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Do I Need an Accountant This Year? 5 Signs the Answer Is Heck, Yes!

March 10, 2020

AndreyPopov/iStock

“Do I need an accountant?” might be a question weighing on you as you prepare to file your taxes this year.

Given the 2018 Tax Cuts and Jobs Acts delivered the biggest overhaul to the tax code in decades, having an accountant help you navigate these new rules might be a smart investment. Still, your own personal circumstances should factor into this decision, too.

Basically, if you’re a W-2 wage earner with few assets who filed as a single last year, then you can probably do your own taxes this year as well.

“If you only have a W-2 and some bank interest with no life changes coming soon, then a DIY program may be fine for you,” says Beth Logan of MA’s Kozlog Tax Advisers and author of “Divorce and Taxes After Tax Reform.”

But if your financial life was a bit more complicated—think filing jointly and owning a home—then you’re a prime candidate to get some professional help. Plus: Accountants also know that certain expired provisions that are helpful for homeowners are back!

To help you decide whether you need an accountant, here are five instances where hiring one could save you a whole heap of headaches.

1. You bought or own a house

Many homeowner deductions—such as mortgage debt, property taxes, and home equity line of credit interest—have radically changed since the Tax Cuts and Jobs Act. Here’s quick rundown:

  • Mortgage debt: The new law limited deductible mortgage debt to $750,000 for homes bought after Dec. 15, 2017. (Homes bought before then are grandfathered in at a $1 million cap.)
  • Property taxes: State, city, and property taxes will be limited to a total deduction of $10,000.
  • Home equity debt: The chance to deduct up to $100,000 of HELOC interest is only for those who used the money to specifically to buy, build, or improve a property.

The big thing to look out for is whether itemizing the above is worth it now that the standard deduction has almost doubled—$12,000 if filing single and $24,000 if filing married. An accountant can help you figure that out.

2. You sold a house

If you sold a property in 2019, congrats! There are tons of write-offs available to you that a tax pro can make sure you’re taking advantage of.

For example, you can deduct any costs you racked up selling your home, including legal fees, escrow fees, home inspection fees, the cost of title insurance, and your real estate agent’s commission, says Joshua Zimmelman, president of Westwood Tax & Consulting in Rockville Centre, NY.

And if you had to do any renovations in order to complete the sale—say, repairing a faulty furnace found during a home inspection—you can deduct those expenses as long as they were made within 90 days of the closing. You can also add your 2019 property taxes for the portion of the year that you still owned the home. (You’ll add these costs to your itemized list to see if it supersedes the standard deduction.)

Here’s another factor to sit and discuss with an accountant: capital gains, which could mean you owe taxes on the profits from your sale.

Under current tax law, homeowners can exclude up to $250,000 (single) or $500,000 (married) of the profits from a sale, but you’ll have to have lived in the home for at least two of the past five years.

3. You made energy-friendly home improvements

You may have heard that the Residential Energy Efficient Property Credit—a tax incentive for installing alternative energy equipment in a home—expired after December 2016. But not entirely: Accountants know that homeowners can still claim a 30% credit for solar electric and solar water equipment installed through Dec. 31, 2019.

And surprise! The recently enacted Secure Act retroactively reinstated certain deductions and credits for 2018 and 2019 that had expired at the end of 2017.

“These include nonbusiness energy credits for things such as exterior windows, doors, and insulation,” says Laura Fogel, a certified public accountant at Lillian Gonzalez & Associates in Massachusetts. The savings could add up to $500.

An accountant can help you see if it makes sense to amend your 2018 tax return to take advantage of these tax breaks.

4. You worked from home

If you’re self-employed with no other office to go to, you can take a home office deduction. Just remember, if you’re an employee with another office you can work from, this deduction no longer exists.

“This complicated deduction is for sure something I would certainly contact an accountant about,” says Ralph DiBugnara, vice president at Residential Home Funding.

By definition, you need to use a portion of your home exclusively for business to claim the deduction. But there are a few different ways you can qualify (you run a small business from your home) or be disqualified (your office doubles as a guest room).

5. You have private mortgage insurance

Another deduction that had expired—namely the one for private mortgage insurance—was also retroactively reinstated for tax year 2019 thanks to the Secure Act.

“The deduction for private mortgage insurance premiums is back on Schedule A,” says Fogel. “And just in time for the 2019 tax season, you can amend your 2018 tax return to take advantage of these tax breaks.”

So while you can’t deduct the cost of tax preparation help from your 2019 taxes (that deduction went away in 2018), here’s yet another reason to hire an accountant this year: “I can almost guarantee you alone are not doing everything you can to save on taxes in the 2019 year,” says Stacy Caprio, financial blogger at FiscalNerd.com. “So talking to an expert will be well worth the return on investment.”

The post Do I Need an Accountant This Year? 5 Signs the Answer Is Heck, Yes! appeared first on Real Estate News & Insights | realtor.com®.

7 Tax Benefits of Owning a Home: A Complete Guide for Filing in 2020

February 4, 2020

WilshireImages/iStock; Neustockimages/iStock
davidmariuz/iStock; ChristianChan/iStock

What are the tax benefits of owning a home? Plenty of homeowners are asking themselves this right around now as they prepare to file their taxes. You may recall the new Tax Cuts and Jobs Act—the most substantial overhaul to the U.S. tax code in more than 30 years—went into effect on Jan. 1, 2018. And as a result, last year likely brought big changes to your taxes, especially the tax perks of homeownership.

While not much has changed taxwise since then, an entire year has passed—so you might need a refresher as you sit down with your receipts.

Well, look no further than this complete guide to all the tax benefits of owning a home, where we break down all the tax breaks homeowners should be aware of when they file their 2019 taxes in 2020. Read on to make sure you aren’t missing anything that could save you money!

Tax break 1: Mortgage interest

Homeowners with a mortgage that went into effect before Dec. 15, 2017, can deduct interest on loans up to $1 million.

“However, for acquisition debt incurred after Dec. 15, 2017, homeowners can only deduct the interest on the first $750,000,” says Lee Reams Sr., chief content officer of TaxBuzz.

Why it’s important: The ability to deduct the interest on a mortgage continues to be a big benefit of owning a home. And the more recent your mortgage, the greater your tax savings.

“The way mortgage payments are amortized, the first payments are almost all interest,” says Wendy Connick, owner of Connick Financial Solutions. (See how your loan amortizes and how much you’re paying in interest with this online mortgage calculator.)

Note that the mortgage interest deduction is an itemized deduction. This means that for it to work in your favor, all of your itemized deductions (there are more below) need to be greater than the new standard deduction, which the Tax Cuts and Jobs Act nearly doubled to $24,400 for a married couple. For individuals the deduction is $12,200, and it’s $18,350 for heads of household.

As a result, only about 5% of taxpayers will itemize deductions this filing season, says Connick.

For some homeowners, itemizing simply may not be worth it. So when would itemizing work in your favor? As one example, if you’re a married couple who paid $20,000 in mortgage interest and $6,000 in state and local taxes, you would exceed the standard deduction and be able to reduce your taxable income by an additional $2,000 by itemizing.

Tax break 2: Property taxes

This deduction is capped at $10,000 for those married filing jointly no matter how high the taxes are. (Here’s more info on how to calculate property taxes.)

Why it’s important: Taxpayers can take one $10,000 deduction, says Brian Ashcraft, director of compliance at Liberty Tax Service.

Just note that this year, property taxes are on that itemized list of all of your deductions that must add up to more than the standard deduction ($24,000 for a married couple) to be worth your while.

And remember that if you have a mortgage, your property taxes are built into your monthly payment.

Tax break 3: Private mortgage insurance

If you put less than 20% down on your home, odds are you’re paying private mortgage insurance, or PMI, which costs from 0.3% to 1.15% of your home loan. But here’s some good news for PMI users: You can deduct the interest on this insurance thanks to the Mortgage Insurance Tax Deduction Act of 2019. Also known as the Secure Act, it retroactively reinstated for 2018 and 2019 certain deductions and credits for homeowners.

“These include the deduction for PMI,” says Laura Fogel, certified public accountant at Gonzalez and Associates in Massachusetts. (This credit is retroactive for 2018, so talk to your accountant to see if it makes sense to amend your 2018 tax return.)

Why it’s important: The PMI interest deduction is also an itemized deduction. But if you can take it, it might help push you over the $24,000 standard deduction. And here’s how much you’ll save: If you make $100,000 and put down 5% on a $200,000 house, you’ll pay about $1,500 in annual PMI premiums and thus cut your taxable income by $1,500. Nice!

Tax break 4: Energy efficiency upgrades

The Residential Energy Efficient Property Credit was a tax incentive for installing alternative energy upgrades in a home. Most of these tax credits expired after December 2016; however, two credits are still around. The credits for solar electric and solar water heating equipment are available through Dec. 31, 2021, says Josh Zimmelman, owner of Westwood Tax & Consulting, a New York–based accounting firm.

The Secure Act also retroactively reinstated a $500 deduction for certain qualified energy-efficient upgrades “such as exterior windows, doors, and insulation,” says Fogel.

Why it’s important: You can still save a tidy sum on your solar energy. And—bonus!—this is a credit, so no worrying about itemizing here. However, the percentage of the credit varies based on the date of installation. For equipment installed between Jan. 1, 2017, and Dec. 31, 2019, 30% of the expenditures is eligible for the credit. That goes down to 26% for installation between Jan. 1 and Dec. 31, 2020, and then to 22% for installation between Jan. 1 and Dec. 31, 2021.

Tax break 5: A home office

Good news for all self-employed people whose home office is the main place they work: You can deduct $5 per square foot, up to 300 square feet, of office space, which amounts to a maximum deduction of $1,500.

Understand, however, that there are strict rules on what constitutes a dedicated, fully deductible home office space. Here’s more on the much-misunderstood home office tax deduction.

The fine print: If you work from home occasionally but have an office to go to, you can’t take this deduction.

Tax break 6: Home improvements to age in place

To get this break, these home improvements will need to exceed 7.5% of your adjusted gross income. So if you make $60,000, this deduction kicks in only on money spent over $4,500.

The cost of these improvements can result in a nice tax break for many older homeowners who plan to age in place and add renovations such as wheelchair ramps or grab bars in slippery bathrooms. Deductible improvements might also include widening doorways, lowering cabinets or electrical fixtures, and adding stair lifts.

The fine print: You’ll need a letter from your doctor to prove these changes were medically necessary.

Tax break 7: Interest on a home equity line of credit

If you have a home equity line of credit, or HELOC, the interest you pay on that loan is deductible only if that loan is used specifically to “buy, build, or improve a property,” according to the IRS. So you’ll save cash if your home’s crying out for a kitchen overhaul or half-bath. But you can’t use your home as a piggy bank to pay for college or throw a wedding.

The fine print: You can deduct only up to the $750,000 cap, and this is for the amount you pay in interest on your HELOC and mortgage combined. (And if you took out a HELOC before the new 2018 tax plan for anything besides improvements to your home, you cannot legally deduct the interest.)

The post 7 Tax Benefits of Owning a Home: A Complete Guide for Filing in 2020 appeared first on Real Estate News & Insights | realtor.com®.

What Is ‘Tenants in Common’ and Should I Arrange One?

June 21, 2019

tenants in common

CharlieAJA/iStock; realtor.com

“Tenants in common” may sound like a legal term rental property managers throw around, but it’s actually an important agreement between co-owners of real estate. It’s one type of arrangement that can come into play when multiple people decide to buy real estate together, be it a primary residence or a vacation home. The other common type of arrangement for multiple co-owners to buy real estate is called joint tenancy, also known as joint tenancy with right of survivorship.

For some people, buying real estate as co-owners with friends sounds ludicrous. You love your friends, but taking on a shared financial responsibility and  a mortgage? No way! But others may see becoming co-owners as a real opportunity with a serious payoff, and could one day become party to a tenants-in-common or joint tenancy agreement.

What is ‘tenants in common’?

A tenants-in-common (TIC) agreement is a way to own a share of an entire property with a number of people, says Jeff Miller, a real estate agent and team lead at AE Home Group in Baltimore. (In a TIC agreement or joint tenancy, the owners are called “tenants.”)

Unlike a joint tenancy with right of survivorship agreement, a TIC agreement allows co-owners to own unequal shares of the same property and to pass on their ownership in the property to an heir when they die.

“For example, one owner may take responsibility for managing the property and in return receive a higher share of ownership,” Miller says. “It may also be the case that, after a number of years, someone sells part of his or her ownership to the other co-owners and maintains a smaller stake in the property.”

The TIC agreement provides a legal framework for the tenants to structure how the tenancy will operate, from deciding how co-owners should split the purchase price to choosing which co-owners make major decisions about the property. So while each tenant will own a share of the property and may have tenancy rights to live in and use the property, tenants pay their share of the mortgage, taxes, insurance, and maintenance costs based on the tenant’s share of ownership.

Advantages of a tenants-in-common agreement

Because a TIC agreement brings a number of tenants together to split costs and ownership, there can be a clear financial advantage for tenants who don’t have the means to buy property or qualify for a mortgage on their own. The flexibility of the tenants-in-common arrangement can be more attractive to prospective tenants who may plan to use real property for only part of the time (e.g., during the holidays or summer months) than being joint tenants. As TIC owners, they may opt for a smaller share in the real property, instead of equal shares.

This tenancy arrangement also allows the individual tenants to decide what happens to their ownership percentage of the property in the event that they die. Tenants in common can choose to sell their ownership share or transfer it to a spouse or other person, or to an heir after they are deceased.

A joint tenancy with right of survivorship, on the other hand, requires that the owners become joint tenants in the same deed or instrument at the same time. The joint tenancy survivorship agreement provides that when one joint tenant dies, the property interest of the deceased joint owner transfers to the remaining tenants, without going through probate. Joint tenancy is popular with married couples, because the tenancy of a deceased owner passes automatically to the surviving spouse.

Disadvantages of a tenants-in-common agreement

Of course the autonomy of co-ownership through TIC interests has its drawbacks says Michele Lerner, author of “Homebuying: Tough Times, First Time, Any Time.”

“At anytime, any owner can sell their share of the property or give it to someone else without requiring the consent of the other owners,” Lerner says. “This may result in you owning a house—and perhaps living there—with other tenants that you don’t know or don’t like.”

A tenants-in-common agreement, unlike joint ownership, does not automatically avoid probate.

Be smart when entering into a tenancy agreement

To help things run smoothly, experts advise getting everything regarding co-tenancy in writing, especially a tenants-in-common termination plan that all TIC owners are comfortable signing. Make sure you understand property law, and what will happen when a co-tenant wants to divest his ownership interest, or when he dies.

Miller suggests that a buy-sell agreement that’s backed by life insurance policies be part of that plan; it will give existing tenants the right to buy out a newly inherited tenant if one tenant dies. The buyout amount can be predetermined or the result of a third-party fair market value appraisal at the time of new ownership. The life insurance policy comes in handy in cases where the surviving tenants don’t have cash on hand for a buyout.

Whatever legal plans are drawn up, Lerner advises all tenants seek independent counsel from an estate attorney and a tax professional to walk them through both the legal process and the tax ramifications of purchasing a property in common.

“While owning a home with friends as tenants in common can be a great experience, it’s important to recognize purchasing property together makes the partnership more difficult to dissolve than simply renting a home with friends,” she says. “Professional advice is crucial to a successful agreement.”

The post What Is ‘Tenants in Common’ and Should I Arrange One? appeared first on Real Estate News & Insights | realtor.com®.

7 Tax Benefits of Owning a Home: A Complete Guide for Filing Now and Next Year

February 19, 2019

What are the tax benefits of owning a home? Homeowners might be wondering this right around now as they prepare to file their taxes. Especially since the new Tax Cuts and Jobs Act—the most substantial overhaul to the U.S. tax code in more than 30 years—went into effect on Jan. 1, 2018. You might even be wondering how the new plan affects the tax perks of homeownership.

Well, look no further than this complete guide to all the tax benefits of owning a home. We break down exactly what’s changed, and all the tax breaks homeowners should be aware of when they file their 2018 taxes.

Read on to make sure you aren’t missing anything that could save you money!

Tax break 1: Mortgage interest

What changed: In the past, one of the most lucrative tax breaks for homeowners was the deduction for mortgage interest. The new tax code didn’t eliminate the deduction, but it did change substantially. The new tax bill allows homeowners with a mortgage that went into effect before Dec. 15, 2017, to continue to deduct interest on loans up to $1 million.

“However, for acquisition debt incurred after Dec. 15, 2017, the tax reform only allows the homeowner to deduct the interest on the first $750,000,” says Lee Reams Sr., chief content officer of TaxBuzz.

Why it’s still important: The ability to deduct the interest on a mortgage continues to be a big benefit of owning a home. And the more recent your mortgage, the greater your tax savings.

“The way mortgage payments are amortized, the first ones are almost all interest,” says Wendy Connick, owner of Connick Financial Solutions. (See how your loan amortizes and how much you’re paying in interest with this mortgage calculator.)

Note that the mortgage interest deduction is an itemized deduction. This means that for it to work in your favor, all of your itemized deductions (there are more below) need to be greater than the new standard deduction, which the Tax Cuts and Jobs Act nearly doubled to $24,000 for a married couple (it used to be $12,700).

As a result, only about 5% of taxpayers will itemize deductions this filing season, says Connick. “In the past it was more like 30%.”

For some homeowners, itemizing simply may not be worth it this year. So when would itemizing work in your favor? As one example, if you’re a married couple who paid $20,000 in mortgage interest and $6,000 in state and local taxes, you would exceed the standard deduction and be able to reduce your taxable income by an additional $2,000 by itemizing.

Tax break 2: Property taxes

What changed: In the past, property taxes in their entirety had always been deductible. (Here’s more info on how to calculate property taxes.) But now, this deduction is capped at $10,000 for those married filing jointly no matter how high the taxes are.

Why it’s still important: Taxpayers can still take one $10,000 deduction, says Brian Ashcraft, director of compliance at Liberty Tax Service. Just note that this year, property taxes are on that itemized list of all of your deductions that must add up to more than the standard deduction ($24,000 for a married couple) to be worth your while. And remember that if you have a mortgage, your taxes are built into your monthly payment.

Tax break 3: Private mortgage insurance

What changed: If you put less than 20% down on your home, odds are you’re paying private mortgage insurance, or PMI, which costs from 0.3% to 1.15% of your home loan. Good news! The new tax bill extended the ability to deduct the interest on this insurance, a deduction that was set to expire, says Connick.

Why it’s still important: The PMI interest deduction is also an itemized deduction. But if you can take it, it might help push you over the $24,000 standard deduction. And here’s how much you’ll save: If you make $100,000 and put down 5% on a $200,000 house, you’ll pay about $1,500 in annual PMI premiums and thus cut your taxable income by $1,500. Nice!

Tax break 4: Energy efficiency upgrades

What changed: Nada. The Residential Energy Efficient Property Credit was a tax incentive for installing alternative energy upgrades in a home. Most of these tax credits expired after December 2016; however, two credits are still around. The credits for solar electric and solar water heating equipment are available through Dec. 31, 2021, says Josh Zimmelman, owner of Westwood Tax & Consulting, a New York–based accounting firm.

Why it’s still important: You can still save a tidy sum on your solar energy. And—bonus!—this is a credit, so no worrying about itemizing here. However, the percentage of the credit varies based on the date of installation. For equipment installed between January 1, 2017, and December 31, 2019, 30% of the expenditures are eligible for the credit. That goes down to 26% for installation between Jan. 1 and Dec. 31, 2020, and then to 22% for installation between Jan. 1 and Dec. 31, 2021.

Tax break 5: A home office

What changed: In the good ol’ days of 2017, if you worked from home at all, your office space and expenses could be deducted. Now this deduction is gone completely for employees who have an office to go to but work from home occasionally.

Why it’s still important: Good news for all self-employed people whose home office is the main place they work, you can still take a $5-per-square-foot deduction for up to 300 square feet of office space, which amounts to a maximum deduction of $1,500. Understand, however, that there are strict rules on what constitutes a dedicated, fully deductible home office space. Here’s more on the much-misunderstood home office tax deduction.

Tax break 6: Home improvements to age in place

What changed: Not much, except that for this filing season, these home improvements will need to exceed 7.5% of your adjusted gross income. So if you make $60,000, this deduction kicks in only on money spent over $4,500.

Why it’s still important: The cost of these improvements can result in a nice tax break for many older homeowners who plan to age in place and add renovations such as wheelchair ramps or grab bars in slippery bathrooms. Deductible improvements might also include widening doorways, lowering cabinets or electrical fixtures, and adding stair lifts. Caveat: You’ll need a letter from your doctor to prove these changes were medically necessary.

Tax break 7: Interest on a home equity line of credit

What changed: In the past, people used these loans to do all sorts of things: pay for college, throw a wedding, or make improvements to their home. And they could legally deduct the interest. Not anymore, even if you took out the loan before the new tax plan.

Now if you have a home equity line of credit, or HELOC, the interest you pay on that loan is deductible only if that loan is used specifically to “buy, build, or improve a property,” according to the IRS.

Why it’s still important: You’ll still save cash if your home’s crying out for a kitchen overhaul or half-bath. Major note: You can deduct only up to the $750,000 cap, and this is for the amount you pay in interest on your HELOC and mortgage combined.

The post 7 Tax Benefits of Owning a Home: A Complete Guide for Filing Now and Next Year appeared first on Real Estate News & Insights | realtor.com®.