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Personal Finance

We are dedicated to keeping clients abreast of the latest developments and tax-saving strategies. This section includes a library of hundreds of timely articles about business, taxes, finances, trends and the like. The articles are categorized by subject matter, which can be accessed from the links. Click on your topic of interest and find a wealth of information.

YOUR HOME & TAXES

Financial transactions involving your home have great tax and financial implications to taxpayers and their families and should be approached with a well-informed understanding of the process. This section includes a variety of self-help tools to assist clients with various aspects of the process. If additional assistance is needed, please call for an appointment or a telephone consultation.

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Going Green At Home Has Tax Benefits
A reduced credit for home energy-savings improvements is available for 2011. The credit generally equals 10% of a homeowner’s cost of eligible energy-saving improvements, up to a maximum lifetime tax credit of $500. The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items do not count.

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Tax Credit to Aid First-Time Homebuyers
To stimulate home sales, Congress first established the first-time homebuyer credit in 2008, then modified it for 2009 (through November 30, 2009), and then extended it again through the middle of 2010 (2011 for certain service members) resulting in some complicated rules.

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A New Twist For Home Sales - Non-Qualified Use
Since the advent of the version of the home sale gain exclusion that became law back in the 1990s, taxpayers have been using that provision of the law as a popular strategy to exclude gain, not just from their primary residence, but also from rentals and second homes as well. 

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Beware of Capital Gains From Previous House Sales
Unless the taxpayer qualified for the over age 55 exclusion, profits from home sales prior to May of 1997 were generally deferred into the replacement home. This, in effect, reduced the tax basis of the replacement home, so that when it is sold, the profit from the previous home is taken into account when determining the overall profit from both homes.

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Divorce Doesn't Untie the Mortgage Knot
Often, when a couple separates and divorces, one spouse continues to live in the family home. Frequently, the departing spouse will simply quitclaim the property to the spouse retaining the home. When filed, the quitclaim deed takes the departing spouse's name off the title. However, it does not remove that spouse's name from the mortgage. 

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Exclusion of Gain from a Taxpayer's Main Home
Unless they meet the reduced exclusion qualifications, taxpayers must meet the ownership and use tests in order to qualify for exclusion of gain.

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Using IRA Funds to Buy a Home
Each taxpayer who qualifies as a "First-Time Home Buyer" can make a $10,000 penalty-free withdrawal from an IRA to purchase a home. (Please note that even though the withdrawal might be penalty-free, it is still taxable.  Also, this penalty exception does not extend to withdrawals from employer plans such as 401(k)s.)

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Fun and Fortune for Fixer-Uppers
Most individuals go shopping for their dream home rather than a fixer-upper when they are looking for a place to call home. However, if you are handy, willing and able to buy a home with the intention of fixing it up and reselling it, you have a unique opportunity for tax-free profits up to $250,000 ($500,000 for a married couple).

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Holding Title to Your Home
If you're thinking of purchasing a home, have you considered how you intend to hold title to the property? Surprisingly, many home purchasers don't give much attention to the question even though the manner in which title is held can have far-reaching ramifications.

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Home Equity Can Provide Funds for Children's Education
Many parents of college age children would like to utilize the equity in their home to help pay for college expenses. When considering this course of action, there are two issues: (1) Should the first trust deed be refinanced or should a second trust deed line of credit be secured? and (2) Will the interest be deductible?

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Co-Owners Eligible for Home Sale Exclusion
Most often, examples demonstrating exclusion of home sale gain are applied to single individuals or married couples. This gives the false impression that the $250,000 ($500,000 for married couples) exclusion applies to the home itself. Quite the contrary - the $250,000 exclusion is available to each individual who qualifies under Sec. 121 of the Internal Revenue Code.

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Tax Break for Sales of Inherited Homes
Heirs of property are often concerned about the taxes they will owe on any gain from that property's sale. After all, the property may have been purchased by a deceased relative years ago at low cost, but now has vastly appreciated in value. The usual question is: "Won't the taxes at sale be horrendous?"

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Will the Interest from a Refinanced Mortgage be Deductible?
If you are planning on refinancing your home, you might be concerned about whether the interest on the loan is deductible. Here's an overview of the current home mortgage interest deduction rules that should help answer your questions.

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Are you Keeping an Eye on Interest Rates?
If you have a mortgage on your real estate property, you should be keeping an eye on interest rates. Rates have been down over the last year or so. This may provide you with a favorable opportunity to refinance your property.

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Home Sale Exclusion and Irrevocable Trusts
Some taxpayers use revocable trusts as an alternative to having their property transferred by will. While there is no income or estate tax advantage to a revocable trust, there is a benefit in having the property pass to beneficiaries on the death of the owner without having to go through the probate process.

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More than One Home
If a taxpayer has more than one home, the taxpayer can only exclude gain from the sale of the taxpayer’s main home (principal residence), even if the other home meets the 2-out-of-5-years ownership and use tests.

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Mortgage Balance Has No Bearing on Sale Profit
If you have ever refinanced real property such as a rental, vacant land, or even your home, and the new loan is for more than the balance of the old loan, you have essentially taken out a portion of the profits without actually selling the property. That means when you sell the property, your taxable gain may exceed the amount of cash you actually receive in the transaction.

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Want to Get Rid of that Monthly PMI Payment?
When a home purchaser's down payment is less than 20% of the purchase price, they must obtain Private Mortgage Insurance in order to get a loan. This is about one in every three new loans. Getting rid of the Private Mortgage Insurance will save you considerable money, but it is not easy to get mortgage companies to drop the requirement.

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Reduced Exclusion
If a taxpayer does not qualify for the full home sale gain exclusion, they may still qualify to exclude a reduced amount if the taxpayer(s) did not meet the ownership and use tests, or the exclusion was disallowed because of the once every 2-year rule, but sold the home due to the following reasons.

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Should You Refinance?
There are a number of reasons to consider refinancing: lower payments, lower interest rates, eliminating PMI payments, home improvements, college funds, consolidating debt, purchasing a second home, or even financing a business venture.

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Refinanced Mortgage Interest May Not All Be Deductible
Over the past few years, mortgage interest rates have dropped significantly and homeowners in increasing numbers are refinancing their home mortgages and in the process, have extended the term of the loan and are frequently taking additional cash out to pay down other debts, finance education, buy a car, etc. In doing so, homeowners may be unwittingly creating a situation where part of their home mortgage interest may no longer be deductible.

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Sale of a Home Used for Business
Depreciation: The tax law assumes business assets will decline in value due to obsolescence and wear and tear. Therefore, taxpayers are allowed to take an annual deduction called depreciation, which represents the decline in value. If the asset is later sold for more than its depreciated value, any gain attributable to the depreciation is generally taxed at rates higher than the gain would otherwise be taxed.

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Selling a Home with a Home Office can be a Tax Trap
These days, more individuals are working from home offices and availing themselves of the "Home Office Deduction." For tax purposes, this deduction essentially divides your home into two separate pieces of property, your home and business property. Those taking the deduction will be able to deduct a portion of the home operating expenses including interest, taxes, insurance, utilities, upkeep and office depreciation.

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Renting Part of a Property
If you rent part of your property, such as a room or a portion of the house, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property.

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Selling Land That is Part of Your Home
If a taxpayer sells the land on which their main home is located but not the home itself, the taxpayer generally cannot exclude the gain from the sale of the land with one exception. The exclusion would apply to the sale or exchange of vacant land that the taxpayer owned and used as part of his principal residence, if the disposition of the dwelling unit occurs within two years before or after the disposition of the vacant land. 

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Selling Two Homes on Joint Return
When a married couple sells a jointly-owned home that has been owned and used as their primary home for two of the prior five years, they can exclude up to $500,000 of gain from the sale of the home. They can only do this once every two years, except under specific exceptions such as when the sale is related to a job move.

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Tips for Homebuyers
If you're considering buying a home, here's a checklist of some of the things you should be on the lookout for.

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Transform Nondeductible Interest to Deductible Interest
The only interest that is deductible as an itemized deduction is home mortgage interest and investment interest. If you are like so many others with large consumer debt such as credit cards, car payments etc., you are paying interest that is not deductible. If the amount of consumer interest you pay each year is substantial and you itemize your deductions, you may want to consider converting that nondeductible interest into deductible interest by paying off the consumer debt with a home equity line of credit.

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Traps to Watch for When Helping Children Purchase a Home
Frequently, parents (and possibly grandparents) help their children (grandchildren) with the purchase of a home. This can happen, for instance, if the children have income too low to qualify for a loan or have a credit record that precludes them from getting a loan at all. The parents initially make or supplement the payments on the home until the children can afford to assume the entire financial obligation on their own.

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The Downside of Adding Your Child’s Name to the Deed
Many parents, especially the older ones, assume it is wise to add a child’s name to their house deed in case something should happen to them. On the contrary, it is probably the worst thing that can be done. By doing so, the parent creates a host of problems.

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Home Tax Deductions
Many taxpayers have misconceptions about what expenses of owning a home or a second home are deductible for tax purposes. To make the issue more complicated, the deductible items may be currently deductible or deductible at the time the property is sold. In addition, your deductions must generally be itemized to gain any benefit from currently deductible items.

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Mortgage Insurance Premium Deduction
Qualified mortgage insurance premiums are deductible as qualified residence interest if the amounts: (1) are paid or accrued before Jan. 1, 2012; (2) aren't properly allocable to any period after Dec. 31, 2011; and (3) are paid or accrued with respect to a mortgage insurance contract issued after Dec. 31, 2006.

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