Death and Taxes!

With tax season upon us, we need to think “tax incentives”, “tax credits” and legal “tax write-offs”!!!  These tips are relevent whether you live in Portland, Oregon or elsewhere in the US!  Of course, first and foremost in my mind is the $8,000 First-Time Home Buyer Tax credit (not deduction)!  It was originally set to expire on November 30th, 2009 but this credit of up to 10% of the purchase price or up to $8,000 was extended into 2010 (purchase agreements must be signed by April 30, 2010 and closings must be final by June 30th, 2010)!  The new program was also expanded to include a tax credit of up to $6,500 (or up to 10% of the purchase price…not to exceed $800,000) for qualified buyer of a ”repeat” or “replacement” home under the same deadlines.  To qualify, home purchasers must have owned and occupied a primary residence for five consecutive years during the last eight years.  Most importantly, the new program significantly increased previous income requirements. 

There is also a property-tax deduction for non-itemizers.  You don’t have to be a new homeowner in 2009 to deduct qualifying property taxes, but prior to 2008, you did have to itemize your taxes in order to receive the benefit–not anymore.  Under the new rule, homeowners who don’t itemize can boost their standard-deduction amount by up to $500 if they’re single and up to $1,000 if they’re married and file a joint return to account for property taxes paid during 2009.  You’ll need to include a Schedule L with your 2009 tax return, but it’s definitely worth it if your qualify.

If you paid refinancing points, you get to deduct the points over the life of the loan.  That means you can deduct 1/30th of the points per year if it’s a 30-year mortgage.  It’s not a lot of savings, but everything helps when you’re legally trying to lower your tax bill.

There are multiple energy and home improvement credits.  Homeowners can make energy-conscious purchases that will provide tax benefits when filling out their tax returns for 2009.  The new law provides tax credit for making your principal residence more energy efficient and for buying certain energy efficient items.  There is the Residential Energy Property Credit and this new law increases the energy tax credit to 30% of the cost of all qualifying energy-efficient improvements to existing homes.  This includes windows, doors, insulation, water heaters, energy-efficient heating and air conditioning systems, roofs, biomass stoves.  And, there are no income limits and no AMT (Alternate Minimum Tax) ramifications. It also raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010.  Go to http://www.energystar.gov for loads more information!

There are a few other tax breaks such as new car purchases.  If you bought a qualifying new car or truck ($49,500 or less) between February 16 and December 31, 2009, you may be able to deduct the sales or excise tax (for state of Washington buyers).  Your income must be less than $125,000 for a single taxpayer or $250,000 for a couple to get the full deduction.  The benefit applies to more than one vehicle, as long as all of them qualify and delivery was taken by December 31st.

Unemployment benefits are usually fully taxable.  If you received any unemployment benefits at any time during 2009, you are eligible to exclude the first $2,400 of these benefits when you file your tax return.  For a married couple, the exclusion applies to each spouse separately.

If you were unemployed in 2009 but you got a new job, moving expenses may be deductible, if you moved more than 50 miles away and you don’t have to itemize to get this deduction.  For 2009, you can deduct the cost of getting yourself and your household goods to the a new area 50+ miles away, this includes 24 cents per mile for driving your own vehicle, plus parking fees and tolls.

Don’t forget the Private Mortgage Insurance (PMI) tax deduction!  If you put down less than 20% on a house, you were required to purchase private morgage insurance, which protects the lender in the event you default on the home loan.  Starting with loans issued or refinanced in 2007, and continuing through 2010, you can deduct each year’s premiums paid on PMI for your principal residence and for a non-rental second home.  The tax break was originally good for 2007 only, but the government extended it for three years.  The deduction begins to phase out once your adjusted gross income (AGI) reaches $100,000 ($50,000 for married filing separately) and disappears entirely at an AGI of $109,000 ($54,000 for married filing separately).

There is also a Residential Energy-Efficient Property Credit witch covers very expensive but green products such as solar electric, solar water heaters, geo-thermal heat pump, wind energy and full-cell power plants with a 30% credit for qualifying costs.  With all of these credits, financing is permitted!  Again, go to http://www.energystar.gov for specifics and, of course, always consult with your tax professional!!!

1031 Tax-Deferred Property Exchange and Who Wouldn’t Want to Defer Taxes??!!

A 1031 Tax-deferred exchange is a real estate transaction involving the sale of one property with the tax on the capital gain deferred because ofthe qualified purchase of another like-kind property in exchange.  For 1031 exchange purposes, the term like-kind property is interpreted as any type of investment property, rather than property owned for personal use.  The 1031 exchange involves a purchase that must close within 180 days of the sale.  There is also a reverse 1031 exchange in which the sale occurs after the associated purchase.  Investors utilize the 1031 exchange to defer taxes by selling an investment property and using the profits to buy one or more new properties without immediate tax consequences.  Both real and personal property can be exchanged but they are not like-kind to one another.  Almost any property, whether real or personal, which is held for productive use in a trade or business or for investment, may qualify for a tax-deferred treatment under Section 1031.  You can exchange an investment property for any other qualified investment property.  In other words, you have a rental house which now has lots of equity accrued and you would like to sell and purchase two duplexes or sell a duplex and move-up to a small apartment building, etc.  As long as they are “like-kind”, it is allowable.  It’s a great way to continue utilizing both the equity in your investments and other people’s money to acquire wealth through real estate investments.  And, who doesn’t like the idea of deferring taxes?  The tax payer has 45 days from the sale of the original property to identify the new property and 180 days to close.  There are relatively strict rules on the procedures for a qualified tax-deferred exchange, so I use an experienced intermediary to make sure the process is seamless and my tax deferral is protected!  You do not have to use all the funds from the original sale in the exchange.  A tax payer/exchanger can choose to withhold funds or receive other property in an exchange, but it is considered “boot” and will be subject to federal and state taxes.  Anyone owning investment property with a market value greater than its adjusted basis should and could consider a 1031 exchange and I would definitely consult your accountant or CPA!  If you’d like a referral to tax-exchange specialist to further discuss options, please contact me. 

I have noticed that investment properties are “holding their own” in the Portland, Oregon real estate market.  Investors with good credit and/or cash are attempting to locate good rental properties.  Being a landlord is not for everyone but the rewards can be great.  If you think about it, you have someone else paying the mortgage, hopefully a bit of cash flow (and the promise of more over time), plus some appreciation (albeit slow in this market) and the opportunity to set up passive income for the future.  Real estate is also a very tangible investment, as you can drive by…touch and see it.  I love that!!! 

This Ain’t Scary: Tax Credit Extension AND Expansion!!!

HAPPY HALLOWEEN!!!!

First-Time-Buyer ADDITIONAL Tax Credit Available!

EFFECTIVE IMMEDIATELY … First-Time-Buyers who purchase within Portland city limits may be eligible for a tax credit in ADDITION to the federal $8000 credit.

The PDC (Portland Development Commission) is offering a “Mortgage Credit Certificate”, which is a dollar-for-dollar tax CREDIT off the borrowers Federal Income Tax.  The credit amount is 20% of the amount the borrower pays annually in mortgage-interest.  For example, if the interest portion of their payments totals $10k for the year, then they would get a $2000 credit.  The remaining 80% would still be a write-off as normal.

Best part … this is an ANNUAL CREDIT … which means the borrower can potentially saves thousands off their taxes for every year they continue to have the loan and live in the home.  Subject to income limitations, but those are quite generous, and a few other details, which I can explain once you have a client ready to go.

No one is sure how long this program will be available, but the educated guess is through the end of the year, and then it will depend on the PDC board renewing it.  It’s a great deal for a buyer … this will literally put around $10k or more in the buyers’ pockets the first year they buy the home, and a few thousand more each year thereafter.  This can be used with any kind of FHA or Conventional loan.

Income limits: 

1-2 person household  -  $70,000

3+ person household  -  $80,500

Must be within city limits of Portland

Non-homeowner for last three years

Remember the federal “First-Time Buyer” credit is applicable to homes closed by December 1^st, 2009.  Please don’t hesitate to call or write for more information AND please pass the information on to anyone who might be considering purchasing their first home (OR, their first home in 3 years)!!!

Special Tax Break on New Car Purchases in Oregon!

IRS Updates

Special Tax Break on New Car Purchases Available in States with No Sales Tax

A tax break for the purchase of new motor vehicles is available in states that do not have a state sales tax. Under the American Recovery and Reinvestment Act of 2009, taxpayers who buy a new motor vehicle this year are entitled to deduct state or local sales or excise taxes paid on the purchase.  The IRS and Treasury have determined that purchases made in states without a sales tax — Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon — can also qualify for the deduction.  Taxpayers who purchase a new motor vehicle in states that do not have state sales taxes are entitled to deduct other fees or taxes imposed by the state or local government. The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per unit fee. According to the IRS, Congress intended for these fees or taxes to qualify for this special tax deduction.

To qualify for this deduction, the vehicle must be purchased after Feb. 16, 2009, and before Jan. 1, 2010. Taxpayers can claim this special deduction only on their 2009 tax returns to be filed next year.  The deduction is limited to the fees or taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle.

Click here for more information from the IRS:

http://www.irs.gov/newsroom/article/0,,id=209624,00.html

Free $$$$ from the IRS is Always a Good Thing!

Portlanders are a frugal bunch and so taking advantage of every single possible tax credit is always prudent, don’t you think?  I believe most everyone has heard about the 1st-time buyer tax credit of $8000.  But, you can’t hear enough about a good thing so I will include some formerly posted FAQ’s about that credit at the end of this post.  This home-buyer credit added to the abundance of inventory with adjusted prices and low interest rates has made certain price points start to move in the Portland Oregon real estate market.

Remember the difference between a “tax deduction” and a “tax credit” is that a credit is a dollar for dollar tax savings and a deduction means your taxable income is less.

There are other tax credits available and free $$$ from the IRS is always a good thing!!  Please click on the following link for more possibilities of saving:  http://bit.ly/TaxCredits