April, 2012:

TAX FREE INCOME?

Apr 30th, 2012
by edsmith.
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Many residents of Augusta, Georgia purchase tickets to the Master’s year after year but have never even attended the famous golf tournament held in their town. That’s because they include the tickets as a bonus to the people who rent their home during this huge annual event.

Each year, owners rent their homes for major premiums during the Masters. Many tax experts believe that this income is tax-free, a rare  benefit from a little known provision in the tax code that does not require taxpayers to recognize the income derived from renting their home for less than 15 days per year. See Rental of property also used as home on IRS.gov.

Large sporting events like golf and tennis tournaments, even championship games and other high attendance events can dramatically increase the demand for temporary rental of private residences. Easter weekend on the Emerald Coast comes to mind. It is that annual combination of hold-over snowbirds, spring breakers, regular vacationers and visitors that really stretch our rental accommodations well beyond overload capacity.

Obviously, there are challenges and pitfalls associated with such usage, such as loss of personal belongings and of course, damage! However, getting a monstrously huge premium rental rate accompanied by a significant damage deposit, coupled with tax free status is simply too sweet for some folks to pass up!

You’ll certainly want to discuss this with your tax professional prior to making this decision. You’ll probably also want to get some help from experienced real estate professionals, like us!

Q: We are considering some remodeling before we put our house on the market. Is adding a sunroom a good investment?

Apr 26th, 2012
by edsmith.
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Light, bright and more square footage are usually positive selling features, but as is the case with many remodeling projects, you will likely get only half your money back in terms of increased value. Bearing in mind that the average sunroom addition will cost around $75,000, it is not reasonable to expect that an added sunroom will raise the value of a $225,000 home all the way up to $300,000.

However, each situation is different. Replacing old windows and interior doors can be a great investment in one home and maybe not in another. Much depends on the predominant size, condition and features of the other homes in your neighborhood. 

Experienced Realtors (like us) may be some of your best allies in terms of helping analyze the cost vs benefit of a particular remodeling project. More tips are available at http://www.DestinFloridaRealEstate.com

 

Apr 9th, 2012
by edsmith.
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A recent U.S. Tax Court ruling clarified the IRS position that the $1.1 million limit for mortgage interest deduction applies per residence and not per taxpayer as some high-priced homeowners were hoping.

A married homeowner filing jointly can have fullly deductible interest on a mortgage of up to $1,000,000 of acquisition debt and up to an additional $100,000 of home equity debt. If the married couple files separately, each party is limited to deducting the interest on half of those maximum amounts.

The court case came about when two unmarried individuals who owned a home together as joint tenants felt that they were entitled to deduct the interest on $1.1 million of debt each. IRS did not agree with their understanding and neither did the Tax Court. The Court ruled that the limits apply per residence, not per taxpayer even if a home is co-owned by unmarried taxpayers.

The result for the taxpayers in this case was that their deduction was cut in half resulting in much more income tax due. While this situation only affects a few taxpayers, homeowners in this position should have a discussion with their tax professional.

Risk Determines Rate

Apr 2nd, 2012
by edsmith.
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Regardless of what a lender quotes on mortgage rates, the actual rate paid by a borrower is based on a number of variables. Lenders determine whether to loan money and at what rate based on the risk involved with the transaction.

Factors that increase the risk that the loan will be repaid will proportionately increase the interest rate charged to the borrower. If the risk becomes too high, the loan will not be approved. Some of the most important considerations:

Loan amounts – conventional loans for more than the conforming limits set by Fannie Mae are considered jumbo loans and generally have a higher interest rate. Many loans in the Destin and South Walton markets exceed those limits.

FICO score – the lowest interest rate is reserved for the highest credit scores; the lower the score, the higher the rate borrower will pay.

Occupancy – borrowers occupying a home as their principal residence are considered a better loan risk than second homes and investment properties.

Loan purpose – purchase transactions generally have the lowest interest rate while refinancing a home is often higher. Real estate purchases for use as second homes or for investment (as is so common for this market) will command a higher interest rate and higher down payment requirements as well.

Debt-to-Income ratio – a borrower’s monthly liabilities divided by their gross monthly income develops a ratio that helps lenders to assess the borrower’s ability to repay the mortgage.

Loan-to-Value ratio – the lower the percentage of the loan to the appraised value of the property will generally lower the interest rate.

Any combination of these factors could limit a borrower’s ability to secure a mortgage at the rate initially quoted. Being pre-approved by a trusted LOCAL mortgage professional is the best way to know what rate you can expect to pay. We say local because many properties in this market are considered non-warrantable. Only certain lenders have investors for properties so designated. The “banker back home” is unlikely to have any sources for financing properties in Florida. Please call us for recommendations!

The Joys of Home Repair

Apr 2nd, 2012
by edsmith.
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Have you ever had a service company to your home to repair something and find out that it really wasn’t “broken”? It probably conjured up ambivalent feelings of joy that it wasn’t something serious and frustration that you had to pay a service call for something so simple. Before you call the repairman next time, keep these things in mind to see if it is something simple:

Disposer not working – check to see if the reset button has been thrown. It is usually on the bottom of the disposer. If the disposer is making a humming sound, the blades may be stuck. While the disposer is turned off, use a wooden broom handle as a lever to gently rotate the blades. Remove the broom handle and turn on the disposer to see if it works properly.

Air conditioner not working – check to see if a breaker has thrown on your electric panel. You might need to flip the breaker completely off and flip it back on.

Electrical outlets not working – Electrical plugs in bathrooms or outside, especially on a porch or patio, are many times connected to a ground fault interrupter. While the GFI circuit is sometimes controlled by a special GFIC breaker in your panel, it may also be a special GFI wall receptacle/outlet that may be located in a bathroom, near a sink, or even in the garage. Locate the outlet and reset the button that may have tripped. Note:  Most homes have more than one GFI circuit.

Clogged drain – a simple way to correct a slow or clogged drain is to use the water pressure from a garden hose. You’ll need a helper to turn on the water full-blast once you have safely placed the hose in the drain and are holding a hand-towel around the hose to direct the water to the drain. Be prepared to tell your helper to turn off the water when needed.

Whether it’s preparing a home to market or arranging repairs required by the sale, we know reputable, reasonable and reliable local service contractors. We’re here to share our contacts with you to help make home ownership better!