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Record Improvements Now

Tuesday, May 27, 2014
by The Mike Parker Team

There is a significant difference in how the money you spend on your home is treated for income tax purposes.  Repairs to maintain your home’s condition are not deductible unlike rental property owners who can deduct repairs as an operating expense.

On the other hand, capital improvements to a home will increase the basis and affect the gain when you sell which may save taxes.

Additions to a home or other improvements that have a useful life of more than one year may be considered an increase to basis or cost of the home.  Other increases to basis may include special assessments for local improvements like sidewalks or streets and amounts spent after a casualty loss to restore damage that was not covered by insurance.

Unlike repairs, improvements add to the value of a home, prolong its useful life or adapt it to new uses.

You can read more about improvements and see examples beginning on the bottom of page 8 of IRS Publication 523.  For a form to keep track of money you spend, print this Improvement Register. 

The Question Every Cash Buyer Should Answer

Monday, May 12, 2014
by The Mike Parker Team

The Question Every Cash Buyer Should Answer

 

Paying cash for a home seems like a huge advantage to qualifying for a mortgage and an appraisal.  However, for the fortunate few who don’t need a mortgage, there is a question they should answer before they make that decision: Do you think at any point in the future, you might put a mortgage on this property?

It’s important because paying cash for a home could affect the ability to deduct the interest if the homeowner should place a mortgage on the home at a later date.

Most homeowner’s know they can deduct the interest on up to $1,000,000 of acquisition debt on their principal residence but they may not understand the limitations of such debt.

Acquisition debt is the amount used to buy, build or improve a person’s principal residence.  The amount is not static but changes over time.  An amortized loan reduces the principal owed with each payment made and the acquisition debt is reduced accordingly.  If a person stays in a home long enough to retire the loan, the acquisition debt is reduced to zero.

Our current federal law allows a homeowner to deduct the interest on the acquisition debt plus the interest on up to an additional $100,000 home equity debt.  If a person pays cash for a home, the acquisition debt would be zero and the only interest deduction allowed would be for home equity debt.

If you answered yes or even maybe to the question, before you pay cash to buy your home, you should discuss your situation with your tax advisor. 

Who Saves the Commission?

Monday, May 12, 2014
by The Mike Parker Team

Who Saves the Commission?

 

One of the most common reasons buyers want to deal directly with the seller is because they feel they can save the commission.  It’s a valid consideration but interestingly, it’s the same reason the seller isn’t employing an agent; they feel they can save the commission.

Both parties cannot save the commission.  The buyer feels they have earned it because they’ve had to find the home, determine its value and negotiate with the seller.  They had to arrange their own financing, title and inspections.

The seller equally feels that they have earned the commission because they have incurred all of the marketing expenses and have invested hours upon hours to be available to show the property, hold open houses and answer inquiries.  They have had to research value, financing, title work and make decisions. 

There is certainly value in all of the things that buyers and sellers are willing to do to save the commission but only one person can save the commission only if the buyer and seller can reach a written agreement.

There is value to having a third party advocate helping each party to the transaction.

The Profile of Home Buyers and Sellers (Exhibit 8-1) reports that 14% of sales were For-Sale-by-Owners in 2004 compared to just 9% in 2013.  The trend shows that agent-assisted sales rose to 88% in 2013 from 82% in 2004.

The three most difficult tasks identified by for-sale-by-owners is attracting potential buyers, getting the price right and understanding and performing the paperwork. When surveyed, sellers most value the home selling in an anticipated time frame and for an expected amount.

The reality is that both parties cannot save the commission.  It is earned by providing specific services that are essential to the transaction.  The capital asset of a home represents the largest investment that most people make.   An investment that important certainly deserves the consideration of a professional trained and experienced to handle the complexities involved. 

Consideration Could be the Key to Your New Home

Tuesday, May 6, 2014
by The Mike Parker Team

 

Consideration could be the key to your new home

 

Consideration associated with a contract is generally thought to be the price and terms but being sympathetic and courteous towards the seller could make a difference in getting the home you want.

Business people, like store owners, expect to deal with customers and even become to expect behavior that might not be accepted in a purely social atmosphere. Homeowners, on the other hand, may not be aware of what to expect.  They are opening the sanctity of their home to the public for review and criticism.  Buyers may be detached from emotional feelings while the sellers might react unfavorably to comments that are taken personally. 

  1. Be on time for appointments; cancel if necessary.  The sellers may be rearranging their schedules and making an additional effort to make it convenient for you to see the property.
  2. Be a good guest and respect the seller’s privacy.  Look at the home and avoid looking at the seller’s personal items; there is no reason to look in refrigerators or furniture drawers.
  3. Don’t sweat the small stuff.  Try to focus on critical items of a home like location, floor plan, layout, size and not dwell on cosmetic items that are easily and inexpensively changed.
  4. It’s not a good negotiating technique to list the defects.  Most people become defensive when presented with a list which could have the opposite effect of helping you get a better deal.
  5. Limit your visits until you actually own the home.  It’s natural to be excited and making plans to move into your new home but it is still the seller’s until closing and they’re making plans to move too.
  6. Negotiations are generally finished when a contract is completed.  It can be frustrating to continually be asked for “one more thing.” Make a deal with the seller and live with it.  If there’s something you’re not sure about, specify it in writing in the contract.

Some things are obvious: the seller wants the most for their home and the buyer wants to pay the least possible.  Showing consideration to the seller about things that don’t have anything directly to do with price can actually benefit the buyer. 

Displaying blog entries 1-4 of 4

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Mike Parker - CRS
HUFF Realty
60 Cavalier Blvd.
Florence KY 41042
859-647-0700
859-486-3300
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