6 Tax Myths Even Smart Homeowners Believe are True

| Mar 19, 2018 | realtor.com

With all the mayhem and misconceptions flying around, we’re here to set the record straight, by highlighting the top tax myths that might dupe even the financial Einsteins among us—both for this filing year (which is still under the old IRS rules) and next, once the new tax code takes effect.

So whether you want to enter this filing season with clear-eyed confidence or just test what you know, check out this list and ask yourself honestly: How many of these fake tax facts did you believe were true?

Tax myth 1: The mortgage interest deduction is gone

On the contrary: If you bought your home before Dec. 15, 2017, you’re in luck: You are grandfathered in under the old tax laws and can still deduct all of the interest on loans of up to $1 million, says Tom Wheelwright, CPA and CEO of WealthAbility.com. Yes, even when the new tax codes go into effect next year.

And for those who bought a home after Dec. 15, 2017, or plan to in the future, it’s not as bleak as many think. Starting next year, mortgage interest is still deductible; it’s just that the deductible amount is capped at $750,000.

Tax myth 2: Property tax deductions are gone, too

In the past (and for the last time this year), most taxpayers could deduct state, city, and property taxes in their entirety. Under the new tax plan next year, these taxes are still deductible, but there’s a cap—of $10,000 per year, says Mario Costanz of Happy Tax.

In other words, property tax and mortgage interest deductions are far from gone … but one thing to consider is that next year, the standard deduction nearly doubles—to $12,000 for single filers and $24,000 when filing as married. As such, it may not make sense for as many people to itemize their deductions unless it amounts to more than this high new bar. Here’s more info on how to tell whether you should take the itemized vs. standard deduction.

Tax myth 3: If you work at home, you can deduct a home office

Some people mistakenly think that anyone who fires up a laptop at the kitchen island has a “home office.” But to take a home office deduction, that area must not only be used regularly and exclusively for business, it has to be the primary site of the business. So if you turned a spare room into a dedicated work space, you can claim it. But if you occasionally work in the living room, that’s not deductible, says Josh Zimmelman, owner of Westwood Tax & Consulting, a New York-based accounting firm with offices in Manhattan and Long Island.

Plus, things get even stricter under the new tax codes.

In the past, office employees who occasionally worked from home could claim eligible home office deductions that might include, say, business expenses that were not reimbursed by your employer (here’s more about how to take a home office tax deduction this year). But starting in 2018, only self-employed people can deduct their home office in any way. So if you own your own business, you’re fine; if you’re paid by W-2, you can kiss this deduction goodbye when you file next year.

Tax myth 4: You can deduct all of your home renovations

Sorry, DIYers: Home improvements are generally not tax deductible unless the residence also serves as a rental property. But there are a few exceptions where homeowners can cash in.

The first is if modifications were made for medical purposes that don’t increase your property value, which might include installing railings or support bars, building ramps, widening doorways, lowering cabinets or electrical fixtures, and adding stair lifts. Note: You’ll need a letter from your doctor to prove the modifications are medically necessary to claim these deductions. Plus, those expenses must exceed 10% of your adjusted gross income in 2017, which drops to 7.5% in 2018.

The other time you can deduct renovations is if they were made in order to sell your home.  You can deduct those expenses as selling costs, as long as the home improvements were made within 90 days of closing.

Tax myth 5: All home equity interest is deductible

Homeowners can turn to a home equity loan or line of credit (HELOC) for cash to either make home improvements or for more general expenses, like paying for a child’s college tuition or wedding. And in past years, the interest on these loans was tax-deductible.

Not so for next year: While the IRS has not yet issued any formal guidance, it appears that with the new tax law, HELOC interest is only deductible if the loan is used for a “substantial home improvement,” says Professor David Reiss of Brooklyn College. Also keep in mind that next year, your total deductible mortgage and eligible home equity debt must be less than the $750,000 cap.

Tax myth 6: You can always deduct your moving expenses

Up until this year, taxpayers could only deduct a portion of moving expenses when they relocated for a new job that’s at least 50 miles farther from their former home than their old job location. And per the new 2018 tax bill, no moving expenses of any kind are deductible. The only exceptions are for members of the armed forces on active duty.

Posted on March 20, 2018 at 11:29 pm
MJ Steen | Category: Uncategorized | Tagged , , , , , , , , , , , , , ,

It’s About to Become Easier to Qualify for a Mortgage – Here’s Why

| Jun 20, 2017

We’re living in expensive times—when a bottle of fresh juice can run you $5, rents and home prices are soaring, and the bills never seem to stop piling up. But aspiring homeowners might soon get a break as it becomes a little easier for those with student, credit card, and car loan debt to qualify for a mortgage.

Fannie Mae plans to increase its allowable debt-to-income ratio from 45% to 50% on July 29. This means that more borrowers on the cusp of getting a loan (e.g., millennial, first-time, and lower- to moderate-income borrowers carrying more debt) could potentially qualify for a mortgage backed by Fannie.

The debt-to-income ratio is calculated by taking a potential borrower’s monthly gross income and dividing it by the borrower’s recurring debts such as monthly car payments. Lenders use this ratio to figure out if borrowers can afford to make their mortgage payments each month.

“They’re trying to make more loans available,” says mortgage loan originator Don Frommeyer of Marine Bank, in Indianapolis. “When interest rates go up, the debt ratios go up. And that limits the number of people who can buy a house.”

Fannie, which purchases and guarantees mortgages, was already granting ratios of up to 50% with certain conditions—such as if the borrowers had deeper cash reserves, underwent financial counseling, or had higher incomes. The change opens the door to borrowers with more debt who can’t meet those conditions.

Your bank might have its own debt-to-income ratios

However, not everyone will be benefit from the change. Fannie Mae insures mortgages, but it’s still banks, credit unions, and other financial entities that make the loans—and those lenders have their own criteria.

But the increased debt allowance could encourage more lenders to make changes to their debt-to-income ratios. And that could help more buyers on the brink.

“The best thing the consumer can do is ask the lender if they underwrite to Fannie Mae guidelines,” says longtime mortgage broker Jeff Lazerson, based in Laguna Niguel, CA. If they don’t, “you [might] just have to find another lender. Or maybe you push back on that lender” to see if it’ll raise the limits.

Lower debt-to-income ratios won’t help everyone

A higher debt ratio isn’t a silver bullet for loan seekers, though.

“Mortgage borrowers need to keep in mind, it’s the person’s whole application that will determine whether or not they get approved,” says Eric Tyson, co-author of “Mortgages for Dummies.”

“If you don’t have a good credit score, if you don’t have a sufficiently large down payment, it won’t change the outcome of your application.”

Buyers who can’t qualify, even with the higher ratios, should consider other alternatives.

“Most people are looking to buy at the high end of their budget. They want to qualify for as much house as they can get, partly because homes are so expensive to begin with,” says Lazerson, who is also a mortgage columnist.

“They could look for a smaller-sized property [with a] lower sales price. They could find a co-signer, someone who they trust, usually a family member or a close friend,” Lazerson says. “Or [they could] come up with more down payment money.”

Posted on July 17, 2017 at 8:11 pm
MJ Steen | Category: Uncategorized | Tagged , , , , , , , , , , , ,