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America Still Considers Real Estate the Best

35% of respondents, in a recent annual Gallup poll that dates back to 2002, identified real estate as the best long-term investment option compared to 27% who identified stocks.

The top choices included real estate, stocks, savings accounts and gold. Even with the remarkable prices of the different U.S. stock indices recorded in 2019 through April and May, homes have the highest confidence in the minds of the respondents.

This seems to be based on the stability of the housing market and the expectation that home prices will continue to rise. Homeowners build equity from both appreciation as well as reducing principal with each payment made. These same factors exist for investors of rental homes in predominantly owner-occupied neighborhoods.

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Determining Property Type

The Internal Revenue Service considers four different types of real estate. Specific types of properties have benefits based on their classification. The determination does not depend on the property itself as much as it depends on how the property is used and what the owner's intentions are.

Principal Residence ... a principal residence is the place a person lives or expects to return if they are temporarily away from it. It could be a single family, detached home or condominium or a duplex, tri-plex or four-unit. The owner(s) can deduct the qualified mortgage interest and property taxes on the schedule A of their tax return. There is a capital gains exclusion on profit of up to $250,000 for a single taxpayer and up to $500,000 for a married…

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Taxes and the Homeowner

Whether you’re an owner now or expect to be one in the future, it is important to be familiar with the federal tax laws that affect homeownership. Since personal income tax was enacted in 1913 with the 16th amendment, homes have had preferential treatment.

The mortgage interest deduction is based on up to $750,000 of acquisition debt used to buy, build or improve a principal residence. In addition to the interest, the property taxes are deductible, limited to the new $10,000 limit on the aggregate of state and local taxes (SALT). The taxpayer may also deduct interest and property taxes subject to limits on a second home.

Homeowners can decide each year whether to take itemized personal deductions or the allowable standard deduction which was…

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Qualified Charitable Contribution

If you’re at an age where you need to be taking Required Minimum Distributions (age 70.5) from your IRA, a qualified charitable contribution and some planning may allow you to lower your overall tax liability.

Let’s say that a couple’s 2019 itemized deductions include $8,000 in property taxes, $4,400 in interest and $20,000 in charitable contributions. That would total $32,400 which exceeds the 2019 $25,300 standard deduction for married couples, 65 years of age or older, filing jointly.

Their required minimum distribution from their IRA is $40,000 which will be taxed at ordinary income. If this couple is in the 24% tax bracket, the tax liability would be $9,600.

Alternatively, if they made the $20,000 in charitable contributions from their…

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When It's Important...Find the Facts

Most parents don’t put a lot of credence in the statements “Everyone is doing it” and “No one does that anymore.” They’ll dig a little deeper and get the facts of the situation. Interestingly, when it comes to buying a home, similar common myths continue to prevail surrounding what it takes to buy a home.

One of the most common myths is that it takes 20% down payment to get into a home. Certainly, an 80% mortgage might have the most favorable interest rate. It won’t require mortgage insurance and qualifying requirements might be a little less but there are alternatives.

“88% of all buyers financed their homes last year and consistent with previous years, younger buyers were more likely to finance their home purchase. In 2018, the median down…

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Is a Home Equity Loan an Option?

Here's the scenario: you have a project and need to borrow some money, but you want to do it in the most economic manner. You've got a low rate on your existing first mortgage and don't want to do a cash-out refinance and pay a higher rate. Is a home equity loan an option?

Prior to 2018, homeowners could have up to $100,000 of home equity debt and deduct the interest on their personal tax return. The Tax Cuts and Jobs Act of 2017 eliminated the home equity deduction unless the money is used for capital improvements.

Regardless of the deductibility, lenders will still loan money to owners who have equity in their home and good credit. The most common reasons people borrow against their home equity are:

• Consolidate debt with higher interest…

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Fast Track Rental Property

FHA allows owner-occupants to purchase up to a four-unit property with a minimum 3.5% down payment. The rent collected on three units could be used to make the payment and the owners’ pro-rata share would be less than ¼ of the payment itself.

The owner-occupied unit would be considered their principal residence. The other three units are treated as rental property and eligible for cost recovery, a non-cash deduction plus all the normal business expenses. The rental income of the three remaining units is calculated as income and assists the buyer in qualifying.

A homeowner could buy a four-unit, live in one for two years, buy another four-unit with a minimum down payment, move into one unit, rent the other three as well as the previous unit in the…

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Ready for Retirement

It can be shocking to hear how many people spend more time planning their vacation or next mobile phone purchase than planning for retirement. It is hard to imagine that they are expecting Social Security will take them through their golden years. A person who has paid in the maximum each year to social security can assume to receive about $30,000 a year.

Every adult in the work force, should go to SSA.gov to find out what they can expect based on their planned retirement age. Since it probably won’t be the amount you need to retire comfortably, at least you’ll know how much you’ll be short so that you can devise an investment plan.

There’s an easy rule of thumb used to estimate the investable assets needed by the time they retire to generate a…

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Homeowner Tax Changes

The new tax law that was signed into effect at the end of 2017 will affect all taxpayers. Homeowners should familiarize themselves with the areas that could affect them which may require some planning to maximize the benefits.

Some of the things that will affect most homeowners are the following:

• Reduces the limit on deductible mortgage debt to $750,000 for loans made after 12/14/17. Existing loans of up to $1 million are grandfathered and are not subject to the new $750,000 cap.
• Homeowners may refinance mortgage debts existing on 12/14/17 up to $1 million and still deduct the interest, so long as the new loan does not exceed the amount of the existing mortgage being refinanced.
• Repeals the deduction for interest on home equity debt through…

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Surprise When Renting Your Home

Planning to go to the Masters next April 2-9th and don’t have a place to stay. Each year, there are homeowners who rent their home for a big premium during the Masters because hotels are in short supply and demand for private homes is up.

Homeowners go on vacation and make tax-free income while temporary tenants rent their home. Homeowners can benefit from a little known provision in the tax code that does not require taxpayers to recognize the income derived from renting their home for less than 15 days per year. See Plan Ahead for Tax Time When Renting Out Residential or Vacation Property- special rules.

This situation can particularly benefit homeowners where there are large sporting events nearby like golf and tennis tournaments, championship…

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