Trap #1: Line 6 - real estate taxes
Your monthly mortgage payment often includes money for a tax
escrow, from which the lender pays your local real estate taxes. The money you
send the bank may be more than what the bank pays for your taxes, says Julian
Block, a tax attorney and author of Julian Block’s Home Seller’s Guide to Tax
Savings. That will lead you to putting the wrong number on Schedule A.
Your monthly payment to the lender: $2,000 for mortgage +
$500 escrow for taxes
Your annual property tax bill: $5,500
Now do the math:
Your bank received $6,000 for real estate taxes, but only
paid $5,500. It may keep the extra $500 to apply to the next tax bill or refund
it to you at some point, but meanwhile, you’re making a mistake if you enter
$6,000 on Schedule A.
Instead, take the number from Form 1098—which your bank
sends you each year—that shows the actual taxes paid.
Trap #2: Line 6 - tax calculations for recent buyers and
If you bought or sold a home in the middle of 2012, figuring
out what to put on line 6 of your Schedule A Form is tricky.
Don’t simply enter the number from your property tax bill on
line 6 as you would if you owned the house the whole year. If you bought or
sold a house in midyear, you should instead use the property tax amount listed
on your HUD-1 closing statement, says Phil Marti, a retired IRS official.
Here’s why: Generally, depending on the local tax cycle,
either the seller gives the buyer money to pay the taxes when they come due or,
if the seller has already paid taxes, the buyer reimburses the seller at
closing. Those taxes are deductible that year, but won’t be reflected on your
property tax bill
Trap #3: Line 10 - properly deducting points
You can deduct points paid on a refinance, but not all at
once, says David Sands, a CPA with Buchbinder Tunick & Co LLP. Rather, you
deduct them over the life of your loan. So if you paid $1,000 in points for a
10-year refinance, you’re entitled to deduct only $100 per year on your
Schedule A Form
Trap #4: Line 10 - HELOC limits
If you took out a home equity line of credit (HELOC), you
can generally deduct the interest on it only up to $100,000 of debt each year,
says Matthew Lender, a CPA with EisnerLubin LLP.
For example, if you have a HELOC for $200,000, the bank will
send you Form 1098 for interest paid on $200,000. But you can deduct only the
interest paid on $100,000. If you just pull the number off Form 1098, you’ll
deduct more than you’re entitled to
Trap #5: line 13 - Private mortgage insurance
You can deduct PMI on your Schedule A Form, as long as you
started paying the insurance after Dec. 31, 2006. Congress renewed the PMI
deduction for 2012 and 2013 for people making less than $110,000.
Since you’re thinking about it, this is also a good time to
review your PMI: You might be able to cancel your PMI altogether because you’ve
had a change in loan-to-value status.
Trap #6: line 20 - casualty and theft losses
You can deduct part or all of losses caused by theft,
vandalism, fire, or similar causes, as well as corrosive drywall, but the
process isn’t always obvious or simple:
Only deduct losses that are greater than 10% of your
adjusted gross income (line 38 of Form 1040).
Fill out Form 4684, which involves complex calculations for
the cost basis and fair market value.
This form gives you the number you need for line 20.
Bottom line on line 20: If you’ve got extensive losses, it’s
best to consult a tax pro. “I wouldn’t do it myself, and I’ve been dealing with
taxes for 40 years,” says former IRS official Marti.
This article provides general information about tax laws and
consequences, but shouldn’t be relied upon as tax or legal advice applicable to
particular transactions or circumstances. Consult a tax professional for such
Diana Walton Properties
Champion Real Estate Group
First Time Home Buyer & VA
Last month your credit score was 735. You checked it again
this morning, and it’s 20 points lower. What’s up?
It could be any combination of factors. There are different
credit scoring models used, and they can weigh factors differently to determine
your score. But these are five of the most common reasons you could experience
a dip in your score:
Late credit card or loan payment
Your payment history has a significant impact on your credit
score, accounting for about 31 percent of your total rating. If your make a
credit card or loan payment more than 30 past its due date, this information
will likely show up on your credit report, which could cause your credit score
to drop. Anything 30 days or more late matters, and 60 or 90 days late matters
Larger than normal credit purchases
Another key factor in calculating your credit score is your
credit utilization ratio. In simpler terms: How much of your credit are you
using in relation to your total available credit? In general, the lower this
ratio, the better your credit score will be. If you’ve been using more of your
available credit lately, you may see a drop in your credit score. If a creditor
lowers your credit limit, it may also change your credit utilization ratio and
impact your score.
An unpaid account goes to collection
In order to maintain a good credit score, you need to pay
all your accounts — not just credit cards and loans — in a timely manner. Late
payments to medical facilities, student loans and utilities can be sent to a
collection agency, which could in turn show up in your credit report.
You applied for a credit card
When you apply for credit, you give lenders the OK to ask,
or “inquire,” for a copy of your credit report. This is known as a hard inquiry
on your credit. When the information on your credit report indicates that
you’ve applied for multiple new credit lines over a short period of time, your
credit score may be lowered as a result.
You closed a credit card account
Canceling a credit card could be a good idea if it
eliminates the temptation to charge more than you should. But by closing an old
or unused account, you are wiping away some of your available credit, thus
increasing your credit utilization ratio. As a result, your credit score may
drop. Also, the length of time you’ve had accounts open shows that you have a
solid payment history, so that could be another reason to keep that card you’ve
had awhile open (as long as you’re paying it on time).
source:experian consumer service
First Time Home
Buyer & VA Specialist