Rent your home tax free
There is a little-known provision in the tax code that allows homeowners to rent their principal residence or second home for up to 14 days a year without having to recognize the income. In this situation, the taxpayer does not deduct the rental expenses associated with the income. There is no restriction on how much you earn. If your first or second home is in a desirable area where people are looking for short-term rentals, it could provide a windfall to the homeowner. In cities where any big sports championships are played, there could be a market for a temporary rental of a home. Events...
Read MoreBefore you pay cash for a home
Before you pay cash for a home, ask yourself if there is a possibility, at some point in the future, you might put a mortgage on the home and would want to deduct the mortgage interest on your federal tax return. Current federal tax law allows homeowners to deduct the interest on up to $750,000 in acquisition debt used to buy, build or improve a property. When a person pays cash for a home, the acquisition debt is zero. The only way to increase the acquisition debt is to make and finance the improvements to the home. As with many IRS regulations, there are exceptions to this rule. If a...
Read MoreHomeowner Equity and Wealth Accumulation
National homeowner equity grew in the fourth quarter of 2020 by $1.5 Trillion or 16.2% year-over-year based on a CoreLogic analysis. The study was done on the six out of ten homeowners who have mortgages on their home. The fourth quarter of 2020 also saw the number of mortgaged residential homes with negative equity decrease by 8% from the third quarter. Compared to the same quarter in 2019, negative equity decreased by 21%. Equity is defined as the value of the home less the mortgage owed. Negative equity means that the homeowner’s debt is more than the value of the home. Appreciation...
Read MoreSkip the Starter Home
For generations, people have begun their homeowner experience with a “starter” home. Part of the logic may be that by beginning with a smaller home, they can learn what it takes to run the home and discover some of the unexpected costs that come along with it. A slightly longer view into the future could suggest a different strategy. As of March 4, 2021, the average 30-year mortgage rate according to Freddie Mac was 3.02%; up .37% from the week of January 7th this year. At the same time, in 2020, the rate was 3.29% and in 2019, it was 4.41%. That is a difference of 28 and 139...
Read MoreYour Refund Could Open the Door
One of the silver linings to filing your income tax return is finding out that you are going to receive a refund that could literally open the door to owning a home. If you happen to be one of these fortunate taxpayers, your next decision is what to do with it. With the average tax refund near $3,000, it could be the ticket to buying a home sooner rather than later. Regardless of the size of your refund, it can be used toward the down payment or closing costs of the home. Most people think it takes 10% or more down payment to purchase a home, but actually, it is much less because of several...
Read MoreTransferring Property Prior to Death
Sometimes, as people approach the inevitable, they start trying to get their things “in order”. They may even have a will, but they decide to transfer title to real estate prior to their death which could be an unnecessary expense for the would-be heir. Generally, when property is passed through direction of a will, the heir will receive a stepped-up basis which means that the fair market value of the property at the time of death becomes the cost basis for the heir. If the property were sold for that fair market value, there would be no gain and no capital gains tax due....
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