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Start your federal tax return earlier to cash in on 2009 changes
(More...)
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Holiday Gift from Washington!
Tax Credit Extension not just for first-time buyers
(More...)
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Time- and money-saving tips for your 2009 tax return
(More...)
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TIME IS RUNNING OUT!
Don’t miss your chance to cash-in on the 2009 Tax Credits for 1st Time Buyers
(More...)
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Understanding your credit opens the door to home-buying success
With many signs pointing to the beginnings of a recovery in the housing market, potential home buyers can still find plenty of selection, low prices and low interest rates. If you're thinking of buying a home, now might be the right time, but before you contact a real estate agent or apply for a mortgage, your top priority should be checking your credit report to see if your credit is in good shape.
Credit - specifically misuse and misunderstanding of credit - spurred the housing crisis, many experts agree. The consequences have included tighter standards from lenders and the need for borrowers to better understand how to use credit wisely.
Interest rates remain low and those with good credit will be better positioned to take advantage of the opportunities currently available in this unique housing market. A good credit report and score can open doors for you in the real estate world, and empower you to secure the best loan and terms possible before you ever tour a single house. Being preapproved for an affordable mortgage can help you move quickly to secure a deal when you find the home of your dreams.
If you've already assessed your finances to determine how much mortgage you can afford, you're ready for the next step - making sure your credit is in top shape to help you get the best possible loan.
Understanding your score and what it means
Lenders consider your credit score and your current credit report when deciding whether or not you're a good credit risk. Your credit score is a number generated by using statistical models that factor in elements from your credit report. The number can change when information on your credit report changes and it's calculated at the time a lender requests a copy of your credit report. Different lenders may use different scoring methods, so your score may vary from lender to lender.
Because credit scores are objective and are based on the information in your credit report, they are fairer than the old opinion-based ways of determining a person's risk level. Your score is a prediction of your likelihood to repay debt responsibly, based on your past credit history and current credit status.
Before you begin contacting potential lenders, check out your credit report, which can be accessed online at Web sites like FreeCreditReport.com.
Know what's on your credit report
Your credit report is the other major piece of information a lender will consider when deciding whether or not to give you a mortgage loan. Your credit report is basically a summary of your financial behavior, including how you've used credit in the past and how well you manage repaying debt. The information on your report comes from creditors, public records and other reliable sources, which report it to the credit bureaus through automated processes.
Credit reports generally include personal data such as variations on your name, your driver's license number, Social Security number, birth date, current and past employers, and current and past addresses. You'll also find a listing of your credit accounts, when each account was opened and your payment history for each. If you've been involved in court action like bankruptcy or monetary judgments, this information will likely appear on your report as well.
Your report will also show past requests for your credit reports (inquiries) that might come from lenders, insurers, employers or stores. Too many inquiries on your report might make potential lenders think you are trying to overspend, so think carefully before applying for new credit; inquiries stay on your report for two years.
Because your credit report changes every time you use credit, it pays to enroll in a credit monitoring product. Web sites like FreeCreditReport.com make it easy to track both your score over time and monitor your credit report, ensuring you know what's on your report before a potential lender looks at it.
Buying a home is likely the largest investment you'll ever make - one that will impact your credit for many years to come. Before you jump into the process of applying for a loan to buy a home, it pays to understand credit, review your report and know your score.
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Resolve to get your debt under control
The bills are coming in, complete with due dates, minimum amounts due and debt dollars adding up. Sure, you had a great time over the holidays, but now it's time to figure out how you can prepare yourself to start the new year off right with your finances.
"Consumers are in a financial crisis; they are well beyond treading water; they're drowning in their debt," says Steve Ely, president of Equifax Personal Information Solutions. "Overspending during the holidays will only worsen their debt burden and make getting out of debt seem like even more of an impossibility. That is why having a plan for getting out of debt - a plan that they can actually stick to - is so important."
Here are some tips that may help you get your debt under control:
Get your debt organized.
If you don't know how much debt you have, or how much you're spending on interest, you'll never be able to get it under control. Equifax Debt Wise can help you to overcome one of the biggest challenges to paying off your debt - getting started. The Fast Pay Plan Wizard makes it easy because it automatically imports debts from your Equifax Credit Report so that you can easily select which debts to include in your plan. Your progress is monitored regularly and you'll receive monthly updates of whether you're on or off your debt payment plan.
This allows you to select the debts that you want to include in your plan. You determine how much money you have available to pay toward your debt each month, as well as whether you can afford to pay any additional money. The Fast Pay Plan Wizard selects a target account to be paid off first, and you pay the minimum balance - plus any additional amount you are able to over the minimum payment - while continuing to pay the required minimum payments on your remaining balances. Once your target account is paid off, the payments (including the first target account's minimum balance) are then applied toward the next debt on your list. This means you're still paying the same total amount of money each month, but the debt stacking strategy accelerates how quickly you can pay off your remaining debts. You follow this process as you pay off all of the different debts in your plan until you are debt-free.
Unlike other online budget and debt-reduction products, Debt Wise does not require you to import, synch or disclose the user names and passwords associated with your financial accounts to create a debt payment plan.
In addition, you will have credit monitoring, a commitment calculator estimating how long it will take for you to free yourself from debt based on the amount you are able to pay toward your debt, spend smart tools, four FICO scores each year and identity theft insurance.
Stop adding to your debt.
Paying down your debt doesn't mean you're going to be able to get out of debt unless you curb your spending. Create a budget for yourself, including your debt payments, and stick to it. In addition to your debt, add all of your required expenses like utilities, insurance, taxes and food costs. Also, to keep the January bills to a minimum next year, consider creating a savings account just for holiday presents, and contribute to it all year long.
Make cuts if needed.
As you start budgeting, you might find that your money isn't stretching as far as you'd like. Look over your expenses and determine whether you can make cuts. Consider cutting back on cable or satellite services and cell phone extras, switching to generic brands of food and clothing, leaving your car at home and taking the bus or walking or biking, and selling items you don't use. You might also decide you need to take on a second job to bring in a bit more money.
By getting a handle on your debt this year, you'll be less likely to feel the squeeze of holiday debt after the decorations come down.
If you will owe federal taxes for 2009, you may still qualify for other tax breaks. Several ARRA provisions, like the Making Work Pay and First-time Homebuyers Credits, have received a lot of press, but taxpayers don't necessarily realize how much more is included in the stimulus package. Even if you don't normally file a return, there are refundable credits, like the earned income and additional child tax credits, which could make filing worthwhile this year.
"The 2009 tax law changes cover a wide range of topics and life events. However, several credits and deductions, especially those in the economic stimulus package, require action well before April 2010. As a general rule of thumb, it's a good idea to do a little tax research before making decisions related to homes, college, retirement and cars. Doing so could save hundreds, even thousands, on your 2009 tax return," explains Jessi Dolmage, spokeswoman for 2nd Story Software, the makers of TaxACT.
In order to capitalize on ARRA provisions, Dolmage recommends:
1. Collect all 2009 tax documents, and organizing them by topics such as:
* Child and dependent care
* Education expenses
* Medical expenses
* Vehicle taxes paid
* Real estate taxes
* Mortgage interest paid
* Charitable contributions
* Business or employee expenses
* Investment transactions
* Retirement contributions
* Energy efficiency property expenses
* Household employee expenses
* Alimony expenses and/or income
Be sure to create a section for official tax documents such as Form W-2s, Form 1099's, Schedule K-1, etc.
You should also include a copy of your 2008 tax return for reference and for your Adjusted Gross Income or Self-select Personal Identification Number if you want to e-file your 2009 return. (E-filing with direct deposit is considered the fastest and most accurate way to file and get your refund.) Being organized will bring peace of mind and expedite tax preparation time.
2. Learn about the ARRA and other 2009 tax law changes at www.IRS.gov. In addition, all wage earners and those receiving retirement income should review their federal withholding per the Making Work Pay Credit. If you have more than one job, you and your spouse both work, or you can be claimed as a dependent, you are even more likely to be withholding too little income tax, possibly causing you to owe taxes.
An overview of the ARRA and a Making Work Pay Calculator are also available at www.TaxACT.com/recovery-act.
3. Start your federal return early using a free do-it-yourself tax preparation solution. (Skipping the second tip makes this one even more important.) After entering some basic information, see how 2009 tax law changes will affect your bottom line. Doing so may introduce you to credits and deductions you may otherwise miss, save time when you're ready to file and reduce errors (because you won't be rushing).
All taxpayers - regardless of income or how complex their returns are - can prepare, print and e-file their IRS returns for free with TaxACT Online Free Federal Edition. You can choose between a question and answer interview format and a quick entry method, both of which can be done at your own pace.
The ARRA has made taxes more of a year-round topic and proves that early tax preparation can be a very simple and smart way to save a lot of money.
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Holiday Gift from Washington!
Tax Credit Extension not just for first-time buyers
Many
home-owners and first-time buyers received an early holiday gift from
Congress. The much talked about, much appreciated tax credit was due to
expire November 30. After many months of deliberating and at least 20
different bills intended to extend the credit, congress finally voted
to extend the current home buyer tax credit through April 30 and to
extend a $6,500 credit for move-up or size-down buyers who have owned
their current home for five years.
Around 70% of all current homeowners will be eligible for the expanded
home buyer tax credit, which should provide some boost to home prices
over the next few months, according to an estimate by economists at
Goldman Sachs.
Many local real estate agents are hopeful that this extension will be
enough to keep the momentum going in the housing market. While the
incentive for first-time buyers is huge the $6,500 available to
existing homeowners will, in most cases, cover closing costs.
In addition to the tax credit itself, than overall home prices
themselves are a driving force in jump-starting the rise in sales. The
depreciation of many local homes is up to 20 percent or more, that
alone makes buying a home now particularly attractive.
Although the extension won’t fix all of the MainStreet’s problems, if
last year’s sales are an indication of things to come we should be in
pretty good shape. Sales were up 30 percent over 2008 and contracts
pendings in October were up over 70 percent over the previous year.
The hope is that this sort of momentum will help reduce some of the
distressed properties that bring down overall prices of homes. Until
the existing inventory is cut down, real estate prices are bound to
hover below average.
You can find out more at www.FederalHousingTaxCredit.com.
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Time- and money-saving tips for your 2009 tax return
The 2009 stimulus package includes something for everyone. A
taxpayer could potentially claim thousands more in tax credits and
deductions. By familiarizing yourself with the act now, you’ll save
time and money on your 2009 and 2010 tax returns.The ARRA’s key
provisions will benefit millions of wage earners, homeowners, college
students and vehicle owners through new and expanded credits and
deductions. The Making Work Pay Credit has resulted in more take-home pay for
approximately 120 million households since April 2009. The credit is
equal to 6.2 percent of your earned income, up to $400 for individuals
and $800 for joint filers in 2009 and 2010. Because the credit is being given through decreased federal
withholding, the IRS recommends reviewing your withholding. Having too
little tax withheld may result in a smaller refund or more taxes owed.
A withholding calculator is available at www.IRS.gov. Withholding can be adjusted by submitting Form W-4 to your employer or Form W-4P for pension or annuity payments. The credit starts phasing out at $75,000 for individuals and
$150,000 for joint filers. The credit amount is reduced by the Economic
Recovery Payment and Government Retiree Credit. Do-it-yourself tax
software, including TaxACT 2009 Free Federal Edition, will
automatically figure the amount on the new Schedule M and record it for
you on Form 1040, 1040A or 1040EZ. According to the IRS, 1.4 million taxpayers had taken advantage of the First-time Homebuyer Credit as of September 2009. Taxpayers who have not owned a principal residence during the past
three years before closing on a U.S. home before Dec. 1, 2009 can
receive the credit on either an original or amended 2008 tax return, or
a 2009 return on Form 5405. This credit is 10 percent of the purchase price, up to $4,000 for
individuals and $8,000 for joint filers, and phases out at higher
income levels. Different rules apply to homes purchased in 2008, but
the credit for homes purchased in 2009 won’t have to be repaid unless
it ceases to be the primary residence within three years of closing. Home energy efficient improvements made in 2009 and 2010 make it
possible for homeowners to get up to $1,500 through the Nonbusiness
Energy Property Credit. Up to 30 percent of the costs for qualifying
improvements to a primary U.S. residence can be claimed, including
insulation; metal and asphalt roofs; exterior windows, skylights and
doors; electric heat pumps; central air conditioners; natural gas,
propane or oil water heaters; biomass stoves; furnaces and boilers.
Materials must meet the new and higher energy efficiency standards. The Residential Energy Efficient Property Credit provides a 30
percent credit for expenditures related to larger residential
improvements such as solar electric equipment, solar water heaters,
geothermal heat pumps, qualified fuel cells and small wind turbines. Energy credits should be claimed on Form 5695. The HOPE credit has been modified and is now called the American
Opportunity Credit and is equal to 100 percent of the first $2,000 and
25 percent of the next $2,000 (totaling up to $2,500 per student) for
tuition, related fees and required course materials for the first four
years of post-secondary education in 2009 and 2010. The refundable credit phases out at a modified adjusted gross income
of $80,000 for individuals and $160,000 for joint filers. The credit is
claimed using Form 8863, attached to Form 1040 or 1040A. The ARRA also includes additional college expenses that can be paid
for by 529 plans (also known as qualified tuition programs) for 2009
and 2010. Expenses can now include computer technology or equipment or
Internet access and related services used by the beneficiary and the
beneficiary’s family during any of the years the beneficiary is
enrolled at an eligible educational institution. State or local sales or excises taxes paid on qualifying new
vehicles purchased after Feb. 16, 2009, and before Jan. 1, 2010, may be
deductible on 2009 returns. The deduction is limited to the tax on up to $49,500 of the purchase
price for each qualifying vehicle and phases out at income levels of
$125,000 for individuals and $250,000 for joint filers. Cars, light trucks and motorcycles must weigh 8,500 pounds or less, but motor homes are not subject to the weight limit. You can claim the deduction regardless of whether you itemize
deductions on Schedule A or take the standard deduction on Schedule L. Now, what should you do with this information? “With so many credits
requiring you to act before a certain date, do your tax planning now to
determine where your money will be best spent over the coming months. 1. Preview your tax situation
2. Review your federal withholding.
3. Compile receipts and documentation for purchases that will result in credits.
4. Visit www.IRS.gov/recovery to review all of the ARRA provisions.
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TIME IS RUNNING OUT!
Don’t miss your chance to cash-in on the2009 Tax Credits for 1st Time Buyers
According to the
new legislation, a first time home buyer is defined as someone who has
not owned a principle residence in the past three years. Those three years are counted up to the date you take possession of the house you buy in 2009. This
means that even if you’ve owned a home in the past, you can still take
advantage of the tax credit as long as you haven’t purchased a primary
residence since 2006.
The same goes for married tax payers - they must both be first time home buyers. For non-married joint buyers, only one of them needs to be a first time home buyer, or someone who hasn’t owned a primary residence in the past three years.
Qualifying homes include:
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New homes
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Homes that are being re-sold
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Condos
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Townhomes
The main restriction is that the credit is only for those who buy a home as their primary residence. So investors looking to buy a rental property would not qualify for the credit. However owning a vacation home or a rental property already does not neccessarily disqualify you from taking advantage of the credit (as long as you haven’t owned a primary residence in the past three years).
A Look at the Numbers
The tax credit is equal to 10% of the purchase price of the home, up to $8,000. The amount of the credit you can qualify for is related to how much money you earn. Here’s how the credit is scaled:
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Single home buyers earning 95K or less qualify. If you make 75K or less, you qualify for 100% of the $8000. If you make halfway, 85K, you qualify for 50% or $4000. The credit phases out gradually between 75K and 95K of income. For example, if you make halfway between the income limits, 85K, you qualify for up to half of the credit.
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The same rate applies for married couples and joint buyers whose incomes limits are doubled to $150,000 to $170,000. Married couples or joint buyers whose incomes are less would receive the full $8000 credit. At an income level of $160,000, halfway between 150 and 170, the buyers would receive half the credit – or $4,000. And the credit phases out altogether at $170,000.
This credit represent a significant amount of money. One of the biggest points of difference for the new credit from the
one congress passed in July of 2008, is that the new credit does not have to be paid back.
In addition, it's
refundable, which means that if you’ve paid all your taxes as you go
with an automatic payroll deduction, you would receive an $8,000 check
from the IRS.
If
you're committed to buying a house in 2009 and want to use the $8000
tax credit for a down payment, consult with your certified public
accountant.
In Summary
Qualifying home buyers will need to make their home purchase between January 1, 2009 and December 1, 2009. And the home has to remain their principal residence for the following three years.
The
new tax credit coupled with historically low mortgage rates and rising
affordability, offers buyers a great opportunity if they act fast.
If
you’re interested in learning more about the new $8,000 tax credit or
about homes in your area, contact your Keller Williams Realty agent at
609-484-9890. Find out if home ownership can be a reality for you;
there has never been a better time to buy!