What You Should Know About Your Home and Your 2013 Taxes

It’s the last year for three sweet home tax benefits, but the first for a way simpler home office deduction.

By-The-Book-Taxes-CT-1These days few things start a fight on Capitol Hill faster than taxes. Despite the fact that three important tax benefits used by millions of American homeowners have expired, Congress is unlikely to do anything to re-up them any time soon.

So if you’re eligible, tax year 2013 is possibly the last time to claim the private mortgage insurance (PMI) deduction, the energy tax credit, and debt forgiveness benefit, all of which expired on Dec. 31, 2013.

At least there’s one piece of good news for homeowners: If you have a home office, there’s a new, simpler option for calculating the home office deduction for which you may qualify on your 2013 taxes.

Meanwhile, here’s what you need to know about those expired benefits as you ready your taxes:

PMI Deduction

This tax rule lets you deduct the cost of private mortgage insurance, which is what you pay your lender each month if you put down less than 20% on a home. PMI protects the lender if you default on the home loan. Your deduction could amount to a couple hundred dollars depending on your tax bracket and other factors.

Energy-Efficiency Upgrades

This sweet little tax credit lets you offset what you owe the IRS dollar-for-dollar for up to 10% of the amount you spent on certain home energy-efficiency upgrades, from insulation to water heaters. On the downside, the credit is capped at $500 (less in some cases). But on the bright side, the right improvement could lower your utility bills indefinitely.

Debt Forgiveness

When you go through a short sale, foreclosure, or deed-in-lieu, your lender typically lets you off the hook for some or all of what you owe on your mortgage.

That forgiven mortgage debt is income, on which you’d typically have to pay income tax.

Suppose you’re in financial distress and your lender agrees to let you short-sell your home, say for $50,000 less than you owe on the mortgage, and forgive you for the balance. Without the protection of the Mortgage Debt Forgiveness Act, you’ll owe income tax on that $50,000.

It’s likely if you had the money to pay income tax on $50,000, you’d have used it to pay your mortgage in the first place.

New Simplified Option for the Home Office Deduction

This may be the last year for the benefits above, but a new one kicks in for the 2013 tax year. If you work from home, you may qualify to use a new, simplified option for claiming the home office deduction when you file your 2013 taxes.

How much simpler is it? It lets you claim $5 per sq. ft. for up to 300 sq. ft. instead of having to compute the actual expenses of your home office using a 43-line form. To calculate the square footage of your office, just multiply the length of two walls. For example, an 8-by-10-foot room is 80 sq. ft. And at $5 per, that’s $400.

Although using the simplified option is obviously easier, the basic requirements for claiming the home office deduction haven’t changed. Your home office still must be used for business purposes:

  • Exclusively, and
  • On a regular basis.

Why Might the Tax Benefits Not Be Renewed?

Although the expired tax benefits were renewed retroactively in past years, that may not happen in 2014 because many in Congress would like to see comprehensive tax reform rather than scattershot renewals of individual provisions. This could delay a decision on the homeownership tax benefits until the big picture budget and tax issues are resolved.

So if you can, enjoy them now!

Fall Landscaping: Preparing Your Yard for Winter

fall-landscaping-prepare-yard-winterFall landscaping chores are your last chance to prepare your property for winter, and to protect that curb appeal you’ve worked so hard to create. So pull on some gloves, grab your tools, and get ready to mulch, prune, and plant before snow and frozen ground turn the lights out on your landscaping.

 
Spread Mulch

“Fall mulching is better for the plants than spring mulching,” says Dan Taft, owner of The Cutting Edge in Chantilly, Va. “It helps protect roots from frost and helps retain moisture during a cold and dry winter.”

Spread 2 to 3 inches of fresh mulch around shrubs and trees. Taft warns home owners to avoid using free mulch from municipal piles, which often contain disease spores; instead, buy hardwood shredded mulch from home and garden centers, he says.

“Cheap, dump mulch mainly is made from trees that have died from disease,” Taft says. “Many diseases will linger in the mulch, like leaf spot and pine bark borers. You don’t want ground-up diseased plants around your landscaping.”

Remove the Dead and Dying

Fall isn’t the time to prune, because that encourages growth when healthy plants should remain dormant. But don’t shelve your shears and loppers yet. Fall is the time to neaten your landscaping before putting it to bed for the winter.

“If you remove dead landscaping in fall, you don’t have to look at it all winter,” Taft says.

  • Remove dead annuals.
  • Deadhead spent blooms, and cut back dead and desiccated ornamental grasses and perennials.
  • Lightly prune dead and dying branches from shrubs and trees. Carefully remove dried blossoms from hydrangea, but don’t remove dead-looking stalks, where new buds will form in spring.
  • After the first frost, cut back tea roses to about a third of their height.

Wrap Delicate Shrubs

Heavy snow, ice, and high winds can dry and split your delicate and pricey shrubs. To protect your landscaping from the winter elements:

  • Hide small plants under overturned plastic pots or buckets.
  • Wrap shrubs, such as boxwoods, in burlap.
  • Surround vulnerable trees with shredded leaves.

Take Advantage of Fall Sales

Early fall until the ground freezes is a good time to plant trees and shrubs. Not only do cooler weather and autumn rain put less stress on young landscaping plants, nurseries often have sales to empty their shelves before winter.

“They need to sell every plant by Dec. 1,” Taft says. “Nurseries generally pay a third of the price that you’re paying. So don’t be afraid to offer less than the asking price. If you’re buying several things, the manager may give you a break.”

Whither Interest Rates?

If I knew the answer to that question with absolute certainty, I would be on the first flight headed for Las Vegas. Even so, the writing is definitely on the proverbial wall.

Each month for the past several years, the United States Federal Reserve (Fed) has been purchasing tens of billions of dollars in mortgage-backed securities so as to keep long-term interest rates artificially low, which in turn stimulated the housing market and the broader economy. As the economy improved, the expectation was that this buying program could eventually be stopped and interest rates would rise.

So, as stock prices surged and unemployment rates continued their gradual decline this past spring and early summer, mortgage rates climbed with them on the assumption that the Fed would finally feel that the economy had reached the point where it no longer needed the bond-buying program (currently $85 billion a month). The pull-back was thought to be coming at the Fed’s meeting in mid-September.

However, the Fed opted not to slow its bond purchases just yet. Congress then took us through a 16-day government shutdown and to the brink of default creating massive economic uncertainty. As a result, in the 30 days since the Fed’s September meeting ended mortgage interest rates have fallen by more than half a percent.

Will the Fed announce that it is at least reducing its bond purchases when it meets again at the end of October? Given the economic uncertainty generated by the budget wars being waged on Capitol Hill, the answer is probably not. But that day is coming, and when it arrives, mortgage interest rates will go up.

If you are even thinking about purchasing a home or know someone who is, now is the time to act. It could cost you hundreds of dollars a month in higher mortgage payments.

Thinking of Investing in Northern Virginia Real Estate?

 

Then you and Warren Buffett are in the same boat. Eighteen months ago Buffett told CNBC that he would buy millions of homes if he had a way to manage them. Why? Because he knows that over time real estate will out perform the stock market as an investment vehicle. Over the past 40 years, real estate has suffered negative appreciation in only four years, the worst of which was 2011 when real estate lost 13% of its value on average. During that same 40-year span, the S&P 500 stock index has experienced negative appreciation eleven times, including a 38% drop in 2011.

If you’re worried that real estate investing is game that only the rich can play, think again. In 2011 the median income of real estate investors was $86,100. Fifty-eight percent of these investors made less than $100,000 and 39% made less than $75,000. Fifty-six percent of all investors in 2011 lived in dual income households.

What were they buying? While you might think that most purchased vacation rentals, townhouses or condominiums that was not the case. Fifty-seven percent of the investment properties purchased in 2011 were detached, single-family homes. Three quarters of the properties were in small towns or suburban areas. Only 8% were resort properties.

As with any investment, investing in real estate requires knowledge of the market and a strong investment plan. Every investment property should be purchased with a specific goal in mind. The plan must fit whatever goals you have for the investment whether it’s paying for a child’s college education, building a retirement next egg, or generating cash-flow to help with current expenses.

If you would like to sit down and discuss how you can make money in real estate, we’re here to help with the analytical tools to insure that the properties you buy make sound economic sense based upon the goals you have.

 

Renovating Tips: Key Areas That Shouldn’t be Overlooked

When it comes to sprucing up your home to attract prospective buyers, most real estate experts will tell you to spend your money in the kitchen and bathroom, as these are the areas where you’ll get the most bang for your buck. While upgrading these rooms may be a key part in getting your home sold quickly and for a better price, it’s crucial that you don’t overlook the rest of your house.

If a home renovation is at the top of your list, keep the following tips in mind so that your home stands out above the competition.

Bathroom: With a little money and effort, your bathroom can become the talking point of the house. Studies show that even small changes like adding luxurious looking clean towels, replacing the shower curtain and adding candles around a bathtub will add value to the room. If you’re looking to make a bigger impact, you may want to think about adding a new tub in order to create a spa-like atmosphere. This way you’ll have buyers imagining themselves washing their cares away at the end of a long day. If adding a new tub isn’t in the budget, consider replacing the showerhead with one that incorporates a massage element or even one that replicates the rain, as these are things that will appeal to buyers.

Kitchen: Today’s families spend more time in the kitchen than any other place in the house, so the kitchen is considered the heart of the home—and people often use their hearts to make a buying decision. Real estate experts say that new kitchen appliances often bring high returns from sellers, so replacing dated dishwashers and stoves can do wonders for a sale. One simple fix is to add color with backsplash. An attractive backsplash will give your kitchen a more elegant, refined look and accentuate whatever look you’re aiming for. Adding pullout drawers, a Lazy Susan in corner units and adjustable shelves will all help to improve the functionality of the kitchen while keeping things better organized. Don’t forget to upgrade the sink with an opulent and eye-catching faucet.

Living Room: When it comes to the living room, replacing outdated furniture is key. You may also want to add some color, which can be easily achieved with throw pillows or area rugs. In addition, be sure to keep the room well lit by incorporating some decorative lamps. Painting the room a neutral color is also strongly suggested, as is adding some substance with memorable wall art.

Exteriors: If you’re looking to make a positive first impression and up your curb appeal, spend a little money on plants and flowers for the front yard. In addition, power wash the driveway, fence, deck and even the sides of the house. Be sure to keep the lawn free of leaves and debris and make any exterior repairs as necessary.
For more information about renovating your home, contact our office today.

Get Your Home in Shape

According to a recent survey conducted by HomeAdvisor, more than half of US homeowners (53 percent) do not engage in any annual maintenance for their home, and only 18 percent of homeowners are very confident in their general knowledge of their home’s annual maintenance needs.

Amy Matthews, TV Host and HomeAdvisor’s Home Improvement Expert, offers homeowners five simple, useful tips to keep their homes in shape year round.

Spray Foam Insulation

According to survey findings, 77 percent of bill-paying US homeowners are at least somewhat concerned about their high energy bills this winter. Small holes in foundation or siding, including anywhere pipes or wires penetrate the envelope of the home, can cause serious heat loss and increased costs. These small crevices can be the equivalent of having a window open all winter. Matthews recommends using a can of spray foam insulation to seal these cracks to help save money on energy bills.

Hot Water Heater

Hot water heaters are becoming more energy efficient, but a homeowner who is not yet ready to upgrade can still get the best use out of their current appliance. A helpful tip is to see if the hot water heater is warm to the touch, and if so, to wrap it with an insulated blanket. This will help it work more efficiently.

Roof

Homeowners who live in regions that receive heavy rain, hail or snow should be on the lookout for water damage after large storms. Set a reminder to call a roofing pro to inspect the roof for damage or repair needs every one to two years. This continued maintenance will extend the life of the roof and give the homeowner peace of mind.

Heating and Cooling Systems

Ensure the proper function of heating and cooling systems by having them checked by a licensed heating ventilation and air-conditioning (HVAC) professional annually to prevent potential future emergency repairs. Matthews recommends that homeowners clean or replace filters every one to three months.

Garbage Disposal

The garbage disposal is one of the most frequently used kitchen appliances and, according to HomeAdvisor, was among the top home appliance repairs in 2012. To avoid garbage disposal repairs, never place coffee grounds, grease, eggshells, bones or potato skins in the disposal. Matthews recommends placing a few ice cubes and the rinds of any citrus fruit in the disposal every few months to keep garbage disposals clean and odor-free.

Improve Your Insurance Score

Most people expect the cost of homeowners insurance to go up after a claim is  filed. But it may surprise you to know that how good you are at managing your  finances can have just as big an effect on your premium as the tree that fell on  your house.

Insurers look to your credit history to calculate an insurance score that’s  used to judge how much of a financial risk you are. The lower the score, the  higher the risk—and the higher the premium you’ll likely pay on your homeowners  insurance. Don’t despair. There are strategies, including paying bills on time,  that can help improve your insurance score.

Good credit pays off

Wondering what too many credit cards has to do with the limb that landed on  your roof? More than you’d think, it turns out. Several studies have found that your credit history is a good  indicator of how often you’re likely to file an insurance claim. Because more  claims translate into more expense for insurance companies, homeowners with low  insurances scores tend to be charged higher premiums.

Insurers claim the  use of credit-based insurance scores is fair and actually works in favor of  fiscally responsible consumers. A 2006 study found that 53% of Oregon  policyholders paid lower premiums on homeowners insurance thanks to credit-based  insurance scores. ECONorthwest, the group that conducted the research,  estimated the average annual savings for policyholders nationwide at $60.

How your insurance score is calculated

Your insurance score starts with your credit report, a history of your credit use.  What credit cards and loans do you have? What are the balances? How promptly do  you pay? Your report also includes information gleaned from public records such  as bankruptcies and liens. FICO is the best-known company that turns the  information in credit reports into credit scores. FICO credit scores range from 300 to  850.

Insurers are less concerned than lenders about your ability to pay  back a specific amount than your overall ability to manage money, says Allstate  spokesman Adam Shores, especially whether you make late payments and how long  since delinquencies took place. Your insurance claims history, as recorded in  your CLUE  report, also affects your insurance score. So can your age, the construction  of your house, and whether you’ve installed smoke detectors and other safety  equipment.

All of these data are crunched to come up with a numerical  insurance score. This is where it gets tricky for homeowners. There isn’t a  single source for insurance scores, and your insurer probably won’t tell you  your score even if you ask. Some insurers employ proprietary formulas. Others  use insurance scores calculated by companies like FICO and ChoicePoint, the  latter of which will sell you your score for $12.95. ChoicePoint’s Attract  insurance scores can range from 200 to 997, with a score over 776 considered  good.

Ways to raise your score

The most effective way to raise your insurance score is to improve your  credit score. You’re entitled to free copies of your credit reports annually  from the major credit bureaus: Equifax, Experian, and TransUnion. Order them and look for errors:  Is your Social Security number correct? Are all the debts and credit cards  yours? Do the balances jibe with your records? Errors can be disputed  online.

If the information on your credit report is correct, there are still things  you can do to improve your score. Paring down balances on credit cards is a big  plus. Paying bills by the due date is another major factor, accounting for 35%  of a FICO credit score. Time is also on your side. Most late payments are  removed from your credit report after seven years. A few major problems such as  a bankruptcy may stay on for a decade or more.

Do You Really Need to Clean Your Air Ducts?

Five to seven times a day, the air in your home circulates through the air  ducts of your HVAC  heating and cooling system, carrying with it the dust and debris of everyday  living.

Your furnace filter catches much of the stuff, but neglect,  remodeling projects, or shoddy duct installation can lead to a buildup of gunk  inside your ductwork that threatens the efficient functioning of your  system.

Are dirty ducts hazardous to your health?

The Environmental Protection Agency (EPA) asserts no studies  have proven that duct cleaning prevents health problems. Also, there isn’t proof  that dirty ductwork increases dust levels inside homes.

But some people  are more sensitive to airborne dust and pet dander than others. If your nose is  getting itchy just thinking about what might lurk in your ducts, the $300 to  $600 it costs to clean a 2,000-sq.-ft. home is a worthwhile investment. But  before you reach for the phone, take a good look to see if your ducts are  dirty.

Get the picture

Wouldn’t it be handy if  you could take an incredible journey through your ductwork to see if cleaning is  needed? Using a pocket digital camera equipped with a flash, you can come close.  Simply remove a floor register, reach as far as you can into the duct (don’t  drop your camera!), and take a couple of shots.

If there’s gunk within a  few feet of the register, take heart. It’s easy to snake a vacuum cleaner hose  into the duct and remove the stuff. However, if you see a long trail of junk and  a thick coat of dust beyond what your vacuum can reach, your house may be a  candidate for professional cleaning.

Look for these  symptoms

  • Clogs of dust, cobwebs, and debris, or noticeable particles blowing out of  supply registers.
  • Visible mold  on the inside surfaces of ducts.
  • Rodent droppings and dead insects inside ducts.

In addition, recent construction inevitably creates dust you don’t want in  circulation.

“We recommend cleaning after a big remodel job,” says Scott  Milas of Mendel Heating and Plumbing, St. Charles, Ill. Milas adds that a new  home purchase is also a good occasion — after all, who wants to breathe someone  else’s pet dander?

“People get it done after they buy a house,” he says. “It’s like getting the carpets cleaned.”

Good reasons for duct  cleaning

  • Cleaning removes accumulated dust so it won’t shed into the household.
  • Removing debris and cobwebs eases airflow and increases the efficiency of  the system, in extreme cases as much as 40%.
  • If you have fiberglass ducting; fiberglass gathers more dust than sheet  metal.

Reasons to skip duct cleaning

  • Cost.
  • Health benefits are not proven.
  • Dust and debris caught on the interior of ducts isn’t circulating and  therefore may not be a problem.
  • Changing furnace filters regularly often does the job, especially when  combined with annual furnace cleaning.

How ducts are cleaned

Dislodging and removing dust  and debris is done with one or more of the following methods:

  • Hand-held vacuuming: Workers use a brush attached to a  large portable vacuum equipped with a HEPA (high-efficiency particulate air)  filter. However, the hand-held method isn’t completely reliable and may leave  pockets of dust.
  • Mechanical brush: A rotating brush is fed into the  ductwork. A truck-mounted vacuum sucks away debris. The rotary brush may damage  older or poorly installed systems.
  • Air sweep: A truck-mounted vacuum system carries away dust  and debris dislodged by a compressed-air hose fed into the ducts. Of the three,  the air sweep method usually does the most effective job.

Note: Some duct cleaning companies advocate spraying the  inside of your ducts with chemical biocides. However, the EPA cautions that the  spray may be more hazardous than helpful, aggravating respiratory ailments and  introducing moisture that encourages mold growth.

Choosing a  duct cleaning service

It is all too easy to set up as a duct  cleaner; some fly-by-nighters do more harm than good. Ask a reputable heating  contractor for recommendations, or go to National Air Duct Cleaners Association  (NADCA) to locate a certified contractor.

Be wary of unsubstantiated  health claims. Resist pressure to clean annually; even cleaning every other year  is overkill. Most homes needn’t be cleaned more than once every five years.  Also, make sure your furnace will be cleaned as part of the HVAC maintenance  service that includes checking the plenum, evaporator coil, and heat  exchanger.

College Graduates: Six Financial Survival Tips for the Working World

college graduatesIf you are a recent college graduate, there is much to be optimistic about as you leave campus and head out into the real world. No one ever says life on your own will be easy, but post-graduate financial bliss can be a reality. These six tips from Thrivent Financial offer a starting point for recent graduates who are ready to put their education to work for a secure financial future.

Get real about your paycheck
Compared to the minimum wage jobs you survived on through college, the annual earnings at your first post-graduate job may give you dollar-sign eyes. Don’t be fooled though; after taxes, benefits, living expenses and student loan payments, your remaining monthly spending money could amount to less than half of your gross income. Being realistic about your paycheck doesn’t mean you can’t have any fun, though. That new car may have to wait a while, but with smart budgeting you can still enjoy the finer things in life with a clear conscience.

Your credit score matters
Thought you were done worrying about test scores? Think again. Whether you want to get an apartment, mortgage, car or a new job, your credit score says a lot about you and can make or break these important investments. Free credit reports are available at www.annualcreditreport.com, and for a small fee you can also obtain your credit score. Examine your report regularly for accuracy, and pay off any existing credit card debt as soon as possible. Credit card interest is wasted money, and outstanding debt can hurt your credit score.

Take care of yourself first
After expenses and taxes, your paycheck may look too slim for comfort, but protecting your assets, health and income is worth the additional cost. If you have an apartment, renter’s insurance is a relatively inexpensive way to protect your possessions. Health insurance is also a must, whether you get it through your employer or stay on your parents’ plan. Your paycheck is worth protecting, too. Disability income insurance is not just for those with physically demanding jobs, as most beneficiaries are on disability from illness, not injury. Preparation for the unexpected comes at a small price considering the costs associated with the alternative.

Save for the fun stuff
Again, being responsible with your finances doesn’t mean you can’t have any fun. You have worked hard to start your career, and deserve to reward yourself. The best way to spend smartly is simply to spend less than you have. Diligent saving allows for the occasional splurge without having to feel guilty or anxious about your decision to spend. Consider directly depositing a certain amount from your paycheck into a savings account for a “fun fund.”

Save for the grown-up stuff, too
Your parents’ nagging may start to quiet now that you’ve graduated, but their retirement planning advice is worth listening to. Start investing now, you won’t regret it. As you barely scratch the surface of your career, retirement seems a long way off, but successful investors understand that the longer your assets remain invested, the greater their potential for growth. The cash you forfeit now will pale in comparison to the amount you’ll end up getting back at the end of your career if you start as early as possible.

Don’t pass up free money
Many employers offer pretax savings through their retirement accounts. Because your retirement contributions come out before taxes, your taxable income is decreased, saving you money. For example, a $100 contribution from your earnings to a pretax retirement account would reduce your paycheck by only $75 if you’re in the 25 percent tax bracket. If your employer matches a percentage of your retirement contributions, it is wise to contribute the maximum amount of their match so as not to pass up on “free money.”

Money is just one of many aspects of adulthood that college graduates must meet head-on to start living independently. Personal finance may seem daunting, but don’t be discouraged. The above-mentioned tips boil down to common sense: spend less than you earn, stay protected through proper insurance, maintain good credit and save for the short and long-term, and you will be off to a great financial start in the next chapter of your life.

How To Inspect Your HVAC

Inspect your HVAC system twice a year and head off costly problems. Some  mechanical components, like the flue pipe that expels carbon monoxide, should  only be checked by a professional. But you can eyeball other HVAC parts and save  money on house calls and fuel bills.

Inspect filters

Air filters, which clean the air returning to your HVAC system, are the  easiest and most obvious components to check. Yours should be dust and dirt-free  because you’ve cleaned or replaced them once a month. (Ahem!) If you’ve fallen  behind on air filter maintenance, vacuum or rinse them under a hose or faucet,  or replace disposables.

Ductwork problems

Exposed ductwork in your basement, attic, or Starbucks-style loft is easy to  inspect. Look for:

  • Peeling duct tape and loose fittings around seams
  • Dirt streaks that indicate escaping  air
  • Dents in metal
  • Collapsed or torn sections of flex ducts.

Furnace flames

Fire up your furnace and inspect the flame. It should be a steady blue, not a  flickering yellow or orange, which indicates combustion problems that need  professional help. Make sure side panels are closed and fastened.

Grills and registers

Inspect air return grills and HVAC registers for dust, dirt, and pet hair  that impeded airflow. Open and shut registers to ensure they work. Make sure  furniture hasn’t wandered over vents.

Air conditioning compressors

Be sure outside compressors are unobstructed by vines, shrubs, and leaves.  Check that condensor unit fins are straight and undamaged. Place a level on top  of units to detect a tilt, which hurts efficiency. If not level, slip a shim  under the unit. Remove the top panel and inspect the fan blades for damage, but  don’t repair a bent blade yourself: Call an expert to replace the blade ($200 to  $300).

Thermostat check

Inspect thermostats by removing covers to sleuth out dust and dirt that can  shorten the life of mechanisms. Remove particles by gently cleaning with a  Q-Tip.