Category Archives: Real Estate for Everyone
North Alabama Realtors and home builders heard the best news in three years Thursday morning after a market analyst showed trends toward growth.
Within those projections, the city of Madison is poised to remain one of the strongest housing markets in the state, said Rob Hale, president of Market Graphics Southeast, who presented the third annual housing forecast sponsored by BancorpSouth.
“There are places in North Alabama where we are needing lots to be developed again,” Hale said during a breakfast meeting at Valley Hill County Club.
There is room for growth in each of the four-county North Alabama study area of Madison, Limestone, Morgan and Marshall counties. Combined, all four counties will need 14,445 new residential lots developed in the next five years, he said.
The best development from the past year is that the ratio of housing starts and mortgage closings are coming closer together, Hale said, and the glut of excessive residential lots that plagued the local market just a couple years ago has finally corrected itself.
Madison County currently has an inventory of 393 available residential lots, which is right at the recommended level to maintain a sellers’ market, he said.
“The thing you don’t want to do is build an inventory,” Hale said, and he noted the Huntsville market suffered from overbuilding its inventory in anticipation of BRAC.
In the past decade, Madison County saw its lowest number of monthly mortgage closings in June 2011, with 629, Market Graphics reported. That number rebounded to 970 two months ago, which was the highest since October 2009.
Another good vital sign Hale gave for the Huntsville area housing market is that for the past two years, the area has maintained a ratio of a 1.4 new jobs for every new home building permit, which is above the recommended 1.2 new jobs per building permit ratio.
The communities of South Huntsville, Hampton Cove, Monrovia and Madison remain ideal places to build a new home, Hale added.
“Madison is a stable as it gets,” he said.
As for any negative impact from sequestration, Hale said Huntsville should be able to withstand it. He initially thought sequestration was going to create a dismal forecast, but his attitude improved after he started studying the market data and stopped listening to the news media and politicians predicting doom and gloom, he said.
A key improvement was that the preliminary expectation was for furloughed workers to lose 20 percent of their income, but now it looks like it will be about 5 percent, Hale said.
Penny Billings, division president for BancorpSouth, said Market Graphics’ report was the most encouraging in the three years her bank has sponsored the market update. She said she was most encouraged to learn the four-county area is facing a “huge shortfall of lots” in the next five years.
As the time to file income taxes approaches, we need to take a new look at the changing tax landscape for homeowners. The dynamic atmosphere in Washington, D.C. has a different effect each year on which tax breaks are proposed, rescinded, changed, and extended for taxpayers who own a home.
Thanks to the efforts of many real estate industry groups including the National Association of Realtors, many of the tax benefits that homeowners enjoy–which were on the chopping block over the past few months–have been protected and extended through the 2013 tax season.
Disclaimer – This is only an informational summary of current tax issues in the news. If you need tax advice, please contact a tax attorney or CPA
1. Mortgage Interest Deduction
The mortgage interest deduction has always been the most-beloved tax benefit of home buyers in the U.S. New homeowners’ monthly mortgage payments are made up almost entirely by interest for the first few years. Their ability to deduct that interest can result in a healthy reduction in tax liability. Affordability for first-time home buyers is directly linked to their ability to deduct the interest on their mortgage.
Homeowners who itemize their deductions can deduct the interest paid on a mortgage with a balance of up to $1 million. While there is some movement to limit the total itemized deductions for taxpayers with higher incomes (over $400,000), the current deductions holds for all tax brackets. Americans save around $100 million every year by deducting mortgage interest on their tax returns.
2. Home Improvement Loan Interest Deduction
The interest on home equity loans used for “capital improvements” to a home can also be a tax deduction. On loans with balances of up to $100,000, the interest is tax-deductible for a homeowner who uses the loan to make improvements to the home such as adding square footage, upgrading the components of the home, or repairing damage from a natural disaster. Maintenance items like changing the carpet and painting a home are usually not included as capital improvement projects.
3. Private Mortgage Insurance (PMI) Deduction
Homeowners who make a down payment of less than 20% are usually paying some sort of Private Mortgage Insurance. PMI (sometimes abbreviated MIP or just MI), can be a few dollars to hundreds of dollars per month, and it is a large portion of many homeowners’ mortgage payments.
If your mortgage was originated after Jan 1, 2007, and you have PMI, it can be a tax deduction. The deduction is phased out, 10% per $1,000, for taxpayers who have an adjusted gross income between $100,000-$109,000 and those above that level do not qualify. The extension of this tax deduction in 2013 was one of many last-second saves by real estate industry advocates.
4. Mortgage Points/Origination Deduction
Homeowners who paid points on their home purchase or refinance can often deduct those points on their tax returns. Points, often called origination fees, are usually percentage-based fees which a lender charges to originate a loan. A one percent fee on a $100,000 loan would be one point, or $1,000.
On a home purchase loan, taxpayers can deduct the entirety of the points that they paid in the same year. On a refinance loan, the points must be deducted as an amortization over the life of the loan. Many taxpayers forget about this amortized benefit over time, so it’s important to keep good records on the deduction of points on a refinance.
5. Energy Efficiency Upgrades/Repairs Deduction
Homeowners can deduct the cost of the building materials used for energy efficiency upgrades to their home. This is actually a tax credit, one which is applied as a direct reduction of how much tax you owe, not just a reduction in your taxable income.
10 percent of the total bill for energy-efficient materials can be used as a tax credit, up to a maximum $500 credit. Insulation, doors, new roofs, and many other items qualify for the energy efficiency credit. There are also individual limits for certain items, such as $150 for furnaces, $200 for windows, and $300 for air conditioners and heat pumps.
6. Profit on Sale of Real Estate Deduction
If you’ve sold a home in the past year, you’re likely aware that individuals can claim up to $250,000 of profit from the sale tax-free, and married couples can claim up to $500,000 tax-free. Of course, there are some requirements to escaping the capital gains tax on this profit.
The home must be a primary residence. This means that you must have lived in the home, as your primary residence, for two of the past five years. You could rent it out for years one, three, and five, while living in it for years two and four. In this way, a homeowner could potentially claim this tax break on multiple homes within a fairly short time frame, but each tax-free sale must occur at least two years apart from the previous tax-free transaction.
7. Real Estate Selling Cost Deduction
For those lucky folks whose profits on the sale of their home might exceed the $250k/$500k limits, there are still some ways to reduce the tax burden. The costs of selling the home can be significant, and those in themselves can be claimed as tax deductions.
By adding up all of the fees paid at closing, capital improvements made to the home while you owned it, money spent to make repairs to damaged property, and marketing costs necessary to sell the home, you can add a significant figure to the cost basis of your home. This basically raises the original price you paid for the home. Your cost basis begins with the original price of the home, and then adds in the improvement and selling costs. When the new cost basis price is compared to your selling price, it reduces your potentially-taxable profit on the home significantly.
8. Home Office Deduction
The home office tax deduction is often cited as a deduction that increases your likelihood of being audited. While the raw numbers might add some credibility to that perception, it’s really the way a home office is deducted that gets some taxpayers into audit purgatory.
This deduction, when used correctly, is just as safe as any other. Homeowners deduct a percentage of their mortgage, utilities, and repair bills in direct proportion to the amount of their home that is dedicated office space.
There are a few hard and fast rules to live by when deducting the costs of your home office. The home office must be your principal place of business (the primary office location where you get the majority of your work done). It needs to be exclusively used for business (it can’t be your kitchen by day and office by night). You need to be realistic with its size and use (unless you enjoy audits).
9. Property Tax Deduction
New homeowners often don’t know that their property taxes are deductible. While it may sound strange to have a tax-deductible tax, the overall effect is that you don’t pay income tax on money that was spent on property taxes.
Homeowners should be careful to only deduct the amount of property tax actually paid to their local municipality for the year. This is not necessarily the amount you paid to your escrow account, and should not include any other city/county fees that might potentially be on the same bill as your property taxes.
10. Loan Forgiveness Deduction
The Mortgage Debt Forgiveness Relief Act of 2007 was created when short sales were becoming a new and growing part of the real estate market. An underwater homeowner might convince their lender to agree to a short sale of their home at $100,000, even though they owe $150,000 on their mortgage. While the lender forgives the extra $50,000 owed after the short sale, the government views it as $50,000 in taxable income (a gift from the lender to the borrower).
The Debt Forgiveness Act temporarily relieved the taxpayer of that burden, but was set to expire this year. Through much effort, it was extended along with many other homeowner tax relief measures this year and homeowners can continue to claim this tax relief in 2013.
IRS-suggested disclaimer: To the extent that this message or any attachment concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. This message was written to support the promotion or marketing of the transactions or matters addressed herein, and the taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
Sam DeBord is a Realtor® and Managing Broker at Coldwell Banker Danforth & Associates. Find him onSeattleHome.com.
HUNTSVILLE, Alabama – Huntsville Superintendent Casey Wardynski has once again received accolades for his implementation of the school district’s Digital 1:1 Initiative.
Wardynski is one of eight school leaders across the country awarded the Tech-Savvy Superintendent of the Year Award by eSchool News.
“Under his bold plan, the district challenged conventional school reform with a giant leap to transform the education experience,” the online publication reports in its February edition.
The digital initiative overhauled the way Huntsville’s students are taught, boosted enrollment and has shown marked improvement in student engagement, the publication wrote. The school district last fall issued laptops and iPads to its more than 23,000 students and switched from traditional textbooks to an interactive, digital curriculum.
To win eSchool News’ honor, Wardynski and his fellow superintendents met a list of “hallmarks of excellence,” including:
Modeling the effective use of technology in the day-to-day execution of the superintendency;
Ensuring that technology resources are equitably distributed among students and staff;
Insisting that adequate professional development is a component of every technology initiative;
Demonstrating exceptional vision in leading the development and implementation of a district-wide technology plan;
Exhibiting a thorough understanding of the role of technology in education and can articulate that understanding to all school district stakeholders;
Providing exceptional leadership in supporting the integration of technology into the curriculum;
Demonstrating exceptional vision in employing technology to streamline school district business operations;
Demonstrating curiosity and open-mindedness in considering emerging technologies and weighing non-traditional solutions to traditional problems;
Thinking creatively and strategically about the long-term challenges and opportunities of technology in the school district and in education at large.
Besides Wardynski, one other Alabama superintendent was named to the awards. He and Suzanne Lacey, superintendent of Talladega County Schools, join leaders from Arizona, California, Illinois, Michigan, Pennsylvania and Texas on the publication’s roster of awardees.
Wardynski in December was one of four education leaders in the nation to be named “Tech Leader of the Year” by Tech & Learning Magazine.
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