Confused About the New Tax Code?

Are you confused about the new tax code and what it really means to you as a real estate owner?

Here’s a great educational video detailing the main topics and impacts.

Hope this helps!

Your Tax Return: Bring it Home

Your Tax Return: Bring it Home | MyKCM

This time of year, many people eagerly check their mailboxes looking for their tax return check from the IRS. But, what do most people plan to do with the money? GO Banking Rates recently surveyed Americans and asked the question – “What do you plan on doing with your tax refund?”

The results of the survey were interesting. Here is what they plan to do with their money:

  • 41% – Put it into savings
  • 38% – Pay off debt
  • 11% – Go on a vacation
  • 5% – Make a major purchase (car, home, etc.)
  • 5% – Splurge on a purchase

Upon seeing the research, The National Association of Realtors (NAR) wondered if this could help with a constant challenge cited by many people who wish to purchase a home – saving for the down payment.

In a recent post in NAR’s Economists’ Outlook Blog, they explained:

“With a sizable tax refund, the average American would have a decent down payment depending on which region or market you live in.”

They went on to add:

“[A]pproximately 5 percent of all respondents indicated they would make a major purchase which does not seem like a lot. However, there is a bigger group 41 percent who see saving the tax return is best and that group could be potential homebuyers if they are not already.”

In other words, putting that money toward purchasing a home is a form of savings.

Bottom Line

When one considers that first-time home buyers in 2016 had an average down payment of 6%, a decent tax return could go a long way toward the necessary funds needed for a down payment on a house. Or perhaps, the down payment needed by a son or daughter to make their homeownership dream a reality. How are you going to spend your return? If you are thinking of putting it towards real estate Johnson Team Real Estate is here to help! Call us today at 1-888-713-3056 or email us at Info@JohnsonTeamRealEstate.com .

Wanting to Appeal the Assessed Value of Your Property?

Do you feel the assessed value of your property is not correct?

Property TaxDid you know you CAN appeal the valuation of your property with the Whatcom County Assessors Office? All appeals must be done using the appeal petition form available here, a phone call or letter is not permitted.

 

Only a  property owner or “Taxpayer” may appeal a valuation and appeals must be submitted and received by the County Clerk on or before July 1st of the assessment year.
To learn more about the appeal process view the appeal forms and information here!

Are you Taking Advantage of the Homeowner Energy Tax Credits?

Don’t miss your opportunity to take advantage of energy tax credits, while reducing your home’s energy costs.

 

There are two homeowner’s energy tax credits that have been extended for homeowners wanting to reduce their energy costs. Learn more about the energy credits and how you could benefit from them below:
Residential Energy Efficient Property Credit – This credit Home tax creditprovides a credit for homeowners installing geothermal energy systems, wind energy systems and fuel cell systems.

 
VSH Certified Public accountants states, “The credit is generally 30% of the qualified property and installation costs, subject to some limitations for fuel cell and geothermal systems.”

 
Originally scheduled to expire in 2016, the credit has been extended to 2021. To learn more visit the IRS website.

 

Non-business Energy Credit – Also known as the Energy Saving Credit, this credit applies to improvements made to your home to make it more energy efficient. This credit was extended to include improvements made in the 2015 and 2016 tax year.

The credit generally applies to insulation, storm windows and doors, and certain types of energy-efficient roofing materials, air-conditioning and hot water systems.
The tax credit is 10% of the cost of the energy-saving items. Items that generally qualify are energy efficient hot water systems, roofing materials, air conditioning, storm windows and insulation. The credit has a lifetime maximum of $500.

To learn more about the Energy Saving credit and other homeowner’s tax credits visit the IRS website today!

Thinking of Buying Real Estate? Plan Now for Tax Time

Bellingham Real Estate TaxesThe best time to think about income taxes on the sale of a piece of real estate is when you buy it. I can hear the groans – you have plenty to think about during the buying process, and you aren’t planning to ever sell it anyway.

Reality, however, is that at some point you will sell the house/land/commercial property, and if you have owned it a while, you may have a nice profit. If you know the rules in advance, you may be able to keep more of that profit. There are two types of real estate: a personal residence and an investment, and the tax rules are different. This post will just address the basic things to know about the sale of a personal residence; an investment property is more complex, and will be covered in a later post.

First, it is necessary to understand a basic term: capital gain. Simply speaking, capital gain is the difference between the cost of the property and the proceeds from the sale of the property. The cost of the property includes the amount you paid for it and the cost of any “capital improvements” you have made. This is called your “basis”. A capital improvement is not regular maintenance, but an improvement for which you paid that adds to the value. Your labor doesn’t count. The sale proceeds of the property include the total sale price, less the cost to sell. You cannot subtract any existing debt from the sale price in calculating your basis. If you have refinanced the property and pulled cash out, you could end up with a capital gain and no money to pay the income taxes. Another important point: you must have documentation to prove the cost of any capital improvements. These basic requirements apply to both a personal residence and an investment property.

So let’s look at a personal residence. If a property has been your personal residence for at least 2 of the past 5 years, a capital gain (difference between the cost of the property and the proceeds from the sale of the property) of $250,000 for a single person or $500,000 for a couple is exempt from income taxes. You could have lived in it as your primary residence for 2 years and rented it out for the next 3 years, and there would be no income tax due on the gain. Or, you may have rented it out for the first 3 years and lived in it as your primary residence for the next 2 years, and there would be no income tax due on the gain. It’s really pretty simple, as long as you follow the rules.

Now that we have covered the basics, let’s talk briefly about a couple of other scenarios.
What are the tax implications if you inherit a property and want to sell it?

Your basis is the value of the property at the time you inherit. If you put additional money into capital improvements before selling, that becomes part of your basis. You will pay income tax on the capital gain… which may be zero if you sell it soon after inheriting.
What are the tax implications if someone gives you a piece of property?

Their basis at the time of the gift becomes your basis, so if you sell and there has been a gain, you will have to pay the appropriate income taxes.

The goal of this article is to start you thinking about the long term ramifications of acquiring and selling real estate. A little knowledge can alert you to potentially expensive choices, which may be avoided by consulting with a good accountant. So when you buy that new house, talk with your accountant and create a plan for tracking your costs. A plan well laid can be money made.

Tax Credits For Your Home

Home Tax CreditIn February, the federal tax credit was reinstated for energy efficient home improvements made in 2012 and 2013. A tax credit is a direct reduction of taxes due. It can be better than a tax deduction that only reduces taxable income.

The energy tax credit now has a $500 lifetime cap for qualified energy efficient upgrades to your existing principal residence, but the deadline is December 31. New homes and rentals do not qualify. You’ll find all the details on: http://www.energystar.gov/taxcredits. The highlights:

1. Tax credits for 10% of the cost. You may claim a tax credit of 10% of the cost of certain energy-saving upgrades. These include qualified insulation, windows, roofs, and doors, with a $200 limit for all doors.

2. Tax credits for the full cost. You can claim tax credits for the full cost of specified types of “qualified residential property,” but only up to certain caps. For example:

  • advanced main air circulating fan – $50
  • natural gas, propane, or oil furnace or hot water boiler with annual fuel utilization rate of 95 or greater – $150
  • electric heat pump water heater with minimum 2.0 energy factor – $300
  • electric heat pump or central air conditioner that achieves the highest efficiency tier of the Consortium for Energy Efficiency – $300 each
  • natural gas, propane, or oil water heater that has either a minimum energy factor of 0.82 or a minimum thermal efficiency of 90% – $300
  • biomass stove that uses “plant-derived fuel available on a renewable or recurring basis” (see site for details) – $300

You’ll need to file IRS Form 5695 with your tax return and have the Manufacturer’s Certification Statement that the item meets the efficiency requirements on the energystar.gov website. That site also lists a few alternative energy items (such as solar panels) that qualify for tax credits after December 31.

Please consult a tax professional before making any purchases you think will qualify for a tax credit.

Special thanks to Sidney Stonecypher at People’s Bank for passing this great article along to us!

Tax Preperation Tips to Save You Time and Maximize Your Deductions

Bellingham Tax PrepSTEP UP TO THAT TAX RETURN!

Preparing your tax return needn’t be an annual ordeal. Getting organized can take a whole lot of stress out of the process. Now is the time to gather the information you’ll need to do your return or hand over to your tax professional. There are just three categories:

 

1. Paperwork:

  • Last year’s return
  • All income info: W-2 forms, 1099 forms, alimony, self-employment income
  • Any 1098 forms: mortgage, educational institution statements, etc.
  • IRA info
  • Savings and investments info

2. Deductions:

  • Charitable contributions
  • Job hunting costs
  • Moving costs
  • State and local income taxes and sales taxes
  • Real estate and personal property taxes
  • Home mortgage interest and investment interest
  • Points on a home mortgage or refinance
  • Casualty and theft losses not covered by insurance
  • Non-reimbursed business entertainment and travel expenses, including car use
  • Business use of home
  • Medical expenses
  • Educational expenses

3. Miscellaneous expenses:

  • Tax preparation and tax advice fees
  • Safe deposit box rental
  • Investment fees and expenses, including service charges on dividend reinvestment plans and trustee’s fees for your IRA, if separately billed and paid
  • Convenience fees charged for paying income tax, including estimated tax payments, by credit or debit card
  • Appraisal fees for a casualty loss or charitable contribution
  • Ask a tax professional about other expenses you can deduct if you have extensive investments, or estate, trust, IRA or Social Security issues

The above are only guidelines to help you organize some of the information you’ll need to prepare your tax return. If you have any questions about these or other tax matters, always consult with a qualified tax professional.

Thanks to Sidney Stonecypher with People’s Bank for sharing these helpful tax tips with us!

9 Tax Questions Every Real Estate Owner Should Know…

Bellingham Real Estate TaxesNow is the time to start putting together records and information for your 2012 tax returns which are due April 15, 2013. Here are some tax questions homeowners need to ask courtesy of Sidney Stoncypher at People’s Bank Home Loan Center here in Bellingham:

1. What tax benefits did homeowners get in the recent ‘fiscal cliff’ budget agreement? Two tax provisions that ended in 2011 were reinstated for 2012 and 2013: 1. Mortgage insurance premiums are again tax deductible for people with adjusted gross income below $110,000; 2. Homeowners will continue to get tax credits for certain energy-efficient home improvements. For details, visit www.irs.gov or ask a tax professional.

2. What are the home related tax deductions people most often claim? One of them is the mortgage interest deduction (which can mean about $3,000 in tax savings for the average itemizing homeowner) and another one is the deduction for property taxes.

3. What is the #1 mistake homeowners make with their taxes? If your real estate taxes are not part of your monthly mortgage payment, you are billed by your town or county. Those tax bills often include other items like trash collection and snow removal fees. Be careful to deduct only the part of your bill that is property tax.

4. What tax deduction should I be sure to take? Make sure to deduct any points you paid on the mortgage you took out to purchase your home in the tax year you paid them. But if you refinanced, you need to amortize and deduct any points you paid over the life of the mortgage. People can easily forget the deduction after a few years.

5. What’s the most important thing I should do as a first-time homeowner?
Look at the HUD-1 form you received when you closed on your home. There may be fees like prepaid taxes or interest you can now deduct.

6. What should I look out for if I’ve owned my home for a number of years? If you’ve refinanced and taken out home equity loans or lines of credit, remember that the maximum outstanding home equity debt that’s deductible is $100,000 and the maximum amount of deductible mortgage interest is $1 million.

7. Which home improvement records should I keep?
Keep all receipts for the capital improvements you’ve made to the property. Tax rules let you add these expenses to your home’s cost to reduce any profit you might have to pay taxes on when you sell. But most people are exempt from taxes on the first $500,000 of profit for joint filers ($250,000 for single filers).

8. What’s the difference between a capital improvement and a repair? Fixing a furnace so it keeps working is a repair; replacing it is a capital improvement.

9. Will taking a home office tax deduction increase my chances of being audited? Taking the deduction shouldn’t generate an audit by itself. But if your expenses are unusually large, or if it looks like you’re using office costs to create artificial losses, the IRS will probably look into it.

NOTE: Always consult a tax professional for the definitive answer to any tax question.

Thanks again Sidney Stonecypher at People’s Bank for the great information to help our clients!

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Mortgage Interest Deduction. What are your thoughts on it being changed or elminated?

The mortgage interest deduction is a key factor in many household budgets in the and in the overall United States housing market.  President Barack Obama  at this point seems to be holding on his pledge to raise taxes for those with a taxable income above $250,000, but also on the agenda is eliminating tax breaks which include the mortgage interest deduction.  The mortgage interest tax deduction has been in effect for almost a century.

Is the mortgage interest tax deduction an important factor in home ownership for you and your family?  Would the elimination of the tax deduction effect the amount you would be willing to spend on a home? Feel free to comment here and let us know your thoughts!

To learn more about the mortgage interest deduction and what it might mean to the United States housing market check out this informative broadcast on the Diane Rehm Show on NPR.