Taxing Matters

Feeling taxed?

Aren’t we all.  By the time those tax returns are done,  we’ve had more than enough of receipts, forms and math.

But don’t chuck all that paper into a boot box and throw it back into your file cabinet. While you’ve got the IRS on your mind,  take a step back and think about your real estate goals for the next 12 months.

• If you’ll be counting on the still-available mortgage interest deduction to get you into a new house or a vacation home, it’s essential to review the IRS guidelines for the deduction.
• Can you capture a thousand dollars or more by claiming the home office deduction? It’s a clear cut case if you are self-employed and have a dedicated space. You still might be able to get the deduction if you telecommute, but check the IRS guidelines first. The last thing you want do is convert precious space to an office only to find out that the IRS doesn’t think you do enough work in it to let you write off the cost of setting it up.
• If you are counting on the  mortgage deduction to make a home purchase affordable, be sure you understand some of the little-known tax implications. These days, seller financing is popular, but be sure the deal you strike squares with mortgage deduction fine print.

Image courtesy of Morguefile contributor Dr. Bob.

A Test of the Honor System

We'll give credit where credit is due. Bankrate lays out, with style and clarity, the looming scam of ducked homebuyer tax credit repayment.

Turns out that the rules for the first "please buy a house" giveaway were so confusing that even the IRS messed up. About 4.1% of the estimated 1.77 million buyers who claimed the credit have technical mix-ups about the precise date of the purchases. If they don't man up and pay what they're supposed to, just because, well, they're now responsible homeowners and all, chances are the IRS won't catch them.

We suppose that if the IRS can't figure out in advance who owes what, chances are that we'll get a straight answer later as to how many of that 4.1% did the right thing and repaid the credit, thereby doing on a citizen level what the big financial institutions did. Let's hope that the good neighbor urge kicks in and they own up. Unless, of course, they end up using their little windfalls to cover their rising property taxes.

Best Deduction You've Never Heard Of

The fluffy Home section of the New York Times typically soft-focuses on design trends and pretentious homeowners. But in an unlikely twist, today’s Times delivers actual consumer information in the form of a story about the homestead exemption, a legal status that can provide you with tax deductions and other breaks just for living in your house.

Many homeowners don’t know about, thus don’t claim, the exemption. Typically, mortgage companies collect and escrow your property taxes. It’s not their job to inform you that you might be overpaying if you qualify for a deduction based on the exemption. Sometimes there are restrictions on who qualifies – most often, being a senior citizen.

Don’t get too excited quite yet. Some greedy folks exploit exemptions to sidestep high taxes on second homes…a big enough problem to create a business opportunity for legal database Lexis Nexis, which is about to introduce its Homestead Exemption Fraud Detection Solution.
This will cross-reference homeowners’ addresses to flag potentially fraudulent exemptions to revenue-starved municipal and state officials.

If you’re flagged, you could get hit with fees and fines, not to mention the cost of hiring a tax or real estate attorney or accountant to sort things out. This is a good moment to ascertain your status: do you qualify for the exemption? If so, what’s it worth to you? And what is your current status worth to officials?

Image from Morguefile user nastic.

Taxman Goes on Vacation..With You!

Dilemma: Too many condos and vacation homes. Too few buyers.

Solution: Rent condos and vacation homes week by week to travelers. Everyone wins! Owners get income stream to cover their payments. They stay current on their homeowner association fees, which keeps neighbors happy. Municipalities get their property taxes, which makes them happy. And the banks get their mortgage payments, which makes them happy. And we all know that their happiness is a national priority.

Who could possibly be left sulking in the corner in this scenario filled with rainbows and balloons?

Why, the hotels. Because folks staying at condos are NOT staying at hotels. Statistics are hard to come by, but vacation rentals add up to as much as 22% of hotel room revenue. Until this year, this revenue was largely under the radar.

Now, politicians in Chicago, New York, Sonoma and and Steamboat Springs
have started slapping ordinances, regulations, fees and taxes on rentals. The heretofore unorganized vacation rental industry is taking this lying down. Homeowners don’t have the time, muscle or data to fight the well organized, well-financed hospitality industry (such a sweet oxymoron). The companies that aggregate listings haven’t crystallized their defense. They should: their business model is under attack.

This battle is likely coming to a block near you. Property owners can make much more money by renting by the week than by the year. Many vacation-home owners rely on rental income to cover their mortgages. Without that revenue, their houses would be pushing up local foreclosures rates, dragging down local property values, and dropping from property tax rolls.

Of course, vacation home rentals should be held to standards of cleanliness, safety and courtesy. And I’m ok with renters paying the hotel or occupancy tax, too. But that’s where it should stop. Slapping on additional fees is just a wee bit hostile…and a lot short-sighted.

Homebuyers Tax Credit Extended to June 2010

Uncle Sam is giving more homebuyers a tax break. An $8,000 tax credit for first-time homebuyers, which was due to end on November 30, has been extended by the federal government until June 2010. The IRS estimated than 1.4 million people have taken advantage of the tax credit thus far and the extension will undoubtedly attract more first-timers to buy homes.

In more good news, the tax credit also extends it to those who already own a home. A new $6,500 tax credit is being made to attract repeat homebuyers to trade up and purchase their next home.

All real estate transactions must close by June 30, 2010 in order to reap the tax credit. In addition, buyers must meet certain income limits. Single buyers who make up to $125,000 will qualify, as do married couples with a combined income of $225,000 or less.

Click here to visit a section of the IRS website that provides additional information about the tax credit and specific tax forms that a homebuyer will need to get the tax credit.

$8,000... Time is Running Out!

As any first-time home buyer probably knows, one of the best deals in today's market is the $8,000 tax credit that the government is offering to people purchasing their first home. According to figures from the IRS, it has been very successful as more than 1.4 million people have used the tax credit thus far.

The home buyer has to meet certain guidelines in order to qualify for the tax credit (click here for specifics), but most importantly the real estate transaction has to close by November 30, 2009. That date is quickly approaching, and prospective first time home buyers should not let this opportunity pass, especially since there have not been any strong signs that the federal government will be extending the deadline.

Choosing a good real estate attorney, as well as getting pre-approved for a mortgage, will help ensure that you will be able to close on your dream home in time.