Wednesday, March 23, 2011

Fighting the Tax Man! Steps for Protesting Your Property Taxes.

Another in a series of posts about money and real estate and taxes. I know it's kind of dry---but you will thank me someday. That day may be when you successfully contest your property taxes!

Filing the Protest

The first step is to file a protest. The appraisal district has protest forms available, but you can hand write it on a piece of paper and fax it in. It simply needs to identify you as the owner, identify the subject property, and state that you disagree with the appraised value and wish to protest. If you’ve waited till the last minute, it would be best to fax it and then send a follow-up copy by certified mail.

The Informal Hearing

Next, the Travis County Appraisal District will schedule what they call an “informal hearing”. This may be months from now. The purpose of the hearing is for you to present your evidence that the appraised value is too high.

I’m going to stop here and point out a couple of things. It’s important before you attend a hearing that you understand the fundamentals of what the Travis County Appraisal District does. They simply set the appraised value of your home based on what they believe to be the market value. The tax rate multiplied against the appraised value determines the amount of property taxes you pay.

The Appraisal District does not establish the tax rate. Your elected officials do that. You can’t protest the amount you are paying, or the tax rate. All you are protesting is the Appraised Value.

When you show up for the hearing, make sure you bring data to support your protest.

Have Your Fact and Data Ready

Opinions and emotions are not data. In order to change your appraised value, the person you are working with at the informal hearing must have evidence and data to support the change. I’ve sat in the cubes over the years at the informal hearings and overheard other protesters arguing completely irrelevant gripes to the tax people. They don’t care how unhappy you are, how little you earn, etc. You’re there to discuss whether or not the appraised value on your particular home is too high or not, and that’s it.

If you know a Realtor, ask for a written market analysis on your home to determine the market value. You can take that along with you to use as your data and evidence. If your home has condition problems, take pictures and bring those. If you back up to a busy street, take pictures and print out your home’s location on a Google Map, and bring it in with you to show the tax people. Any “fact” that helps you prove a lower value may be helpful, but bring something to show to support it.

If the appraised value is higher than the amount you’ve recently paid to purchase the home, bring your Settlement Statement showing what you actually paid, and they’ll lower the value to the price you paid without a fuss.

You may be angry about the higher taxes, but unless the Appraisal District assessed your home at too high a value, and you can prove it, you have no grounds for a protest and you’ll lose. Since you know an awesome Realtor, me---you can get in touch with aforementioned awesome Realtor and I can do a free market analysis for you to determine the current market value of your home.

Be polite and courteous.

The person helping you at your informal hearing with has dealt with plenty of rude and uninformed people already – all day every day. You’re not going to get far if you present yourself as just another angry, unprepared and uneducated person coming in to yell at them and gripe about your taxes. Be nice, smile, dress professionally and have your facts ready with an extra copy for the appraisal person to keep. Make it easy for them to decide to help you by presenting yourself as a reasonable person who is well prepared and understands the process. As the saying goes, you catch more flies with honey than vinegar.

Two Bites at the Apple

If you are not satisfied with whatever reduction offer you receive at the informal hearing, you can move on to a formal hearing in front of a panel of the Appraisal Review Board. There will be an Appraisal District Representative arguing against you in support of the Appraisal District valuation, and a panel of three (usually old) people listening to both sides and making a decision.

If the informal hearing results in a deal you can live with, take it and avoid the time and frustration of the formal hearing.

If you truly are being hosed with an unreasonably high appraised value, then try your luck at the formal hearing. But know that once you forgo the offer made at the informal hearing, the formal hearing can result in an even higher value than what you passed up at the informal hearing. Your informal hearing deal ends when you decide to try your luck with the ARB.

For more information, check out the Taxpayer’s Rights, Remedies and Responsibilities document published by the State Comptroller.

Wednesday, March 9, 2011

Why is Real Estate a Good Investment?

Something a lot of Real Estate folks won’t tell you is that real estate historically does not offer a better rate of return than the stock market. It also does not offer you the liquidity that the stock market offers. You can buy and sell stocks and bonds much more easily than you can buy and sell property. So, why do people choose real estate as an investment?

• It’s easy to understand. Property is tangible and appreciation is easily measurable. Flipping and running rental property are two very different types of real estate investing, but the math involved with each is pretty basic.

• Tax benefits. Owning property gives you lots of stuff to write off.

• Long term appreciation.

• It can be kind of fun depending on your personality and interests.

6 Reasons Real Estate is a good investment:


Real estate is less volatile than stocks. While real estate may be less liquid, and you may have to wait indefinitely before a buyer agrees to purchase your property for the price you seek, the prices are not as volatile as the stock markets. The transition towards a correction or boom takes place gradually, giving ample time for investors to read the transition and safeguard their positions.

Price correction

The economic slowdown had an impact on this sector. The rates have come down over the past few months. Wouldn't it make a lot more sense to invest in real estate when a price correction is taking place rather than in a heated market? People with a large disposable income can explore investing in real estate for diversification of their assets. Lowering home loan interest rates and lower property prices makes it an opportunity hard to resist.

Good in recession

Some investments are considered safe in times of recession like precious metals and foreign currencies. In this list of investments that are popular during times of financial uncertainty, real estate can be included. Focus on achieving positive monthly cash flows rather than immediate appreciation. Cash flow refers to the amount of cash coming in relative to the amount going out.

Hedge against inflation

Real estate and gold are considered a hedge against forces of inflation. Inflation has led to the rupee value depreciating and property prices travelling upwards. Property investments are typically held over a long term.

Tax benefits

Home loan borrowers are eligible for tax deductions on their interest and principal repayments subject to a certain limit. Further, you can use the rental income from the property to make a portion of the EMI repayments.

Good returns in long term

Investments in property has always proved to be stable and yielded good returns over the long term. With lesser risk and probability of higher returns, this is a much favoured investment option.

Tuesday, March 8, 2011

5 Tax Tips For Homeowners

Ask a roomful of homeowners what's so great about owning versus renting, and you'll hear them holler in unison: "the tax deductions!" And it's true – homeowners who itemize their taxes are able to deduct 100% of their mortgage interest and property taxes from their income tax returns.

That means that if you're in a 28% tax bracket, Uncle Sam effectively subsidizes about a third of your borrowing costs or more, making your home more affordable or allowing you to buy a larger home than you could have otherwise. Also, big chunks of your closing costs are tax deductible, and hundreds of thousands of dollars of any profit (or capital gains) that you realize when you sell your home are exempt from income taxes.

At tax time, it's critical to know what you're entitled to, so you can claim it. So, here are five essential need-to-knows about home-related income tax tips to help you get the most tax-reducing bang out of your home-owning buck – and to avoid hefty home ownership-related tax traps.

1. You Have to Itemize Your Return to Claim Your Deductions

During the recent debate on Capitol Hill about whether the mortgage interest deduction should be eliminated (it won't be, not anytime soon), it came out that nearly 40% of homeowners lose out on their major tax advantages every year when they fail to itemize their income taxes. If you own a home and otherwise have a fairly simple return, it might be tempting just to take the standard deduction – and if your mortgage, property taxes and income are low enough, the standard deduction might outweigh your homeowners' deductions. But you'll never know if you're losing out on the tax advantages of itemizing unless you try; before you grab a pen and start filling in that 1040-EZ grab those forms from your mortgage company and answer the questions on tax software like TurboTax, which will automatically do the math on whether itemizing or taking the standard deduction will result in the lowest tax bill – or the highest tax refund – for you.

2. Plan Ahead and Be Strategic When Taking a Home Office Deduction

According to the Small Business Administration, the average home office deduction is $3,686 – multiply that by your tax bracket – 15%, 20%, 30% or whatever it is, and that's what you'll save on your taxes by writing off your home office. Know, though, that the space you designate as your home office cannot be exempted from capital gains tax when you sell your home later. The $250,000 (single)/ $500,000 (married filing jointly) income tax exemption for capital gains is only good on your personal residence, after all – not including any space in your home you've claimed as your tax-advantaged office. If you foresee selling your home for much more than you bought it in the future, near or far, discuss this with your tax preparer to see if the few hundred bucks you save is worth the capital gains complication later.

3. Tax Relief for Loan Modifications, Short Sales and Foreclosures Is Only Around Through 2012

While the long-term housing outlook is beginning to look up, 2011 is projected to be the peak year for foreclosures during this market cycle. Distressed homeowners who are on the brink of a short sale, loan modification or foreclosure should be aware that normally, any mortgage balance that is wiped out by one of these outcomes is taxed as what the IRS calls Cancellation of Debt Income, or CODI.

Under the Mortgage Debt Forgiveness Relief Act of 2007, the IRS is currently not charging income taxes on CODI incurred through a loan mod, short sale or foreclosure on most primary residences through 2012. But right now, banks are taking many months, or even years, to work out mortgages in all of these ways; the average foreclosure in New York state right now occurs only after 22 months of missed mortgage payments. If you foresee any of these outcomes in your future, don't put things off. Do what you can to get to closure on your distressed home and loan, ASAP, while you won't have income taxes to add as the insult on top of your significant housing injury.

4. Project the Income Tax Consequences of a Refinance or Property Tax Appeal

Homeowners everywhere are working on applying for a lower property tax bill on the basis of the last few years' decline in their home's value. Those who have equity have flocked en masse to refinance their 7% home loans into the 4% to 5% rates of the last few months. These strategies offer some of the heftiest household savings out there for the corresponding investment in time and money they take. But here's a caveat for savvy homeowners who slash these costs: remember that property taxes and mortgage interest, the very costs you're minimizing, are also the basis for the major tax benefits of being a homeowner. So plan ahead for your income tax deductions to go down along with your taxes and interest.

5. Don't Forget Those Closing Costs

If you bought or refinanced your home in 2010, you may be so focused on your mortgage interest and property tax deductions that you forget all about your closing costs. Any origination fees or discount points that were paid to your mortgage lender at closing are tax deductible on your 2010 return, get this – even if the seller paid your closing costs. If you can't figure out exactly what you paid, look for your HUD-1 settlement statement, that legal sized paper full of line item credits and debits that you should have received from your escrow provider or title attorney at, or just after, closing. Can't find it? Drop your real estate agent or mortgage broker an email; they can usually get a copy to you quickly.

Note: This post first appeared on on 2.28.2011.

Friday, March 4, 2011

Want a mortgage loan? 10 ways to screw up your chances of approval.

Our credit is a magical and delicate thing that can be thrown off balance very easily. Qualifing for a mortgage post "economic major meltdown circa 2008 - present" has become a bit tougher and credit scores are more important than ever when it comes to getting a loan to buy a house.

Please let me apologize in advance for my potential overuse of capital letters in this post. That said--I do want the following 10 titles to read like I am screaming at you. IT'S THAT IMPORTANT!! I WANT TO SAVE YOU FROM YOURSELF!!!  :)

1. DON’T DO ANYTHING THAT WILL CAUSE A RED FLAG TO BE RAISED BY THE SCORING SYSTEM. This would include adding new accounts, co-signing on a loan, changing your name or address with the bureaus. The less activity on your reports during the loan process, the better.

2. DON’T APPLY FOR NEW CREDIT OF ANY KIND. Including those “You have been pre-approved” credit card invitations that you receive in the mail or online. Every time that you have your credit pulled by a potential creditor or lender, you lose points from your credit score immediately. Depending on the elements in your current credit report, you could lose anywhere from one to 20 points for one hard inquiry.

3. DON’T PAY OFF COLLECTIONS OR CHARGE OFFS during the loan process. Unless you can negotiate a delete letter, paying collections will decrease the credit score immediately due to the date of last activity becoming recent. If you want to pay off old accounts, do it through escrow – at closing.

4. DON’T MAX OUT OR OVER CHARGE ON YOUR CREDIT CARD ACCOUNTS. This is the fastest way to bring your scores down 50-100 points immediately. Try to keep your credit card balances below 30% of their available limit at ALL times during the loan process. If you decide to pay down balances, do it across the board. Meaning, pay balances to bring your balance to limit ratio to the same level on each card (i.e. all to 30% of the limit, or all to 40% etc.)

5. DON’T CONSOLIDATE YOUR DEBT ONTO 1 OR 2 CREDIT CARDS. It seems like it would be the smart thing to do, however, when you consolidate all of your debt onto one card, it appears that you are maxed out on that card, and the system will penalize you as mentioned above in 4. If you want to save money on credit card interest rates, wait until after closing.

6. DON’T CLOSE CREDIT CARD ACCOUNTS. If you close a credit card account, you will lose available credit, and it will appear to the FICO that your debt ratio has gone up. Also, closing a card will affect other factors in the score such as length of credit history. If you HAVE to close a credit card account, do it after closing.

7. DON’T PAY LATE. Stay current on existing accounts. Under the new FICO scoring model, one 30-day late can cost you anywhere from 50-100 points, and points lost for late pays take several months if not years to recover.

8. DON’T ALLOW ANY ACCOUNTS TO RUN PAST DUE --EVEN 1 DAY! Most cards offer a grace period, however, what they don’t tell you is that once the due date passes, that account will show a past due amount on your credit report. Past due balances can also drop scores by 50+ points.

9. DON’T DISPUTE ANYTHING ON YOUR CREDIT REPORT once the loan process has started. When yousend a letter of dispute to the credit reporting agencies, a note is put onto your credit report, and when the underwriter notices items in dispute, in many instances, they will not process the loan until the note is removedand new credit scores are pulled. Why? Because in some instances credit scoring software will not consider items in dispute in the consider items in dispute in the credit score - giving false data to the lender.

10. DON’T LOSE CONTACT WITH YOUR MORTGAGE & REAL ESTATE PROFESSIONALS. If you have a question about whether or not you should take a specific action that you believe may affect your credit reportsor scores during the loan process, your mortgage or real estate professional may be able to supply you with the resources you need to avoid making mistakes that could drop your credit scores or possibly, cause you to lose the loan.

To refinance or not to refinance? That is the question.

There has been a lot of talk in the news recently about the low mortgage rates and it's true! They are really low! So, if you have been on the fence about buying, low rates are a good reason to get off the fence---but if you already own a home, now may be a good time to think about refinancing.

It's time to think about refinancing your home loan IF:
• rates are 2% + lower than your current rate

• you are paying mortgage insurance and you have 80% equity in your home,

• you’re current loan is an ARM and your term is up and your rate is looking at resetting

And most importantly ---only refinance if you are planning on sticking around in your home for at least 2 years post refi.

Here are some more things to consider when thinking about refinancing:

Four Reasons to Refinance Your Home

There are many situations where refinancing a mortgage is a good decision. It can save your house, save you money, or help you with other financial needs. Read on to learn the four reasons to refinance your home.

1. Avoid Foreclosure with a Refi

If you are on the brink of foreclosure and are desperate to save your home, refinancing may be the answer for you. Whenever you are having trouble paying your mortgage, it is always a good idea to approach your lender and discuss the issue with them. They may be open to helping you through a refi. This can help you lower your current interest rate, lock in a fixed rate, and/or change the length of the loan. This can lower your monthly payments and make your mortgage more affordable, helping you avoid foreclosure. You can also talk with other lenders or mortgage brokers to see if they have programs available for you. The biggest obstacle in this situation is going to be whether you have enough equity in your home. If you do not, you need to talk to your lender and review your options.

2. Changing an ARM to a Fixed Rate Mortgage

Maybe you are not on the brink of foreclosure, but you do have an adjustable rate mortgage (ARM) whose rate is going to increase in the near future, making it harder for you to afford your mortgage. Many people are solving that problem by refinancing their homes to get a fixed rate, so they no longer have to worry about when and how much the rate on their mortgage will increase. This can help you avoid financial trouble before it starts.

3. Saving Money When You Refinance Your Home

Not everyone who refinances a home does it because they are experiencing some sort of financial trouble. Usually, refinancing is an effective way to save money on your monthly payments. For the same reasons that it can help people avoid foreclosure, it can help you save money by lowering the interest rate, lengthening the term of the mortgage, locking in a fixed rate, or paying off other higher-interest rate debt.

4. Getting Money Out of Your Home

Another reason to refinance is to get money out of your house, which is known as a cash-out refinance. This type of refnance allows you to access the equity in your house to use that money for other purposes. Many people do this to pay off other high-interest debts they may have. It is also a very popular choice for finally doing those improvements around the house. Of course, any time you take equity out of your house, you want to make sure you assess any possible risk involved and confirm that you are not putting your house in jeopardy.

Two Reasons Not to Refinance a Home

A refinance is not an easy fix to complicated problems, nor is it an ATM for making unneeded purchases. As with anything relating to mortgages or your house, you need to be smart about a refi and know when it is not the right decision.

1. When a Refinance Does Not Save You Money

Lower rates do not necessarily mean that a refinance will save you money. You need to thoroughly assess the situation and evaluate how much you will save, if anything. It is important to remember that with any mortgage, including the one you are about to refinance, there are always fees involved, such as closing costs. These can add up to several thousand dollars, which can prevent the refinanced loan from saving you money. You also need to consider how long you plan to stay in that specific house. If you plan to move in the near term, a refi may not save you money. Talk to a mortgage professional or trusted financial planner if you are not sure where you stand.

2. Cashing Out for Frivolous Purchases

We all would love to go on a two-week Caribbean vacation or buy the luxury or sports car we have always dreamed of driving, but using a cash-out refi for such purchases is not a very smart choice. Once you get into the habit of using your mortgage as a way to pay for things you can not really afford, you run into the danger of going into debt you cannot handle or losing your home. Using equity for home improvement projects can increase the value of your house. Using equity for luxury purchases saps the value from your home.