Many Columbia SC homeowners have already filed their taxes for 2013, but a large majority have not. We direct this article to those of us who always seem to procrastinate until the last minute, and are lucky if we get our taxes filed by that dreaded April 15th deadline.
5 Important Tax Tips for Columbia SC Homeowners
Mortgage Interest
Claiming mortgage interest is the biggie, and one of the most common deductions among Columbia SC homeowners when figuring their taxes.
The deduction even covers multiple loans, so those who are Columbia SC homeowners but have a second home elsewhere can claim the interest on both, so long as the total is under the $1.1 million cap.
If you refinanced your loan and decided, "Hey, why don't we take another $50,000 out in equity," but then you don't use that money to, say, build a pool, or add a garage, that's not fully deductible. You have to use the money to improve the house, or you are not allowed a deduction for that.
Private Mortgage Insurance
Don't mistake private mortgage insurance, or PMI, for Columbia SC homeowners insurance that protects against a fire or other loss. PMI comes into play with lower-income Columbia SC homeowners who often can't afford a big down payment, and instead pay a small monthly fee as insurance against default. The idea is to protect the lender against being stuck with a big loan with zero equity in the home, as well as to allow those without huge nest eggs to buy a property with minimal down payments.
If you make a private mortgage insurance payment, in most cases this is deductible.
Cancellation of Debt
While foreclosures are not as common as they were a few years ago, debt forgiveness is still very common. If a lender agreed to forgive some (or all) of your mortgage debt, failing to report that debt forgiveness could result in a big change to your overall tax liability and result in hefty penalties from the IRS.
This also applies if you took out a home equity loan but are now having trouble making payments. Even if it's not the same as a foreclosure or a short-sale, if that second mortgage is written down by a lender then you have to report that when filing your taxes.
Casualty Losses
When disaster strikes you are able to claim a tax break for any significant losses not covered by your Columbia SC homeowners insurance policy.
The biggest "gotcha" when it comes to deducting losses is to make sure you can prove the loss and the value. Documentation is key when trying to claim casualty losses. And remember, it's out-of-pocket losses, and it has to be more than 10% of your income. So if you made $75,000, you have to pay $7,500 "out-of-pocket" before you can take any deduction.
Selling Your Home
For Columbia SC homeowners who have taken advantage of a resurgent housing market by selling their homes altogether, there are also tax implications.
If you sold your home in the past year, costs including title insurance, advertising and real estate broker fees can be claimed on your taxes.
You can also claim certain repairs to reduce your capital gains on the sale, presuming they were made within 90 days of the sale and clearly for the intent of marketing the property.
And after the sale? If you had to find a new home because of a new job that is located more than 50 miles away from your old home, you may be able to deduct your reasonable moving expenses, too.
So as you can see, Columbia SC homeowners do get some substantial tax breaks. Get more tax tips by clicking the Taxes link to your right under Columbia SC Real Estate Categories.
As we all prepare for the holidays, there is another major item creeping up on us. Tax time is fast approaching once again, and we have some year end tax moves and suggestions you should start thinking about now, even while you're thinking about the holidays.
Check out our other articles and tips on tax moves to be considering now by clicking on the Taxes link to your right under Columbia SC Real Estate Categories. We'll keep you informed on any breaking news that might affect your Taxes right here at our website.
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Year End Tax Tips to Trim Your 2013 Taxes
Unless Congress intervenes, the Bush-era tax cuts expire when 2013 arrives. Also at risk if lawmakers don’t act before Dec. 31st are many popular tax breaks that expired at the end of 2011 that have long been considered sure-shots for revival. Those breaks include the authority to make direct contributions from traditional IRAs to charity.
Many believe Congress will extend current tax rates, at least temporarily, and probably for all taxpayers.
There are some year-end things you can do to trim your 2012 tax liability. Let’s review them briefly:
Prepare For a New Surtax – One of the biggest changes on the books for 2013 is a 3.8% surtax on investment income for married couples with modified AGI of more than $250,000 (singles, $200,000). As part of the new health care law, the tax applies to the smaller of net investment income or the amount by which taxable income exceeds the thresholds. Investment income includes dividends, interest, capital gains, annuities, royalties and rents. Investment income does not include distributions from IRAs or other retirement accounts.
To lower the potential tax bite, you could give away income-producing assets, such as stocks or investment property, to adult children whose income is far below the threshold. They would not be affected by that extra tax. This is a particularly good year to make large gifts because of a change in the federal gift tax law.
You could also consider accelerating plans to convert part of your traditional IRA to a Roth. Although IRA distributions are not investment income under the surtax law, they could boost your taxable income above the threshold to make otherwise protected investment income vulnerable. Plus, because tax-free Roth distributions are not included in AGI, they would not count toward the surtax threshold in future years.
Unless Congress intervenes, this will be the last year that taxpayers who are in the 10% and 15% tax brackets — joint filers with taxable incomes up to $70,700 and individuals with incomes up to $35,350 — can enjoy a 0% tax rate on long-term capital gains. However, the 0% rate only applies until your income breaks through the 15% ceiling. If you’re a married couple with income of $60,000 and sell a stock for a profit of $20,700, you’ll pay 15% capital-gains tax on $10,000.
Congress has yet to extend a tax break that enables IRA owners who are 70 and a half or older to send a tax-free distribution of up to $100,000 directly to charity. Don’t wait past mid December to direct your IRA custodian to withdraw your minimum distribution.
Give, and You’ll Receive a Break – No matter what happens with the federal estate tax next year, you can still give an unlimited number of individuals up to $13,000 each this year without worrying about federal gift tax. Your spouse can give another $13,000 each to the same people. Higher-income parents could consider giving appreciated stock to adult children in the 0% capital-gains bracket. An adult child in a lower bracket would pay a lot less in capital gains on a sale than if you sold the stock.
If you are considering giving away a vacation home, business interests or appreciating stock, this may be the time to do it either directly or through a trust. See an estate-planning lawyer for advice. The lifetime gift-tax exemption may never be this high again.
Boost Medical Expenses – Under the health care law, there’s a higher hurdle between you and medical expense deductions starting in 2013. Currently, write-offs are permitted only to the extent your qualifying bills exceed 7.5% of your adjusted gross income. Next year, the threshold rises to 10%. However, for the 2013 to 2016 tax years, the 7.5% threshold applies if either spouse turns 65 before the end of the year.
Consider accelerating the timing of planned elective surgery, dental work or other medical procedures. If you have the option to get some procedures done now, you may want to take care of those things before the year ends. Other expenses that could push you above the threshold: the cost of transportation to a medical facility and certain medically related home improvements.
As always, tax laws seem to be ever-changing, so it is advisable to consult a tax attorney or CPA before making any major changes in your tax filing status, or taking action that could affect your withholding.
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Housing in Midst of Recovery
Forecasting increases in home prices and completed transactions for the year, the National Association of Realtors is starting to report slow, but positive improvement for housing.
According to NAR, pending home sales jumped 14.5%, compared to September 2011. In comparison, August pending home sales grew 10.7%, suggesting overall improvement in 2012.
NAR chief economist, Lawrence Yun, stated it is the pending home sales that continue to hold a higher ground. “This means only minor movement is likely in near-term existing-home sales, but with positive underlying market fundamentals they should continue on an uptrend in 2013.”
While housing has a long road ahead before anyone can call it a full recovery, small, yet positive economic indicators in housing are slowly emerging, with the PHSI being one of them, given that it has risen for 17 consecutive months on a year-over-year basis. This September revealed a significant increase in contract activity versus the previous year in every region except the West, which struggles with a limited inventory.
It is predicted that over the next year, the conditions of housing will remain affordable, with the 30-year-fixed-rate mortgage remaining remarkably low until it’s gradual 4% rise toward the second half of 2013.
Additionally, NAR says that completed existing-home sales in 2012 will total close to 4.6 million (an increase of 9.0 percent), and are projected to rise about 9.0 percent next year to nearly 5.1 million. With notably lower housing inventory, the national median existing-home price is expected to increase 6.0 percent this year and 5.0 percent in 2013.
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Home Prices at June 2004 Levels
The Federal Housing Finance Agency (FHFA) has released its House Price Index (HPI) for August which shows a 0.7 percent increase in prices compared to July. For the 12 months ending in August, U.S. prices rose 4.7 percent. July figures were revised downward in the report from a 0.2 percent increase to 0.1.
Home prices nationally are now at approximately the same level as in June 2004 and are 15.9 percent below the peak in prices reached in April 2007. FHFA’s bases its index on the purchase price of houses with mortgages owned or guaranteed by Fannie Mae or Freddie Mac.
For the nine census divisions, seasonally adjusted monthly price changes from July to August ranged from -0.5 percent in the East South Central division to +3.0 percent in the Pacific division, while the 12-month changes ranged from 0.4 percent in the Middle Atlantic division to +11.4 percent in the Mountain division.
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Step by Step Closing for Buyers and Sellers
When you have found the home of your dreams, or sold your home, you as the buyer or seller will have to appear at a meeting in which all of the final legal details will be handled, this is known as the closing.
Others in attendance are the real estate agent(s), lender and a closing agent. The meeting usually occurs either at an agent’s office, escrow agent’s office, attorney’s office, or at a lending institution such as a bank or mortgage company.
The main emphasis is to review all of the paper work, and to sign the different forms for financing, and to transfer title to the new owner. For the buyer and seller, knowing what to expect can ease concerns on the process of closing.
Typically the buyer will have more of a role to play in the process of closing on a house. However, the seller will have an important role as well. Usually a review of the settlement statement is presented first for both to agree upon and sign. You will need to be sure about the terms and agreements before you sign.
Next the buyer will be required to show proofs of required mortgage related or homeowner insurance, and that all necessary inspections have been completed according to the guidelines of the contract. All parties must be in complete agreement over terms and sign the documents.
Once this phase is completed both parties will present a certified check for the entire amount of the closing costs. The lender will present the funds paid to the closing or escrow agent, also if there are any funds due they will be submitted at that time to the lending agent.
Depending on the requirements you agreed to as a buyer, your bank or mortgage company may have stipulated that you will need to set up an escrow account to pay your property taxes, or may be your designated home insurance provider out of this account, this will be handled at the closing for your new home.
Other issues such as the recording of the deed will be discussed. Don’t be surprised if you are informed that you don’t have legal claim to the property until it is officially recorded at your local courthouse. It is to be understood that you may not move in until you have legal ownership of a clear title, and this process can take from a few days to over a week. This is why disbursement of funds to anyone involved in the transaction will not be paid until the deed recording is completed.
If you’re the buyer you will need to know what forms you will be required to sign. Take a few moments and write down a check list, and bring along copies of any paper work you have been required to sign or review. An important document known as the Truth in Lending statement will contain vast amounts of financial information for the buyer. This statement will contain information such as your interest rate for the mortgage, amount of cash financed, and your monthly payment schedules along with the total amount paid based on the length of your loan.
Detailed information will be found in other paper work for the buyer too. The mortgage note and other assigned specifications will spell out in specifics terms such as how and where the note is to be paid, and the institutions right to reclaim their rights to the property. This legal documentation will also explain that you’re to meet other specific requirements, such as paying any necessary insurances and taxes yearly, that is of course if you are allowed to pay this independently, and is not part of an escrow account.
The value and importance of a good real estate agent or broker is quickly appreciated at the closing. Many of the processes involved are explained by a caring and competent professional before the closing ever takes place. Make sure though that you do your part by taking the time to ask any questions you have with your real estate broker, and studying, if necessary, your part of the process, whether you’re the buyer or seller.
Home buying and selling can be a pleasant experience for all involved without a lot of hassle and grief. Just make sure you approach it with the right attitude and guidance.
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Time For a Year-End Tax Review
Many of us experience events throughout the year that might require us to go back and review our current financial plans. Life changing events such as marriage, divorce, new additions to the family, job loss, retirement and death are all perfect examples of situations that will likely require revision, or even radical revamping, of your current plan. When it comes to financial, insurance, estate and tax issues, many of us are procrastinators. However, if you make it a goal to complete a simple year-end checklist now, you could save yourself money and time, and gain the piece of mind that comes from knowing your family is well taken care of.
If you’ve just been tossing your receipts into a shoe box all year long, now would be a good time to sort through them and organize them according to categories such as job-related expenses, education or job-hunting expenses and charitable contributions, just to name a few. If you’re self-employed or own a small business, now might be the time to invest more money into your work by purchasing a new computer system, office furniture or a work vehicle. All of these items can be granted quite an attractive deduction come tax time.
If you’re one of the lucky ones and the stock market was good to you this year and you have some capital gains from your investments that are going to be exposed to taxes, a prudent year-end plan should include taking the time to sort through your accounts, and using a strategy known as tax-loss harvesting. This technique involves selling the losers in your portfolio to offset any realized gains. If you wait 30 days and obey the requirements of the wash-sale rule, you can then buy back the securities, if you wish.
Don’t be afraid to generate large capital losses, because there is no limit to the amount that can be offset against capital gains. You can claim an additional $3,000 loss on your federal taxes, and then carry forward the remaining loss into future tax years.
Giving to Others
If you have children or grandchildren, you may (depending on the state in which you live) also receive a state tax deduction for your contributions to a 529 college savings plan. And, let’s not forget that your charitable contributions are usually, partially, tax deductible. When you give to a charity, make sure you get a receipt you can use come tax time.
If you’re computer savvy, consider buying a tax software program such as TurboTax or TaxCut to play around with just so you can see the various deductions allowed and the potential savings available.
Getting Your Estate In Order
A key part of estate planning that many of us overlook is the matter of beneficiary designations. From time to time it is a good idea to verify that these designations are still as you would like them to be. At a minimum, your estate-planning checklist should include reviewing the beneficiary designations for your IRA accounts and life insurance policies and checking the validity of your will.
You may also want to look into adding a “transfer-on-death” (TOD) feature to taxable accounts in order to have them avoid probate in the event of your death. While you have these documents out it would be a good idea to check that your current life insurance coverage is adequate for your present circumstances. Are you underinsured? Are you over-insured? If you are attempting to reduce the value of your estate for estate-tax planning purposes, consider using your annual $13,000 tax-free gift per person in 2011.
Other Overlooked Areas
As the year goes by it’s not uncommon to forget to make your retirement plan contributions, or fail to set aside enough money to maximize the contribution. Since the maximum contribution limits have changed over the past couple of years, and will continue to change in the upcoming years, you’ll want to check with your financial planner to make sure you are contributing the correct amounts. If you recently turned 50, you should be eligible for a larger contribution amount, known as a “catch-up” contribution. Also, if you are age 70.5 or older, you need to make sure you’ve taken your required minimum distributions (RMD) from your tax-deferred retirement plans, such as IRAs and 401(k)s.
Finally, depending on your credit history, you might want to check your credit rating and credit report by going to a reputable online site such as myFICO, which offers you your FICO score plus credit reports from all three credit bureaus for a fee.
In Summary
Along with making a year-end financial ‘to-do list,’ to help you stay on top of the matters we’ve covered here, you should also take some time to prepare your new household budget for the year ahead. Once you have a system in place, the process will become easier every year. You may find it hard to get motivated to tackle some of these tasks, especially during the holiday season, but the potential tax savings and other benefits covered here could be history once December 31st has come and gone. So roll up your sleeves and get to work – you’ll be glad you did come April next year.
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Don’t Wait For Interest Rates to Bottom Out
Whether you’re considering buying your first home, or thinking about refinancing a home you already own, the only pressure you should find yourself under now is to find the right interest rate and to close on that rate as soon as you possibly can to take advantage of the record low rates we are seeing right now.
If you’re thinking of refinancing, with rates as they are now, you might be able to lower your interest rate by one full percentage point or more. If that’s the case, and the costs to refinance are low, you can immediately take advantage of that lower rate. Then, if rates go down further, you can always consider refinancing again.
If you’re shopping for a home and will need a new mortgage, there has never been a better time to buy than now. Inventory is plentiful, and mortgage rates have never been so low. As a general rule, you should never try to time the market — that’s how you miss getting a great rate.
To find a great mortgage, you should talk to at least one national mortgage lender, one local lender, a credit union and a mortgage broker. Ask your friends which bankers and brokers they have used; if they had a good experience with that person or company, give them a call as well.
The following is a guest post from Richard Barrington who writes for MoneyRates.com about financial topics including bank rates. His opinions do not necessarily reflect those of our company.
Before you think about how qualified your tax preparer is, think about what’s riding on your tax return.
On the upside, good tax advice can save you hundreds, or possibly thousands, of dollars in tax liability. On the downside, tax evasion is punishable by up to five years in prison and a $250,000 fine, and YOU are responsible for your tax return, regardless of how you file your taxes or who prepares it.
Hardly any states license tax preparers, so it will most likely be up to you to determine whether your tax preparer is properly qualified. Here are six things you should know before hiring someone to do your taxes for you:
What are the preparer’s professional qualifications?
According to the Bureau of Labor Statistics, most tax preparers don’t even have a bachelor’s degree. However, only a CPA, Enrolled Agent (a federally-authorized tax practitioner), or attorney can represent you in front of the IRS in an audit or other proceedings, so looking for a higher level of professional qualification might be worthwhile.
Is this a full-time occupation?
Tax work is somewhat seasonal, but changes to the tax code and case law can happen throughout the year. You don’t want your tax preparer to miss valuable income tax-deductions because they’re not up to speed on recent changes. Also, your questions or inquiries from the IRS can occur at any time, so you might be better off with a full-time tax specialist.
Will the work be delegated down to someone else?
Is the person you meet face-to-face preparing your returns, or is this delegated to someone else? If the work is delegated, you want to know something about the process. In particular, the IRS cautions against firms that outsource the work to foreign countries, where privacy laws may not give you as much protection as they do here in the U.S.
What type of firm is it?
Good tax preparers can be found in anything from sole practitioners to multi-national accounting firms. There are trade-offs to each one. With a major accounting firm you get a widely-known reputation and deep resources, but you’ll probably pay more for a big-name firm. A smaller firm may be more personal and less expensive, but have less resources to put into the preparation of your return and backing you up if the IRS calls.
What is the preparer’s reputation?
Check out anyone you hire with your local Better Business Bureau. If your tax preparer has specific professional credentials, there may be other avenues for checking up on them, such as your state’s board of accountancy for CPAs, your state’s bar association for attorneys, and the IRS Office of Professional Responsibility for Enrolled Agents. http://www.irs.gov/taxpros/agents/index.html
If your return is prepared by an individual or firm that has had run-ins with the IRS, it might be a red flag drawing special attention to your return, so reputation matters. Tax preparers are easy to find, but it’s worth a little extra effort to find one who is properly qualified.
What is the preparer’s audit history?
This is a tricky one. It’s good to have a preparer who has some experience with the IRS audit process, but not so much experience to suggest they produce questionable returns. Perhaps the key is to know the outcome of those audits–someone who has had returns stand up under audit may be the ideal choice.