What If I Wait Until Next Year To Buy A Home?

by The KCM Crew

As a seller, you will be most concerned about ‘short term price’ – where home values are headed over the next six months. As either a first-time or repeat buyer, you must not be concerned only about price but also about the ‘long term cost’ of the home.

Let us explain.

There are many factors that influence the ‘cost’ of a home. Two of the major ones are the home’s appreciation over time, and the interest rate at which a buyer can borrow the funds necessary to purchase their home. The rate at which these two factors can change is often referred to as “The Cost of Waiting”.

What will happen over the next 12 months?

According to CoreLogic’s latest Home Price Index, prices are expected to rise by 5.5% by this time next year.

Additionally, Freddie Mac’s most recent Economic Commentary & Projections Tablepredicts that the 30-year fixed mortgage rate will appreciate to 4.5% in that same time.

What Does This Mean to a Buyer?

Here is a simple demonstration of what impact these projected changes would have on the mortgage payment of a home selling for approximately $250,000 today:

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Could these remodeling projects bring you more money?

Could these remodeling projects 

bring you more money?

Homeowners looking to get the biggest return on their investment for remodeling projects should start by looking up. 

That's because adding fiberglass insulation to an attic was the most profitable remodeling project in our region of the country last year, recouping 122.6% of the total project cost. 

But homeowners who concentrated on exterior improvements made out pretty well, too, with curb-appeal projects rounding out the top five projects based on recouped cost:

• Midrange garage door replacements recouped 100.7% of their cost, while upscale garage door replacements brought in 84.8% of costs;
• Installing manufactured stone veneer recouped 99.6% of costs; and
• Swapping out the front door for a steel door recouped 91.3% of costs. 

Check out the annual Texas Remodel Valuation Report, released today by the Texas Association of REALTORS®, to see which projects brought the greatest return on investment-and the least-nationwide and in Austin, Dallas, El Paso, Houston, McAllen, and San Antonio. 

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Hey, Homeowners! These Little-Known Tax Deductions Can Save You Thousands

Hey, Homeowners! These Little-Known

Tax Deductions Can Save You Thousands

By Renee Morad

You probably already know that owning a home comes with some sweet tax benefits, like the mortgage-interest and property-tax deductions. But did you know there’s a whole list of other homeowner-related tax breaks that you might be leaving on the table?

We’re not talking chump change, either. Homeowners already save an average of $3,000 a year in taxes from mortgage-interest and property-tax deductions, according to the National Association of Realtors. When you add in some of the lesser-known homeowner tax breaks, you could really be amping up the savings—and beating the IRS at its own game.

Back in December, Congress passed the Protecting Americans From Tax Hikes Act of 2015, which extended many exemptions that were about to expire and made others permanent. But to reap the benefits, you first have to know about them.

So, here we go! Check out these common—and not-so-common—homeowner deductions that you should take advantage of this year:

1. Mortgage interest deduction

If you’ve taken out a loan to buy a house, you can deduct the interest you pay on a mortgage, with a balance of up to $1 million. To access this deduction, you will have to itemize rather than take the standard deduction. The savings here can add up in a big way. For example, if you’re in the 25% tax bracket and deduct $10,000 of mortgage interest, you can save $2,500.

Of course, there are some limitations. For example, if you’re helping a family member pay his or her mortgage, you can’t deduct that interest on your tax return.

2. Private mortgage insurance

Qualified homeowners can deduct payments for private mortgage insurance, or PMI, for a primary home. Sometimes you can take the deduction for a second property as well, as long as it isn’t a rental unit. Here’s the catch: This only applies if you got your loan in 2007 or later.

Another restriction: This deduction only applies if your adjusted gross income is no more than $109,000 if married filing jointly or $54,500 if married filing separately.

3. Property taxes

You can include state and local property taxes as itemized deductions. An interesting note: The amount of the deduction depends on when you pay the tax, not when the tax is due. As a result, paying property taxes earlier could have a positive impact on your return.

4. Capital gains on a home sale

The dreaded capital gains tax can be avoided when the gain from selling your personal residence is less than $250,000 if you are a single taxpayer or $500,000 if you are a joint filer. To qualify, you must have owned and used the home as a primary residence for at least two years out of the five years leading up to the sale.

5. Medical improvements

If you’ve made improvements to your home to help meet medical needs, such as installing a ramp or a lift, you could deduct the expenses—but only the amount by which the cost of the improvements exceed the increase in your home’s value. (In other words, you can’t deduct the entire cost of the equipment or improvements.)

“A lot of this comes down to fact and circumstance,” says director of The Tax Institute at H&R Block. “For example, if you’ve recently installed a heated therapy spa or hot tub in your home, you may be able to deduct the expense if there’s also evidence that, say, a physical therapist visits your home three times a week and you’re over a certain age.”

6. Home office

If you have a dedicated space in your home for work and it’s not used for anything else, you could deduct it as a home office expense.

“It doesn’t have to be an entire room,” Charney says. “It can just be a dedicated space.”

7. Renting out your home on occasion

If you rented out your home for, say, a major sports event like the Super Bowl or the World Series, or a cultural event such as Mardi Gras, the income on the rental could be totally tax free—as long as it was for only 14 days or fewer throughout the course of a year.

8. Discount points

Discount points, which are paid to lower the interest rate on a loan, can be deducted in full for the year in which they were paid. In addition, if you’re buying a home and the seller pays the points as an incentive to get you to buy the house, you can deduct those points, Charney explains.

9. Energy-efficiency tax credit

You can take advantage of an energy-efficiency tax credit of 10% of the amount paid (up to $500) for any green improvements, such as storm doors, energy-efficient windows, and air-conditioning and heating systems.

10. Loan forgiveness deduction

If you’re the owner of a foreclosed or short-sale home, you can take advantage of mortgage-debt forgiveness. For example, if you make a short sale of your primary home at $250,000 but owe $300,000 on your mortgage, the lender will forgive the extra $50,000 owed—and you don’t have to pay taxes on that amount.

For more tax tips, check out IRS Publication 530 for a list of what homeowners can (and cannot) deduct.

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If You’re Buying a Home This Year, Whip Your Taxes Into Shape Now

If You’re Buying a Home This Year,

Whip Your Taxes Into Shape Now

By Beth Braverman

Ah, tax time—that magical time when all your accomplishments of the previous year can be used against you. After all, the more you made, the more you owe! No wonder there’s so much advice out there about finding (perfectly legal) ways to whittle down your adjusted gross income.

But if you’re looking to buy a home, you’ll want to try a different tack—the higher your reported income, the bigger the home loan you’ll qualify for. So if you’re planning to buy a house in the next year or two, you may want to be less aggressive about claiming write-offs.

As a loan originator with Guaranteed Rate, puts it: “Is paying an extra few thousand dollars in state and federal taxes for the year worth it to become a homeowner?”

We’ll leave that up to you and your financial adviser to decide. But if you want to look worthy in the eyes of a mortgage lender, you’ll need to do some legwork on your taxes, starting now. Here’s what you need to know, no matter what your situation.

If you’re self-employed

Pay attention to large deductions, such as those for a home office or business vehicle that can significantly reduce your reported income. For big, one-time deductions, be sure to save your documentation (you’ll need it for the IRS anyway), and explain to your lender the circumstance that reduced your income in that year. You can also assuage their concerns by having a larger cash cushion or by putting down a bigger down payment.

If you’ve just recently gone freelance, you may also run into issues getting approved for a mortgage if you don’t have a track record to demonstrate your earning potential.

“It doesn’t matter how much experience you have in a field, once you strike it out on your own, we need to see two years of self-employed income,” says vice president of operations at Quicken Loans.

If you’re on staff

Workers with W-2s typically have an easier time getting approved than those who are self-employed, but keep this in mind: Any write-offs on your Form 2106 for unreimbursed business expenses will be deducted from your salary.

If you got a new job that doesn’t appear on your tax returns, ask your employer to provide a verification of employment letter, which can reassure the lender that you’re good for the income stated on your application.

“As long as you’re in the same field and your earnings are roughly the same, we’re comfortable with job changes,” says an executive vice president with loan Depot.

Workers whose tax returns show that they were unemployed for a significant period of time in the past two years may also run into trouble, since lenders want to see a consistent two-year work history. Be ready to explain any long employment gaps.

If you’re claiming rental income

Just as your business expenses will be deducted from your salary, any write-offs you take on a rental property will be deducted from your rental income.

Lenders will look at your Schedule E to verify the amount of rent you collect (showing them a lease won’t cut it), and determine how much you spend on the property. Deductions for depreciation don’t count against you.

We know—forgoing some of those tax deductions might make you cringe a little. But just think of the tax breaks you can get once you’re a homeowner, and it’ll all be better soon.

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Move Over, Homeowners—Renters Could Get Tax Breaks, Too

Move Over, Homeowners — Renters

Could Get Tax Breaks, Too

By Clare Trapasso

It’s been said many times: The rent is too damn high. And now a recently introduced bill is trying to cut renters a break—a tax break, that is.

The bill, if it became law, would allow renters to deduct from their federal taxes what they pay for the primary roof over their heads—a proposal that could save them thousands per year.

“There’s an unequal treatment now of owners and renters,” says a Democrat from Florida, who introduced the bill. He hopes this bill would level the playing field .

For example, the average taxpayer shelling out about $1,500 a month (or $18,000 a year) could potentially save $4,500 annually through the deduction if he or she is in the 25% tax bracket, he says.

“Renters should be able to share in the tax savings,” he says. “This is a tax benefit that would go primarily to people who need it.”

About 37% of U.S. households were renters in 2015, according to a recent report from the Joint Center for Housing Studies of Harvard University.

And 49%, or 21.3 million, of renters were considered cost-burdened (that is, they plunked down more than 30% of their paychecks on housing) in 2014. Meanwhile 26%, or 11.4 million, were severely cost-burdened, shelling out more than half of their earnings each month.

“It could be a great boon for renters,” says a research associate at the National Housing Conference, a group that supports affordable housing. She notes that rents are steadily rising, but wages aren’t necessarily keeping pace.

Homeowners can currently deduct the interest they pay on their mortgages (up to $1 million) and their property taxes from their taxes. That can add up to $2,500 in savings for those in the 25% tax bracket deducting $10,000 of interest.

Those tax breaks are strong incentives for folks to buy their homes. But if the rental bill was passed, more people, particularly younger individuals and couples, might choose to continue renting instead, says Ault.

“One of the big arguments for homeownership as a means for a family to build wealth are the tax credits,” Ault says.

Many states already have their own tax credit programs for renters, mostly aimed at low-income or elderly residents. But the programs vary widely and aren’t available in each state.

They don’t “reduce your tax obligation the way a mortgage would,” says director of government affairs at the National Apartment Association, a trade organization that represents property owners, developers, and builders. And while the programs “may help, [they’re] not as significant as people would think it would be.”

For example, Indiana renters can deduct up to $3,000 from their state taxes if they meet certain requirements. Meanwhile, low-income disabled or elderly Connecticut renters canreceive up to $700 if they’re single and up to $900 if they’re married.

But the likelihood of the bill being signed into law is slim, says senior vice president for policy at the National Low Income Housing Coalition. Proposed laws tend not to get passed the first time they are introduced and this one was proposed by a Democrat in a Republican-controlled Congress, she says.

However, if it did pass, the tax break might actually boost homeownership.

“It could help renters who are looking to become homeowners, because it will lower their housing costs,” Couch says. “That savings could be put toward a down payment.”

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4 Home Improvements That Can Lower (or Eliminate) Your Tax Bill

By Jamie Wiebe

We know. It’s tax season and you’re knee-deep in paperwork and you already dipped into your savings to remodel your home last year and now you have to pay more money to the IRS and you just want it all to end already.

Wait, back the truck up. Did you say you remodeled your home? You might be in luck. If you’ve made the right kind of renovations, you could deduct the expense or even get a tax credit—which promises to significantly lower (or even eliminate) the amount you owe to the IRS. And if you’re planning to renovate—or even to buy a home that could require renovations—you’d do well to approach it so you can reap these rewards, too.

Here are four big renovations that can lower your tax bill.

Energy generators

Under the Residential Energy Efficient Property Credit, homeowners can receive a tax credit for alternative energy equipment installed in your home.

(Yes, that’s a tax credit, which is directly subtracted from the amount you owe, as opposed to a deduction, which simply lowers your taxable income.)

Homeowners receive credit for up to 30% of the cost of purchasing and installing “alternative energy equipment,” defined by the IRS as solar electric systems, solar water heaters, wind turbines, or geothermal heat pumps. You can also receive credits for residential fuel cells, capped at $500 per kilowatt of energy capacity.

Granted, these are all expensive additions—a wind turbine capable of powering your entire property costs $30,000 on average—but they pay back big, come tax time.

Home improvements paid for by your mortgage

Here’s a sneaky trick to get a small tax benefit from home improvements that might not otherwise be deductible: Make renovations immediately after purchase and take out a larger mortgage to cover the added expense.

Your mortgage interest is deductible, and the IRS doesn’t discriminate based on whether some of the funds went toward a remodel. You can also decide to renovate later and still receive the same benefits: A home equity line of credit and home improvement loans are also tax-deductible.

This may not be a huge advantage, though, especially if you could have paid for the renovations outright. It’s still a loan, and you’re paying interest. But if you would need to borrow money to afford renovations anyway, this way allows you to save some of that cash on your tax return.

Medical necessities

If you are or a family member is disabled or affected by a serious illness, medically necessary home improvements can be deducted from your income.

There’s a wide variety of potential tax savings, depending on your condition and which improvements you make, but some common expenses are installing a wheelchair ramp, widening doorways, lowering the cabinets, and grading the ground to provide easier access.

Medical deductions require itemizing through Schedule A, and chances are taking the standard deduction will still mean a bigger tax return unless your medical expenses topped 10% of your adjusted gross income. But major home improvements are a great opportunity to meet that milestone—just check with your doctor and tax accountant to ensure they’re medically necessary.

Energy-efficient additions

Coughing up tens of thousands of dollars for high-cost energy additions such as solar water heaters and heat pumps isn’t the only way to take advantage of Uncle Sam’s green tax credit. You can do simple improvements, too: Swapping in energy-efficient doors, windows, or skylights qualifies for the credit of up to $500.

“The energy property credits are some of the best,” says the tax operations director at 1st Tax Services. Unlike energy generator credits or medically required alterations, it is easy for most homeowners to qualify for several credits after a normal year’s worth of improvements—without spending a ton of money.

Just make sure you pay close attention to the qualifications. New additions must be Energy Star–rated and installed in your principal residence, meaning rental improvements are, unfortunately, beneficial only to the world and not your tax bill.

This benefit isn’t just for your fancy new windows and doors. Here are a few more exciting examples of energy-efficient changes that pay back on your tax return. (Remember, the cumulative total of these upgrades can be no more than $500 per year.)

• HVAC upgrades: Installing an electric heat pump water heater can net you $300, as long as its energy factor is at least 2.0. An advanced main air-circulating fan is worth $50 in tax credits, as long as it uses no more than 2% of the furnace’s total energy. A high-efficiency central air conditioner is worth $300 in tax credits.
• Roofing: A new asphalt or metal roof designed to reduce heat gain earns back 10% of its total cost.
• Insulation: Installing new insulation systems or materials also equates to a 10% return in credits—again, not including labor.

This tax credit is as good a reason as any to actively seek out energy-efficient changes whenever you’re making improvements to your house. Choosing to pay slightly more for an Energy Star window can end up cheaper in the long run—and all you have to do is ask.

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HELPFUL TAX INFORMATION 5 Things Your Accountant Wishes You Knew About Owning a Home

5 Things Your Accountant Wishes You Knew About Owning a Home

By Jamie Wiebe

What’s not to love about tax season? The chill you get when you realize you owe the IRS thousands, the fear that you may be getting a bit too aggressive on your deductions, the fleeting hope you’re due for a big return … that’s dashed when you end up with $2…

OK, so maybe only accountants love tax season. And here’s another thing they love: wielding their vast knowledge of the tax code to help their clients save cash! Lots of it! If you own a home, there’s plenty they can do to ease the burden of what you owe.

Of course, if you haven’t hired an accountant to do your taxes already, you may not be able to talk to one until sometime after April 15, when they dig out from under their mountain of returns. Still, we know a few people, so we went ahead and nagged them for their prime pearls of wisdom. Check them out!

1. Having a home office does not automatically trigger an audit

Few things scare the pants off taxpayers (or accountants, for that matter) like the threat of an audit. Can you imagine pulling together all those receipts? As a result, many people avoid making claims on their taxes that they think will attract unwanted attention from the IRS. Among the most notorious of these supposed red flags is the home office deduction. Why tempt fate?

Yet accountants insist that having a home office does not automatically make you audit material. They also contend that avoiding this deduction, if you deserve it, is a huge mistake—particularly since it allows you to also deduct portions of your utilities, maintenance, and other expenses, dramatically lowering your tax burden. In short, you could save big.

“What drives me crazy is when people don’t take a home office deduction when it’s so easy to do and when they are entitled to it,” says Tom Wheelwright, a CPA and founder of ProVision Wealth Strategists.

To avoid missing out, know the rules. To determine if a home office is deductible, make sure it is an area of the home you exclusively use for business, and that it is your principal place of business (that means you don’t have a second office supplied by your company). Note: In the eyes of the IRS, everything in a home office area needs to be justified as serving a business need. Ditch the PS2 and the lava lamps.

2. Moving is an overlooked money saver

Another easy tax break that homeowners often toss out the window is the cost of a job-related move.

“People never save the receipt,” complains Craig McCullough, a Realtor® and accountant in Washington, DC. And that’s a missed opportunity, since moving fees can be hefty and are usually deductible.

A few caveats: You qualify only if you’ve moved more than 50 miles for your job (or to a new job) and work full-time for at least 39 weeks of the subsequent year. Plus, if your job pays for moving expenses, the reimbursed costs are not tax-deductible.

3. Selling a home too quickly comes at a price

Selling a house comes with its own set of pitfalls—especially if you’re doing so less than two years after purchase.

“You have to be really careful, because if you live in a house for less than two years that’s appreciated in value, the profit of the sale is subject to capital gains taxes,” McCullough says.

So, say you purchase a home in downtown Denver that appreciates nearly 20% over almost two years (totally possible, according to current home pricing trends). If you buy at $200,000 and sell at $240,000, you’ll be subject to capital gains taxes on that $40,000.

“It’s one of the biggest things sellers don’t know about,” he says. “Sellers end up calling their brokerage really mad when they get their capital gains bill.”

4. Deducting your mortgage interest is really worth it

Odds are you’ve heard that you can deduct the interest you pay on your mortgage from your taxes. And maybe you’ve thought, “Why bother? My interest is only 4%, which is a measly amount to deduct.” But here’s what you’re missing: For fixed-rate mortgages, the amount of money you pay per month may stay the same, but the proportion paid to interest changes a lot. In fact, in the early years of a mortgage, “the bulk of that check goes toward interest,” says Elmwood, WI, accountant.

To find out how much of your mortgage payment is going toward interest, check your monthly statement for a breakdown. But whatever you do, don’t assume it’s too small to be worth mentioning on your taxes. And it’s not just mortgage interest that can help you out come April: If you refinanced your home or received a home equity loan or line of credit, you can deduct interest on up to $100,000 of that debt.

5. Home improvements can lower your tax bill, too

If you’ve made any significant renovations to your home in the past year—or plan to begin a new construction project—make sure to keep an eye on any energy-efficient upgrades you make. You can get a tax credit for improvements such as energy-efficient windows, reflective roofs, and extra insulation, so be sure to talk to your tax accountant about them. While there is a $500 cap on the credit, keep in mind a tax credit directly reduces the amount you owe, compared with a deduction, which simply reduces your taxable income. So this is not something you want to pass up. Trust us.

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