such a notice, it could put you or your family in jeopardy.
You can subscribe to the U.S. government's service to notify the public when recalls are made on vehicles, tires and child restraints through the National Highway Traffic Safety Administration on their site called SaferCar.gov.
You'll receive a notification by email when there is a new recall based on the type you selected. You can change your selections or unsubscribe at any time by going back to their website in the "Manage Your Notifications" section.
We're committed to helping you be a better homeowner by providing information on items that can protect your home's value, reduce expenses, improve maintenance and increase the enjoyment of your home.
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