Reduce Your Tax Burden Through Home Ownership

Here's a nice surprise...good news involving the word "taxes."

Recent changes in the tax laws have made real estate a more attractive investment than ever before. As a homeowner you are eligible to take advantage of these tax changes and deductions to keep more money in your pocket this year.

Profits from the sale of your home

Congress did homeowners a huge favor by passing the Taxpayer Relief Act of 1997. Today, you can exclude up to $250,000 in profits (or $500,000 if you are married and filing a joint return) from the sale of your primary residence from your taxable income. Previously, this type of deduction only applied to those who were age 55 or older.

Let's say a married couple purchased a home for $300,000 five years ago and sold it for $450,000 in 1998. They get to keep the $150,000 profit tax-free, provided they have lived in the home for at least two years. The IRS allows people of any age to claim the exemption each time they sell their home, but no more frequently than once every two years.

Homeowners looking to downsize will benefit the most from the tax change. You no longer have to reinvest the profits in a home that is similar in price to avoid paying capital gains tax, and you free up cash for additional investments like rental property, mutual funds, education and more.

Mortgage interest, real estate taxes and points

In most cases, the interest you pay on your primary mortgage and your real estate taxes are fully deductible on your tax return. Your lender will send you Form 1098, outlining the amount you paid in interest and real estate taxes over the course of the year.

Mortgage points are also deductible. If you bought a home last year, you can deduct the full amount of the points you paid as home mortgage interest. Meanwhile, if you sold a home in 1998 and paid points, you cannot deduct them as interest but you can claim them as a selling expense if your profit is subject to a taxable gain.

One last point about points. If you were one of the many homeowners who took advantage of low interest rates and refinanced your mortgage last year, the points you paid on the refinanced mortgage are not fully deductible on your 1998 return. You can, however, deduct refinancing points as mortgage interest over the life of the loan. And, if you are refinancing for the second or third time, don't forget to deduct the remaining balance of your previous refinance (those points not yet deducted). This extra deduction can be claimed in the same year your do your new refinance.

Home office deduction

Writing off your home office is a little tricky. To qualify for the home office deduction your office must be your principal place of business -- the place where you meet with clients, customers or patients -- and must be used exclusively for your business. Rooms that double as an office by day and family room by night do not apply. If you meet all of these criteria, you may be able to deduct a percentage of your real estate taxes, mortgage interest, utilities, depreciation and repairs.

Beginning in 1999, your home office may qualify under a new liberal definition of "principal place of business" if you use it for management and administrative tasks related to your business but meet with clients elsewhere. Under this new law, the home office deduction may be available to more homeowners.

Rental property

Be sure to report any income you receive from rental property on your return and deduct your expenses as well. Allowable expenses include depreciation, repairs and operating expenses such as advertising, taxes, utilities and interest.

Since these rules are generalizations, it is best to consult with your tax advisor to find out how these deductions apply to you and your tax strategy. Meanwhile, please call me for more information about how a real estate investment can pay off and other benefits of homeownership.

Beacon Hill Highlights:

• HOA Annual Dues: $665
• Total Tax Rate: 3.06%
• Waller School District
• Highly Ranked for Quality Builder by J.D. Power & Associates in 2010
• Minutes from shopping and restaurants
• Easy access to Hwy 290, Grand Parkway

MORTGAGE CENTER

How Much Income do I Need in Order to Qualify?

Do you need to know how much money you must earn to purchase the house of your dreams? This calculator will help you figure it out.

Savings: When you finance through our Preferred Lenders, Long Lakes Homes will pay your 1st year Home Owner Insurance, your owner’s title policy, and $500 in closing costs –

(these incentive valued from $3000 to $5000 determined by your loan amount)

Preferred Lenders:

1 . Texas Capital Lending

      Gerald Boudreaux. 

     NMLS # 1130687

       Cell:     832-693-0991

       Efax:    281-754-4699

       gboudreaux@txcapital.net

       Apply Now

2 .BenchMark

    WILL NEVOTTI 

    214-733-9620 Cell

    will.nevotti@benchmark.us 

       APPLY NOW  

      Mark Prague

     832-205-1595

    (Spanish Speaking)

       mark.sprague@benchmark.us

        APPLY NOW! 

3. Network Funding

    Robert Tinh  

      C: : 713-992-7100 

     robert.tinh@nflp.com 

     Apply Now

4. CORNERSTONE

    BRANDON POLKA  

     NMLS# 200915

      Direct: 281-296-1892

      BPOLKA@houseloan.com

      Apply Now

Not sure exactly what you need to be asking about? These 10 questions to ask when buying a new construction home will help get you started.

1. Is the lot cost included?

   When you’re exploring new construction options, you’ll see that each plan comes with a base cost. This is the cost of the structure itself, as well as base interior and exterior features (we’ll get into those in a little bit). What may not be included is the cost of the land, so be sure to ask if the lot cost is figured into the base.

   If the lot cost is included, ask if there are premium costs for certain lots. It’s possible that the base cost does include the lot, but the remaining lots in the development all have added costs for certain features that you can’t opt out of, such as look-out windows in the basement or wider yards. If the lot cost is not included, ask what it is (and whether there are additional premium costs) and factor those into the base price for the house.

2. How long will building take?

   It’s important to know what you’re getting into timing-wise with a new construction build, particularly if you have a house to sell first or you’re going to be renting. While the building process is prone to delays and you won’t be able to get a finite schedule for how long the build will take, you’ll be able to get a general idea of what you can expect. Be sure to also ask if the build time includes the time it takes to get the permits, since those will typically take about 30-45 days to obtain.

3. What warranties are provided with the house?

   Just because a home is brand new doesn’t mean that no problems will arise. Fortunately, most new construction homes come with one or more warranties that protect you in the event of a mishap early on, including a short term whole-house warranty and a longer structural warranty. Ask what the warranties include and how long they last. While you can always buy your own home warranty, you should expect that the builder will cover you in some way for at least the first several years.

4. What are the standard finishes?

   Does a base cost look too good to be true? That might be because the builder is expecting you to spend big when it comes to finishes like flooring and countertops. Ask what types of finishes are included, and better yet, go through the model unit with the sales representative and have them point out what’s standard and what is an upgrade. You likely won’t meet with the design center until after you’ve gone under contract, so it’s important to figure out early what sorts of finishes and appliances you can expect to be included in the home’s base price.

5. Is landscaping included?

   Depending on the size of your yard, landscaping, including sodding and putting in trees and plants, can set you back several thousand dollars or more. Is that a cost you’ll have to factor in on top of the home purchase? Some builders include your basic yard work, while others leave you with unfinished land that becomes your responsibility to landscape (and generally must be completed in a set amount of time, per the contract). Ask whether landscaping is included, and if so, what that entails and if there is any sort of warranty on the materials so that if your newly sodded grass dies right away or some other mishap occurs you’re not responsible for fixing it.

6. Does the contract include a cost escalation clause?

   New builds are notorious for last minute surprises, but you don’t want to be on the hook financially if it happens. A cost escalation clause allows the builder to charge you for any unanticipated costs that arise as a result of necessary labor or materials. So if lumber prices go up before the builder has purchased the materials for your flooring, or an unexpected delay adds a few weeks onto the build, you’re on the line for those costs. If you’d rather not deal with the stress of unanticipated costs, find a builder that doesn’t include a cost escalation clause in the contract.

7. Are there any homeowners rules or regulations?

   Even if there is no homeowners association for the development, the builder may still set some guidelines as far as what’s allowed and what’s not on your property. For example, you may not be able to use a particular type of fencing or install a shed in your backyard. It’s better to ask this question early and know what to expect than to move in and find out that you can’t bring into fruition certain plans you had for the space.

8. Are there any financial incentives for using the builder’s preferred lender?

   Some builders offer discounts on closing costs if you obtain your mortgage through a company that they have a relationship with. Ask if these sorts of financial incentives are offered, but don’t make your final decision about where to get your mortgage based on the discounts alone – you may still be able to find a better deal through other lenders. It’s still good to know however if there are benefits to working with the builder’s preferred mortgage company.

If it’s your dream to build a new construction house, go in to the process with an open mind and a clear idea of what you can expect. The more questions you can ask in the beginning, the less surprises you’ll potentially face in the future.

And as with any home purchase, be sure to have an attorney read over your contract so that you can be sure everything is fair and equitable. Some buyers of new construction prefer to go in to sales meetings with a real estate agent as well, though in my own experience, I didn’t find that to be necessary. Be smart, ask the right questions, and at the end of the day (or fine, year) you’ll end up with a beautiful home built just for you.