Category: Homeowner

Own A Home, Get A Tax Break

Real estate and home ownership is a huge part of our country’s economy. That’s why Uncle Sam has incentives to encourage Americans to purchase homes. He wants owning a home to be a help for you, not a burden.
get a tax break
Here are some tax incentives for home owners that you might not know about:

First-time Homebuyer Credit

As defined by the IRS, a first-time homebuyer is “any taxpayer who has not owned another principal residence at any time during the three years prior to the date of purchasing the home.” The original version of this federal tax credit terminated in 2010 for civilian homebuyers and in 2011 for homebuyers who were members of the military. However, there are other forms of the first-time homebuyer tax credit that still exist, such as the Mortgage Credit Certificate, otherwise known as the MCC.

Mortgage Credit Certificate (MCC)

The MCC allows homeowners to claim a tax credit on some of their mortgage interest paid. This amount is then used to reduce the amount of federal taxes the homeowner would pay to the IRS. The standard rate for the MCC is 20% of the mortgage interest paid annually.

Mortgage Interest Deduction

The interest paid on a mortgage can be added as an itemized deduction on a standard Form 1040, Schedule A. Assuming the itemized deduction is greater than the standard deduction, this can lead to substantial savings for homeowners, particularly in the earlier years of homeownership when the mortgage balance (and the mortgage interest along with it) is at its highest.

Mortgage Points Deduction

The IRS allows for the deduction of any extra charges paid by the homebuyer as a part of the closings costs for obtaining a mortgage. Origination points are not deductible because they are not extraneous charges; they are a part of the mortgage fees. By contrast, discount points are extra, and are tax deductible.

After the homebuyer obtains a mortgage, at the end of the year they will receive a Form 1098 Mortgage Interest Statement. The points paid to purchase the home will appear on the form in Box 2. The discount points can be deducted under “Schedule A” of a 1040 tax form. As with the Mortgage Interest Deduction, points can only be deducted if the homebuyer itemizes the deductions.

Energy Credits and Exemptions

The Home Energy Credit allows homeowners to recoup up to 30% of the costs of (with a cap of around $1,500) for installing energy efficient windows, doors, furnaces, air conditioners, heat pumps, hot water heaters, and more.

Mortgage Interest Credit Deduction

This is one of the lesser discussed tax deductions simply because it does not save homeowners as much money as some of the other deductions. But mortgage interest credit is an allowable deduction that should not be overlooked.

The simple description of the Mortgage Interest Credit is that it’s a credit designed to prorate your mortgage for the first month if it applies in that scenario. It allows new homeowners to get credited for interest whenever a mortgage closes and funds within the first five days of a given month.

IRA Penalty Exemption

For any individual who is buying, building, or rebuilding their first home, you have the opportunity to distribute $10,000 from your IRA if the money will be used towards expenses related to the home, including closing costs.

Others

And finally, there are home improvement, home business deductions, as well as medical home improvement deductions available to homeowners who meet eligibility requirements.

As you prepare for this tax season or are considering buying a home, remember that there are many tax benefits that come with being a homeowner. While it might take a bit of research to uncover all of them, a good tax accountant can help you take advantage of all the deductions you may qualify for.

Source: IRS.gov

Skyline Financial Corp. and its loan officers are not tax advisors. Always consult a tax professional for details.

After You Buy: More Monthly Expenses

In my last posting, I talked about some hidden costs and fees when you purchase a home. Once you’re in the home, there are monthly expenses that previous renters may not have considered.

Let’s take a look at some of the more substantial monthly costs that come with owning a home.
monthly expenses

City, Water, and Trash

Combined to be commonly called “the water bill,” you’ll get an invoice every month from your local municipality for sewer, water, and trash pickup services. This bill can vary monthly, depending on the season and how much water you use. Many renters are not accustomed to paying for the entirety of this bill as many landlords cover a percentage of the utility.

It’s an especially important expense to consider if the region you live in will require the installation of sprinklers to maintain landscaping. If you don’t get enough rain to maintain a lawn, the use of low water plants and different color rocks and gravel can create a stunning landscape that’s easy on the water bill.

Maintenance

When you live in an apartment and something goes wrong, all you need to do is pick up the phone and alert the landlord or leasing management company and they will send someone around to fix the problem. When you own a home, the cost of maintenance is all on you. Depending on the age of the home and what goes wrong, repairs and normal maintenance can add up to a substantial bill when you least expect it.

The cost of replacing an air conditioner or heater runs into the thousands of dollars. Major appliances cost from several hundred to several thousands of dollars. If you need to hire someone to maintain your landscaping, that can easily be as much as a car payment each month.

You can consider buying a home warranty when you purchase an older house, but along with a monthly fee, you’ll also have to pay a deductible each time you need something repaired.

Homeowners Insurance and Taxes

Since it covers the structure as well as your personal belongings, the cost of homeowners insurance is understandably higher than renters insurance. Homeowners insurance also has a high deductible (1 or 2 percent of the coverage amount) to discourage frivolous claims for minor repairs.

Property taxes are another large expense that come due once a year to help your community pay for services like fire, police, roads, and libraries. Renters are not responsible for any of these taxes.

Utilities and HOAs

While most apartment complexes have you pay for your own electricity, some pay for things like cable, Internet, gas, trash, and water. It’s not unusual for each of those separate utilities to contribute $100 or more to the monthly expenses. Homeowner Association (HOA) dues are another area where you could find yourself having to deduct hundreds of dollars from your available monthly income.

Other Charges Add Up

When you become a homeowner, everything that makes a house a home is now your responsibility. When you see a television show about granite countertops and decide you must have them, or when you see cockroaches scatter in the middle of the night and call a pest exterminator, it all comes out of your wallet.

That new swimming pool, walk-in closet, hardwood flooring, and whirlpool tub are the kinds of things that everyone would like for their own home, but these extras add a significant expense to the cost of your slice of the American dream.

When you’re ready to move forward with buying a home, be sure to call me at 503-654-7369 and we can talk more about your income and expenses so that you are in a home you can afford and love!

Preparing for Natural Disaster – To Insure or Not to Insure?

If you’re about to become a first-time homeowner, you are focused on mortgage rates, home inspections, and closing costs. And while you know that homeowners insurance is one of the costs you’ll want to factor in when budgeting for your new home, you may not know exactly what situations the insurance covers, and more importantly-what it does not cover.
preparing for natural disaster
Earthquakes and Floods Often Not Automatically Covered

Earthquakes and floods are two major natural disasters that are not automatically covered in most homeowner policies. Earthquake amendments are popular in zones where there is a lot of seismic activity, but even these amendments don’t cover all types of damage that can occur in the case of an earthquake. And to get flood insurance, your community must first be designated as a flood zone by the U.S. government.

Some questions to consider before deciding to purchase additional insurance plans are:

  • Do you live in an area that is prone to these types of natural disasters?
  • Have you figured out the potential costs for repairs should a disaster strike?
  • Do you have enough cash on hand to repair, replace, or rebuild without the help of insurance?
  • Is there anything you can do to strengthen the property and lessen the chance of loss or destruction?

If after considering the above you feel you might need additional insurance, it is best to do your homework about what’s available in your area.

Earthquake Insurance

Anyone who buys homeowner insurance in a designated quake zone must have the opportunity to buy earthquake insurance. What’s covered varies by policy but most rules are the same:

  • Dwelling Coverage. The earthquake coverage on damage to your main dwelling is the same as that offered by the homeowners insurance. This does not cover outside structures that are separate from the main building. It also doesn’t cover landscaping, pools, fences, etc.
  • Personal Property. The earthquake amendment to your coverage is specific as to what is covered and what is not. It’s normally very low, such as 10 percent of your dwelling coverage.
  • Additional Living Expenses. The limit for ALE is lower than your homeowner coverage for a hotel room or apartment while your home is repaired.

Flood Insurance

Your insurance company doesn’t actually issue flood insurance policies, as a major disaster could wipe out a commercial insurance company. Instead, the U.S. government created the National Flood Insurance Program (NFIP) in 1968 to help people protect themselves from the catastrophic rise of waters. According to the NFIP, almost 25% of all flood insurance claims come from areas that are at low to moderate risk for floods (www.floodsmart.gov).

The NFIP is separated into two types of coverage: building and contents.

  • Building Coverage. This includes the building and foundation, electrical, plumbing, air conditioning, heat, water heater, major appliances, and permanent carpeting.
  • Contents Coverage. The NFIP covers personal property including clothing, electronics, curtains, microwaves and dishwashers.

As a homeowner, you can choose to be reimbursed through the actual Replacement Cost Value of the items (or damage), or the Actual Cash Value. If you are in a high-risk flood area, chances are you will be required to purchase flood insurance before you can be granted a loan. A high-risk area is defined as a zone where there is a 25 percent chance of experiencing a flood within a 30-year mortgage period.

If you do not have flood insurance but still experience a flood, it is possible to receive federal disaster assistance in the form of a long-term loan that is repayable with interest.

Next Steps

Although there are many ins and outs, as well as particular details, that come with ensuring you have sufficient homeowners insurance, it is important to take the time to fully understand the natural disaster risks that exist in your region, as well as the insurance policies that are available to you to help mitigate the damages in event of a natural disaster.

If you’d like to discuss further or need help connecting with an insurance expert, please call Skyline Northwest anytime at 503-654-7369.

Sources: CBS News, 360 Degrees of Financial Literacy, FloosSmart.gov, and National Flood Services