Prior To Your move in to a new home

Tax Breaks For First-Time Home-buyers

In 2008, the U.S. housing market was already cratering as the Great Recession took hold. To try and stop the bleeding, Congress passed a series of first-time homebuyer tax credits, each more generous than the last. First came a $7,500 tax rebate, to be repaid over 15 years with no interest. By early 2009, it had grown to $8,000, and required no payback whatsoever. And for most of 2010, even some repeat home buyers were eligible for a tax credit worth up to $6,500.

While those juicy homebuyer tax credits have long since expired as the economy and housing market have heated back up, Uncle Sam is still pretty keen to help you get into your first home. Here are some other tax breaks homebuyers can take advantage of.

Mortgage Interest Deduction

Let’s start with the biggest tax break available to most homebuyers: You can deduct mortgage interest you pay in a given year — and it just so happens you pay the most interest in your first few years of home ownership.

“The banks want to make sure they get most of their interest, so they front load mortgages so more interest is paid in the beginning,” says Marie Presti, owner and broker at the Presti Group in Newton, Mass. That means it takes awhile to build precious equity in your home, but it does help lower your tax bill in the early years of your mortgage.

Let’s say you take out a $300,000, 30-year mortgage at a 4.25% interest rate. In your first year, your mortgage payments are mostly interest, and you’ll have about $12,650 of it to deduct. So if you earn about $75,000, that last 12 grand or so falls in the 25% tax bracket — which means you’ve shaved about $3,160 off your tax bill.

Sort of. The IRS offers a “standard deduction” for people who don’t itemize: In 2017, it’s $6,350 for single taxpayers, or $12,700 for married couples filing jointly. So you need to be deducting more than that to make itemizing worthwhile; if the taxpayers in the example above are married, it’s pretty much a wash. (That’s one reason this $77 billion government giveaway benefits mostly middle- to high-income Americans, and why there’s talk of changing or scrapping it.)

However, this has some corollary tax benefits as well. Unless you’re self-employed or have an otherwise tricky tax situation, you’ve probably always taken the standard deduction when filing your taxes. Now that you own a home, and you can write off thousands of dollars in mortgage interest each year, it might make more sense to itemize your deductions going forward. And that opens up a lot of other little deductions you might not have bothered with before, like those for student loan interest, childcare costs, or the stuff you donate to Goodwill or the Salvation Army.

Mortgage Credit Certificate

This little-known tax break is a biggie — if you can qualify. Mortgage Credit Certificates (MCCs) are issued at the state or local level, so the rules can vary dramatically and they aren’t available in all areas. However, because a tax credit is generally even more valuable than a deduction — instead of just lowering your taxable income, a credit is an actual dollar-for-dollar reduction in your tax bill — it’s absolutely worth checking whether your state, city, or county offers MCCs.

While the specifics vary by state and even from city to city, an MCC basically allows you to get a tax credit for a certain percentage of the mortgage interest you paid, up to $2,000 a year (rates range from 20% to 50%).

This is an especially valuable tax break for lower- and middle-income homebuyers, or those whose homes don’t cost enough to make the mortgage interest deduction worthwhile. In Texas, for example, an MCC allows you to claim 40% of your mortgage interest as a tax credit each year, up to that $2,000 cap. If you took out a $150,000 mortgage, you’d owe about $6,750 in interest in your first year – not enough to pass up the standard deduction and bother with itemizing, if you’re married. But with an MCC, you’d recoup 40% of that interest paid in a dollar-for-dollar tax credit, up to the $2,000 cap. (What’s more, you can still deduct interest paid beyond that $2,000 limit.)

To qualify, you must generally be a first-time homebuyer and use the house as your primary residence until you sell it; other eligibility requirements include limits on income and the price of the home. In California, for example, 2017 income limits ranged from $73,300 for 1- to 2-person households in a dozen or so counties to $154,057 for a family of three or more in Marin and San Francisco counties. In those costly counties and others, such as Los Angeles and San Diego, homes up to $585,713 were eligible, but eligibility in other areas topped out at $253,809.

Property Taxes

The average American household paid $3,296 in local property taxes in 2016, according to an analysis by Attom Data Solutions, but your bill might be substantially higher in places with pricier homes or higher tax rates; the average bill in New Jersey was $8,549.

Gratefully, you can deduct those local levies from your taxable income. So if you deduct $4,000 in property taxes, and your earnings top out in the 25% tax bracket, that’s a $1,000 discount on your federal tax bill.

Points

Points — money you might pay your lender upfront for a better long-term interest rate – are basically prepaid interest, and therefore they’re deductible just like mortgage interest. One point is 1% of your mortgage, so this might be another few thousand dollars to shave off your taxable income. You can deduct the full amount of points paid in the year that you bought your home; otherwise, you have to spread out the deduction over the life of the mortgage.

Energy Improvements

Until the end of 2016, there were some pretty lucrative federal tax credits available for making energy-efficient improvements around your home, from adding insulation to installing Energy Star-rated heating systems and appliances. Alas, those have all expired and, given the current leadership (er, if you can call it that) in Washington, they seem unlikely to make a comeback anytime soon.

However, many states still offer their own tax and financial incentives for installing old-school or cutting-edge energy improvements. Massachusetts, for example, will pick up 75% of the tab for adding insulation (up to $2,000) and offers rebates of up to $3,000 for replacing 30-year-old-plus boilers or furnaces with high-efficiency gas heating equipment.

Meanwhile, one very big, energy-related federal tax credit lives on: The 30% credit for solar energy systems. If you pay $20,000 for a rooftop solar installation, you’ll get a $6,000 tax rebate, on top of any state incentives. This generous kickback, which has no upper limit, was extended through 2019, after which it begins to ratchet downward (to 26% in 2020, 22% in 2021, and then zilch). A site like EnergySage.comcan help you price out a solar array and compare quotes from competing installers.

Penalty-Free IRA Withdrawals

Not that it’s a great idea to do so, but if you need to tap your IRA for down payment money, you’re allowed to withdraw up to $10,000 once in your life to put toward your first home without paying the usual 10% early withdrawal penalty (you’ll still have to pay income taxes on it).

With a Roth IRA, you can always withdraw contributions for any reason, tax- and penalty-free, and you can also withdraw up to $10,000 of investment gains without penalty for a first-time home purchase. In each case, married home buyers can withdraw up to $10,000 apiece.

Tax Tip: Keep Track of Home Improvements

Finally, this isn’t exactly a tax break but rather advice on avoiding a potential tax penalty down the line. Uncle Sam allows you considerable leeway when selling a primary residence you’ve lived in for at least two of the last five years, but if that home somehow appreciates more than $250,000 (or $500,000 for married couples), you would owe capital gains taxes on the profit.

That’s a good problem to have, but still: Keep track of your home improvement costs, so that one day, when you sell your home, you can add those expenses to the baseline purchase price when determining your profit.

If you’re single and bought a condo for $500,000, and sold it five years later for $800,000, you’d owe capital gains tax on that $300,000 in profit — unless you could prove that you spent more than $50,000 on home improvements. So keep those Home Depot receipts and contractor bills.

Tax laws are complicated and change often; check IRS.gov or consult a tax professional.

Northern Colorado is a great place to live! For more information, please give me a ring or email me today. I would love the opportunity to earn your business and partner with you in regards to your Real Estate needs.

If you are looking to purchase, I can save you a lot of money, as much as 10% on the purchase and finance of your home.

Contact me today to learn about ALL of my strategies to get you the BEST price for your home in the shortest possible time, with the least amount of Brain Damage!

Paul Ross

Resident Realty

970-217-3245

SOURCE: http://www.apartmenttherapy.com/what-tax-breaks-are-available-to-first-time-homebuyers-249920?-tm_source=at_realestate&utm_medium=email&utm_campaign=10202017&recip_id=1113578

Should You Buy a Damaged House?

Fires, floods, hurricanes, sinkholes: These are just a few of the many possible “hiccups” in the life of a house. They happen. Some years bring natural disasters such as hurricanes or floods that cause this type of home damage to happen on a massive scale, such as was the case with Hurricane Harvey and the resulting flooding in Houston, Texas.

People often look at those homes with water up to the tops of the windows and think, “That house is toast! Bring in the bulldozer.” However that’s frequently not true. Very often these damaged houses are very salvageable and, for the savvy buyer, can present a golden opportunity!

Sometimes a little bit of carpentry can go a long way toward fixing something the seller sees as a major issue. It’s just a type of damage, and like any of the others, requires due diligence on the part of the buyer.

Damaged goods, as we all know, sell for short money! Auctions exist for damaged cars, damaged equipment and broken cell phones, all of which are offloaded at a fraction of the original cost and always with enough room to be refurbished and sold at a profit. The same is true for homes.

Sometimes they are sold directly, the same as any other sale. Sometimes they end up in foreclosure and go through the foreclosure sale process. Sometimes they are auctioned off in a large sale, such as the case when a large investor decides to unload 20 flood damaged homes at once. In any type of sale, the price for the damaged home will be heavily discounted because if you’re the buyer, you’re buying the damage too! Now it’s your problem.

Fire, Flood, Storm, Mold and Termites

There must be a thousand different types of damage a home can sustain. The details of each type of damage are different, and it can take a lifetime of experience to learn how to see the telltale signs of things such as termites, which can be both hidden and unknown to the seller. But in the case of a home that is being sold as a damaged property, there is no secret: The place is a mess and there are a few key questions you as the buyer want to ask.

Is the damage structural?

The term “structural” means anything that’s part of the “bones” of the house. The walls, the roof framing, the floor framing or the foundation. Structural damage occurs most often in fires and tornadoes and as the result of sinkholes. If the damage is structural, then you’ll want the help of a contractor or an engineer to assess the damage and determine how it can be repaired.

I wouldn’t “run away” from structural damage just because it exists. Sometimes a little bit of carpentry can go a long way toward fixing something the seller sees as a major issue. It’s just a type of damage, and like any of the others, requires due diligence on the part of the buyer.

Is the damage still occurring?

Ongoing damage can be an insidious mess. It’s hard to predict how bad things will get by the time you finally get a chance to start repairs. Extreme caution is required and a major price break is essential.

There are a few types of ongoing damage. Mold is one of the worst. Flooded homes often develop mold. Water has gotten into places it shouldn’t and mold starts growing where you can’t see it. I’ve seen a little bit of mold become a veritable petri dish of toxic biomass within a week’s time. It’s important to have a mold expert take a look. But be warned: Mold remediation specialists should be vetted carefully. Fear-based sales tactics are frequently employed and should be considered a red flag.

The slow decay of wiring or pipes is another form of ongoing damage caused by floods. A seawater flood, such as storm surge, is more likely than a fresh water flood from rain or rising rivers to cause this type of damage. Seawater has a way of attaching itself to metals even after it appears to be gone and done. Electrical outlets can stop working and pipes can deteriorate and start leaking months or years after flooding. Tread very carefully.

Is the damage measurable?

Certain types of damage can’t be assessed without tearing walls apart. Termites, for example, might have eaten through a foot or two of that 2×4, or maybe they ate the whole wall and the only thing holding the wall up is the drywall and the siding outside. The only way you’ll know is by busting the wall open. But sellers generally tend to frown upon buyers who show up with a crowbar and a hammer! So sometimes the damage is not measurable.

Obviously the concern here is that the damage could be worse than you might imagine and therefore cost more to repair than you had budgeted, throwing off your ROI calculations in a big way.

The best approach in a situation like this is to have a really thorough inspection of the property and be sure to see everything that possibly can be seen. Make sure attics, crawlspaces and every other nook and cranny is inspected. Some inspectors can use thermal imaging cameras to get a look inside walls. It’s an extra cost, but might be worth it.

Will the damage impact long-term value?

Previous damage has to be disclosed when you sell and will, indeed, have an impact on the value of the property. Salt water floods and sinkholes are two of the worst offenders.

In these cases, the best strategy is to thoroughly document the assessment and repair process. Being able to show future buyers that you have left no stone unturned and cut no corners in the repair process will help you obtain the highest possible price for your home at resale.

Damaged Goods are Still Goods!

At the end of the day, if you’re in the market for a fixer-upper, a damaged home could be a real blessing for you. Some damages, such as smoke damage from a fire or some wind damage from a bad storm, are easily fixed in most cases and have absolutely zero long-term impact on property values. Other types of damage may require more effort, but then again you paid less and got more house for your money.

As is the case with any fixer-upper, you have to be patient and take the due-diligence period seriously. Great deals can be had!

Northern Colorado is a great place to live! For more information, please give me a ring or email me today. I would love the opportunity to earn your business and partner with you in regards to your Real Estate needs.

If you are looking to purchase, I can save you a lot of money, as much as 10% on the purchase and finance of your home.

Contact me today to learn about ALL of my strategies to get you the BEST price for your home in the shortest possible time!

Paul Ross  970-217-3245  paul@ross-homes-noco.com

Article by Tim Layton in Fixer Upper 404s, Trending

https://www.realestate.com/articles/diy

Have Your Carpet Cleaned in October

Northern Colorado is a great place to live! For more information, please give me a ring or email me today. I would love the opportunity to earn your business and partner with you in regards to your Real Estate needs.

If you are looking to purchase, I can save you a lot of money, as much as 10% on the purchase and finance of your home.

Contact me today to learn about ALL of my strategies to get you the BEST price for your home in the shortest possible time!

Paul Ross  970-217-3245  paul@ross-homes-noco.com

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