2018 off to a good start

OK I'll admit that title is anecdotal. But I am seeing a nice flow of listings and buyers poking around, finding homes, and making offers. Many analysts feel that 2018 will slow the crazy pace in the real estate market to a more healthy and normal 4-5% price appreciation over the course of the year. This is fine by me.

I think the fact that the "threat" of higher rates is now the reality of higher rates, people that we dangling their feet over the fence are starting to jump in. I have made the point time and again that rates are far more important the price. Most people will pay far more in interest than any price deal they might negotiate.

The federal tax revisions that take effect this tax year (2018) many middle income earners will no longer need to itemize and as such the mortgage deduction will no longer benefit them. A married couple paying less than $20,000 a year in mortgage interest may not have enough itemized deductions to exceed the new and improved standard deduction of $24,000 for a family.

As I always state my standard disclosure anytime taxation is discussed: always consult a professional tax prepared or CPA when making decisions based on taxation. That out of the way, the new tax law increased the standard deduction for a married couple from $12,000 to a whopping $24,000. W2 wage earners are those who have a job and the boss cuts a paycheck, withholding money for taxes. W2 wage earners will receive a standard deduction of $24,000 for a married couples and $12,000 for single filers. This is nearly double from previous years! In general this is a good thing. But in order for it to matter you must have more than $24,000 in deductions for a couple or $12,000 for single. That may be a problem for some.

Lets look at a hypothetical taxpayer for a moment, we shall call her Sally.

Sally made $40,000 in 2017 and has a mortgage of $200,000 on her home. She paid $8,700 in interest last year. The standard deduction for 2017 was $6,350. Her mortgage interest exceeds that so filing the "long form" IRS 1040 with a schedule A for itemized deductions makes sense. Why take the standard $6,350 when you have $8,700 in mortgage interest alone. Now Sally can also write off other job related and business expenses. Here is where talking to the tax pro is CRITICAL. Sally needs to make sure that she doesn't take deductions that are not supported by the IRS. OK Sally is smart and she has a trusted tax pro handling her filing each year and he helped her find an additional $2,200 in legit tax deductions. No Sally can't write off those coffee break lattes ;)

Now two 'problems' will arise for Sally this year. First the amount of interest paid on a mortgages drops each year as the balance is reduced. Let's say Sally will pay $8,500 in interest in 2018. She will likely have a similar amount of other deductions. So at the end of the year she has $10,700 in deductions which is now less than the new standard deduction of $12,000. The good news is, Sally will get a larger deduction and save the extra expenses of having to file the schedule A. Her tax guy is not happy, but Sally is. But now for many the extra bonus value of home ownership that was an effective tax break, has been eliminated for those with smaller mortgages.

This could have a net effect of slowing down some of the pressure on entry level homes and first time home buyers. Of course the idea of home ownership should not revolve around tax deductions, but rather the idea of owning real property, gaining equity by reducing the balance on the loan and enjoying appreciation in price over time. These are really the hallmarks of home ownership. It's all about the equity asset and the lack of a landlord that can kick you out or raise your rent.

Over all the new tax system will be a bonus, but it could lead to some minor softening mostly near the bottom of the market. Frankly the bottom needs a little price relief anyway. 2018 is looking good.

Last Chance for Tax Prep

Did you buy a house this year? Did you do a major refinance of you personal residence this year? If you did either you should meet with your tax guy before the end of the year. Home mortgage interest can play a significant role in you tax burden and you may have had a big enough change to itemize deductions where you previously did not. This means lots of things to deduct against you tax bill. It is already the 22nd of December and you better get crackin'

Once a taxpayer has reached the point where he or she can itemize deductions on the 1040 form, there are many legitimate deductible expenses that can be taken. It may even be worth while to make a few legitimate business purchases based on what you professional tax guy says.

The new tax law passed by the Congress earlier this week may change your ability to itemize deductions so this year could be the year you want to make deductible purchases. The new law will increase the standard deduction by roughly double. This means many people that are itemizing now, may not need to starting next year. Your tax guy can explain the details, but I suggest you find out before the end of the year.

Many homeowners benefit from itemizing deductions and if you own a home with a mortgage you should seek professional tax help to make sure you are not paying MORE than you fair share to Uncle Sam. Let's face it, the IRS is more like a crazy uncle when you think about it. Our elected representatives are not exactly spending YOUR money wisely, so keep as much as you can fairly under the law. Talk to a pro, you only got 4 business days left!

Happy Holidays to all!

Did you buy a House this Year?

Well, did you? If so, you really ought to consider talking to a CPA or a trusted tax professional. This is especially true if you bought your very first home. Our federal tax system is complicated and has both positive loopholes and negative traps. Buying a home is often beneficial to your bottom line on taxes. A tax professional can help you organize your deductions and clarify what you can and cannot "write off".

Prior to owning a home most people do not have enough deductions to justify using the 1040 long form. But once mortgage interest is added to the mix it is quite common to have every reason to itemize deductions. Now all those legitimate deductions you have always had can actually be utilized to save money on taxes. This is why it is so important to see a professional tax advisor.

Trying to itemize deductions on your own can be a very daunting task. Not only is it time consuming, but it is very easy to take a deduction that is not a legal deduction. In an audit, you may get into the proverbial hot water. It may cost anywhere from a hundred to a few hundred dollars to have a professional prepare your taxes, but it is well worth it in my opinion. Even if you are good at accounting and feel comfortable preparing your own taxes, I still think it is sound advice to at least have your taxes prepared occasionally by a seasoned tax professional. A significant change in tax, income or deductions status is a great time to utilize a tax preparer.

The federal government is going to waste your money anyway, so you might as well pay them ONLY what you really owe, right? OK, I know that the government has many viable and necessary expenditures, my tongue was inserted in the cheek on that last comment. But none the less, why pay more than you are required? If you want to give away money, give it to a local charity and help someone who is down and out. Or send me a check...tongue in cheek but less firmly on that one.

I hope everyone has had a spectacular year, I know I did and I am looking forward to an even better 2014. Happy Holidays to all of you. They will be a little merrier if you save money on your taxes this year.