real estate taxes Archives - Hanover Mortgages

April 12, 2021

A Simple Financial Spring Cleaning Checklist

Spring is the perfect time to complete a financial clean-up. Here we share a few financial areas of your life that may need some sprucing up. No mop required!

1. Banking

The banking industry is quite competitive. If you’re not getting any perks from your credit card company or bank, it’s time to make a switch.

Credit Cards

Credit card companies today offer everything from travel rewards to gift cards to cash back. Many cards even offer perks without requiring an annual fee. If you pay your credit card balance faithfully each month and are only rewarded with a good credit score, it may be time to shop around for a new card. Keep in mind that when you apply for a new credit card, your credit report takes a hit, so take your time researching and don’t apply for multiple cards.

Bank Accounts

Are you still paying minimum balance fees, monthly checking, or savings account fees? How about ATM or overdraft fees? Don’t! There are too many bank options these days competing for your business to still be paying multiple fees.

What about interest rates? Is your money making money? The Federal Reserve recently raised interest rates, but the average savings account rate is still only 0.06%. If you’re not making at least that, it may be time to think about switching.

Do you bank with a brick-and-mortar bank? How often do you actually go into one of their branches? If you think you can go without having an actual bank to walk into, consider switching to an online bank. Not only do online banks have minimal fees, they boast some of the highest interest rates around.

E-Statements and Auto-Pay

Save a tree and lower your risk of identity theft by switching to receiving online statements only. If you prefer to have a paper copy, make sure you shred the statements before tossing them out.

Consider switching to auto-pay whenever the option is offered. American households tend to have many different bills to pay all due at different times; it’s easy to accidentally overlook one. If you switch to an auto-pay billing option, payments are deducted automatically when they are due, so it’s one less thing to worry about. Just be sure to occasionally review your statements to ensure the right amounts are being deducted.

2. Taxes

You most likely have already filed your taxes. Did you have to pay in or did you get a refund? If the outcome was not what you expected, it’s time to double-check your withholding allowance on your paychecks.

We all want to lower our tax bill. Deductions can help, however, unless you pay to work closely with an accountant, how do you know what qualifies as a deduction?

Some common tax deductions include:

Dependent child credits,
Mortgage interest and real estate taxes,
Health insurance premiums,
Student loan interest.

Take a look at this article for some perhaps surprising tax deductions you should consider for next year: 9 Things You Didn’t Know Were Tax Deductions.

3. Budget

When is the last time you sat down and wrote out a monthly budget? Do you know your debt-to-income ratio?

A few years ago when I was in the market to buy a house, I opened an Excel spreadsheet and calculated what I spent on average each month compared to the income I bring in. Thankfully, Intuit recently introduce a new app, Turbo, which does this for you with ease. Generally, you want to aim to keep your debt-to-income ratio below 36% and mine was 53%. I had to make some changes. I tightened my budget (mainly by canceling cable TV and renegotiating my Internet bill) and paid off my auto loan. My ratio today is still a bit high, but it’s getting better.

Going through the memberships and subscriptions you currently pay is a great way to quickly lower your debt-to-income ratio. Chances are you’ll find you are paying a monthly fee for something you seldom use, or at least can live without. Do you need both Netflix and Hulu? Both Spotify and iTunes Music? Both Blue Apron and Hello Fresh? Probably not.

Print off the last two to three months of your credit card and bank account statements and go line-by-line to figure out a way you can save some money. Additionally, if you have a Mint account, log in and check out the Trends tab. You can view your spending and see where the majority of your money is going. You may be shocked at how much you spend within a certain category. It’s easy to just hand over your credit card, but actually seeing a graph of how much you spend can be a much needed wake-up call.

Spending by Category _ Mint

4. Retirement

It doesn’t matter how old you are, you need to plan ahead for retirement.

If your employer offers a 401(k), take advantage of it. This is the easiest way to save for retirement (not to mention it lowers your taxable income.) If they offer to match a certain percentage, even better. Aim to increase your contributions each time you get a pay raise, this way you won’t even miss the money.

Do you have more than one 401(k) or IRA? Consider consolidating.

Consolidating retirement accounts that share the same tax treatment can be beneficial for two reasons:

1. Keeping all your money in one place makes it more simple and manageable.

2. Having only one account reduces the amount of fees you’re paying.

A retirement rollover is the best way to move money from one account to another. It’s important to do so correctly to avoid fees. Check out this article for more information: How to Handle Retirement Rollovers Correctly.

For those of you whom have established retirement accounts, when was the last time you rebalanced your investment portfolio? Never?

Typically, the younger you are, the more risk you can handle in your investments because you have more time to make up for any losses. The closer you get to retirement age, the more conservative you should be. Financial planning experts recommend that you rebalance your portfolio once or twice a year, but check up on it frequently to make sure you’re in line with your target.

As you’re thinking about your retirement planning, also think about your beneficiaries. How long ago did you open your retirement accounts? Are your parents still listed as your beneficiaries on your 401(k) from your first job? Or maybe an ex-spouse is still designated? Review your beneficiaries as it may be time for an update.

5. Legacy Planning

Just because Spring is all about rebirth, doesn’t mean we should avoid the subject of death. There are three important aspects of legacy planning that should be dealt with sooner rather than later:

1. Writing a will

2. Authorizing power of attorney

3. Buying life insurance

Wills

If you don’t want the state to decide where your assets go when you die or, more importantly, who will be in charge of your children and funds owed to them, then you better draw up a will. Another, often forgotten, reason to have a will is to ensure no tension occurs within your family after you are gone. Without a will, you may have relatives arguing over your possessions and everyone may want input on what should happen to your assets.

If you have a complicated estate, such as business interests, trusts, multiple investment properties, etc., then you should probably hire a lawyer to help with your will. However, if your estate is a bit more simple (e.g.: married with kids and you own a house) you can draw up your will right online, if you’d like. You’ll need to print it off and get it witnessed and notarized, but it’ll be much cheaper than hiring a lawyer.

Power of Attorney

There are two kinds of power of attorney: financial and medical.

A financial power of attorney is most often just simply referred to as a power of attorney (POA) and this is a document that states a person or organization you name to act on your behalf in regards to handling financial and business transactions.

A medical power of attorney is a document that states a person you name who has the authority to make medical decisions for you if you are unable to do so, for example if you’re unconscious or mentally incapable.

Most people assume only elderly individuals need to have these POA documents in place, but you don’t need to be 80 years old to get into a car accident and become unconscious. If you become mentally or physically incompetent, your designated POA agents can make decisions on your behalf instead of it being left up to strangers who wouldn’t know your wishes, such as doctors and judges.

If you’re over 18 and considered of sound mind, you can draw up both types of POA documents. Hiring a lawyer is an option, but, like wills, you can create these documents online for a fee. Be sure to discuss with your agents of choice before drawing up the documents and make sure they understand your wishes and their responsibilities.

Life Insurance

Life insurance isn’t the happiest financial product to think about. However, while many Americans admit life insurance is important, many households are underinsured. People are telling themselves “It won’t happen to me,” meanwhile they really should be asking “What if?”

If you have young children, life insurance is a must. How would your loved ones be affected if your income were to suddenly disappear? Stop postponing and get a term life insurance quote today. Life insurance is more affordable than you think and because the process is mainly digital, it’s also become much more convenient to buy.

If you already have life insurance, good for you! But don’t forget to review your policies periodically after life changes such as a new baby, marriage or divorce, or changing jobs. Your coverage needs may have changed, not to mention beneficiaries may need updating.

Although many of these financial spring cleaning to-dos may take a bit of time to complete, you’ll feel accomplished and will ultimately be in a better financial place. Do you have any financial spring cleaning tips to share? Leave a message in the comments section.

Natasha Cornelius is a content manager and editor for Quotacy. She has worked in the life insurance industry since 2010, and has been making life insurance easier to understand with her writing since 2014. A long-time Mint user, Natasha loves making frugal fun by creating new DIY projects. Connect with her on LinkedIn.

From the Mint team:

What’s Turbo and why are we talking about it?

Turbo is part of the Intuit family of products, just like us. We work with Turbo, TurboTax and Quickbooks to get all our customers on the right track financially. While Mint provides free credit scores to our customers, Turbo combines the same score, plus other information like verified IRS filed income and debt to income ratio to create a broader financial health profile. Try out our sister app to see where you truly stand financially – beyond the credit score.

Mint may be compensated by some of the links that appear in this article. Our partners do not endorse, review or approve the content. Any links to Mint Partners were added after the creation of the posting. Mint Partners had no influence on the creation, direction or focus of this article unless otherwise specifically stated.

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Source: mint.intuit.com

March 15, 2021

Streamlined Mortgage Relief Program Could Mean No Payments for 12 Months

Last updated on April 7th, 2020

A group of mortgage industry heavyweights have sent a letter to the Federal Reserve, HUD, FHFA, CFPB, Treasury Department, and the White House advocating for a uniform, streamlined mortgage relief program in the wake of the coronavirus outbreak.

It could result in waived mortgage payments for up to 12 months for millions of Americans, without the need for much paperwork if any.

However, they did stress that “those who can pay their mortgage, should pay their mortgage.”

How a Uniform Mortgage Relief Program Could Work

Same assistance across all government agencies and the GSEs
Limited documentation requirements
Available to owner-occupants and investors
Payment forbearance for 90 days initially
Payment relief can be extended up to 12 months if necessary
Followed by either a loan modification or the resumption of regular mortgage payments
No credit hit, fees, penalties, etc.
Nationwide foreclosure and eviction moratorium

The mortgage relief proposal would allow all homeowners with a mortgage to receive an initial forbearance of 90 days, in which monthly payments would not be due.

This would apply to those with conventional loans backed by Fannie Mae or Freddie Mac, along with those who hold a government loan, such as an FHA loan, USDA loan, or VA loan.

Importantly, it would provide universal relief regardless of loan type, without the stringent documentation typically required.

If we learned anything from HAMP and HARP, the last thing the industry needs is paperwork delays and bureaucratic procedures, especially with social distancing and lockdowns in place.

Anyway, the payment forbearance would eliminate the possibility of foreclosure, negative credit reporting, collection calls/letters, and late fees.

In terms of qualifying for relief, borrowers would simply need to make a “statement of hardship,” with no additional validation required.

Loan servicers could also identify customers eligible for COVID-19 assistance and offer deferred payments and other forbearance options.

Even those delinquent prior to the March 13th declaration date (the date the coronavirus emergency was declared) could receive payment forbearance.

As for homeowners with jumbo loans or loans not backed by one of these agencies (portfolio mortgages), they’d likely need to inquire with their bank or loan servicer.

What Happens After the Mortgage Relief Runs Out?

Those who are able can simply return to making their mortgage payments
Those in need of more relief can receive a permanent loan modification without cost or penalty
This might include a partial claim for government home loans
And a Flex Mod for those with a conforming home loan

For some, it would be as simple as allowing homeowners to resume their previous mortgage payments, without any additional costs or penalties.

The accrued interest piece is unclear here, but freezing mortgage payments and the interest could certainly help a lot of people out. And could be argued as fair given the current situation is no one’s fault.

Those in greater need could receive an appropriate loan modification, which might vary based on the housing agency involved.

For example, a stand-alone partial claim for FHA loans and USDA loans, which is an interest-free second mortgage that includes the missed payments, due at sale or payoff.

Or a streamlined loan mod (Flex Mod) for Fannie Mae and Freddie Mac loans that brings the loan current with things like an extended term or reduced mortgage rate.

This payment relief would also be delivered without additional cost or penalty.

Tip: How is mortgage forbearance paid back?

Relief for Loan Servicers Needed to Make It All Work

At the same time, loan servicers will need relief to make it all work, especially non-depository mortgage servicers that don’t rely on cash deposits from customers like big banks.

“As background, when a borrower fails to make their monthly mortgage payment, the mortgage servicer must still pay the principal and interest to investors, as well as pay the real estate taxes, homeowners’ insurance, and mortgage insurance on their behalf.”

Loan servicers maintain liquid reserves to cover such advances, but with millions of Americans experiencing expected to see income disruption related to COVID-19, it will likely “strain and possibly overwhelm some servicers’ liquidity reserves, all of which were calculated and set aside for more ordinary times.”

The group estimated that if just 25% of the nation receives forbearance for three months, servicers will need to cover roughly $36 billion in missed payments.

That number would exceed $100 billion if this same number of homeowners were to miss nine monthly mortgage payments.

They propose a backstop liquidity source for these independent mortgage servicers, including two suggestions, one being Ginnie Mae’s Pass-Through Assistance authority, and the other the Federal Reserve’s 13(3) authority.

What About Refinances and Home Purchase Loans?

They also addressed new loan originations, which have faced some uncertainty given the closure of government offices and the limiting of face-to-face interactions.

To combat the appraisal issue, they have recommended waiving appraisals on rate and term refinances.

For other loans, they suggest a hybrid approach that uses external property review by the appraiser combined with a desktop review, along with interior photos from the real estate agent or seller.

For verification of employment, they question the reliability of employment confirmation at the moment, and for rate and term refinances, argue that being current on the loan could suffice.

The idea being to provide payment relief without the typical hoops to jump through, as a lower interest rate theoretically should reduce the probability of mortgage default.

They also note that title searches and recording deeds could be impossible unless local government offices reopen or find alternative solutions.

And are looking for solutions beyond remote closings to solve the face-to-face dilemma.

In other words, there seem to be more questions than answers, so new mortgages face some headwinds as well, even if mortgage rates are low.

Source: thetruthaboutmortgage.com

March 3, 2021

Own a Rental Property? Why Filing Your Taxes This Year Rules

My husband and I recently purchased our first rental property. Over the past few months, we’ve repaired and renovated the 1930s-era home, and are starting to look for tenants.

And it turns out, our timing couldn’t be better: The Tax Cuts and Jobs Act made several changes for rental property owners that portend a more profitable enterprise than it used to be.

“For rental property owners, [the act] will generally benefit you,” says Thomas Castelli, a New York City–based certified public accountant and tax strategist with the Real Estate CPA, a firm focusing on real estate tax.

How exactly the federal tax changes apply to individual property owners can vary, so Castelli recommends seeking out a tax professional well-versed in real estate to help sort things out. But here’s a general overview of some of the new tax rules that will most likely affect rental real estate owners—including me.

The rental house we purchased before the remodel

Erica Sweeney

The newly renovated rental, with a new roof, fresh paint, and an opened-up front porch

Erica Sweeney

Landlords can deduct a big ‘bonus’ the first year

Blame it on wear and tear or just the passage of time, but in the eyes of the IRS, rental property depreciates over time. For landlords, that’s a tax break—typically one that’s spread out over several years.

The good news? During the first year of owning a rental property, landlords can take a “bonus” depreciation deduction. In the past, that deduction maxed out at 50% of the property’s value. But under the new tax act, that deduction doubled, to a max of 100%, which could amount to the entire sum you paid for the place. In other words, it’s a huge chunk of change!

This bonus deduction would be netted against revenue, which, in many cases, would make rental income show a loss, Castelli says.

“So you won’t be paying tax on your rental income,” he says. “I’d say that’s probably the biggest and most important change or most beneficial change to rental real estate investors.”

Keep in mind, though, that your property has to qualify. One, it must be placed in service (meaning available for rent) after Sep. 27, 2017, and before Jan. 1, 2023. Two, all or part of the property must have a “class life” of less than 20 years. Since most properties typically have a class life of 27.5 years, it would need to be reclassified as a five-, seven-, and 15-year property in order to take advantage of the bonus depreciation. (A CPA can help with this.)

“Let’s say you have a property worth $100,000, and you can get 20% of that reclassified as a five-, seven- and 15-year property,” Castelli says. “That’s a $20,000 deduction.”

———

Watch: 5 Pet-Related Tax Deductions We Bet You Didn’t Know Of

———

Up to 20% of rental revenue can be tax-free

While rental income is taxed, the tax act could offer landlords a nice tax shelter of sorts where up to 20% of that rental income is tax-free.

“What that means is for every $100 of taxable rental income, it’s possible that you only pay tax on $80 worth of it,” says Amanda Han, a certified public accountant and assistant managing director at Keystone CPA, in Fullerton, CA.

How it works: Section 199A of the IRS code provides some taxpayers with a deduction for qualified business income. In the past, there was much confusion about whether this applied to landlords, but the IRS issued a clarification, providing a safe harbor for a “rental real estate enterprise” to be treated as a business.

“That is helpful for a lot of landlords, and is available as long as it’s rental income,” Han says.

Landlords can deduct more home improvements immediately

In the past, landlords could deduct repairs to a rental property immediately, but home improvements were depreciated over time. This has often caused confusion for landlords.

“What is a repair versus what’s an improvement?” Han asks. “There were always questions about that, because repairs we deduct immediately; improvements we have to depreciate.”

Yet the tax act simplified those rules. Under section 179, the IRS increased the immediate deduction threshold for home improvements to $2,500 per item. In other words, money spent on improvements under $2,500 can be deducted immediately, rather than going through the complicated depreciation process.

One negative: Some landlord losses are now capped

One new aspect that could sting rental owners relates to losses on the property. A loss occurs when a property’s expenses total more than rental income. Previously, owners of rental real estate could take unlimited losses from their rental real estate. The tax act now limits those losses to $250,000 for a single person and $500,000 for married couples, Castelli says.

The upside: Since these limits are quite high, Castelli says this change will not affect most individual rental-property owners.

How to make the tax act work for you

The tax act has been better than expected for rental property owners, Han says. “It’s a great opportunity for real estate investors.”

Good record-keeping is essential for rental owners, and Han recommends property owners keep sales closing disclosures, purchase closing disclosures, refinancing documents, and receipts for anything to do with the home for at least three years.

For more smart financial news and advice, head over to MarketWatch.

Source: realtor.com

February 26, 2021

A Guide to Property Taxes in 2021: States With the Highest (and Lowest) Rates

With tax season upon us, it seems like a good time to check what homeowners pay in property taxes—and a new survey confirms that where you live makes a huge difference in how much you’ll have to cough up.

According to researchers at WalletHub, which analyzed tax data on all 50 states and the District of Columbia, the average American household pays $2,471 on real estate property taxes. But that can vary widely. And just in case you thought the country wasn’t polarized enough already, political leanings can often be an indicator of state tax rates: “Blue states” (defined by WalletHub as how they voted in the 2020 presidential election) generally pay higher property taxes than “red states.”

As for the state with the highest property tax rate, that’s New Jersey, where residents pay a rate of 2.49%, which means that people living in a median-priced home in the area ($335,600) will pay Uncle Sam $8,362 in property tax per year.

In fact, the five states with the highest tax rates are all east of the Mississippi.

Meanwhile, people in Hawaii are blessed with the lowest real estate tax rate of 0.28%. So even though a median-priced home in the area is expensive ($615,300), homeowners end up paying only $1,715 in taxes per year. In Alabama, the state with the second-lowest tax rate (0.41%) as well as bargain-basement median home prices ($142,700), you’ll pay even lower property taxes of just $587 per year.

Curious how your state stacks up? Below are the top 10 states with the highest—and lowest—property taxes:

States with the highest property taxes

New Jersey: $8,362 (2.49%)
Illinois: $4,419 (2.27%)
New Hampshire: $5,701 ( 2.18%)
Connecticut: $5,898 (2.14%)
Vermont: $4,329 (1.90%)
Wisconsin: $3,344 (1.85%)
Texas: $3,099 (1.80%)
Nebraska: $2,689 (1.73%)
New York: $5,407 (1.72%)
Rhode Island: $4,272 (1.63%)

States with the lowest property taxes

Hawaii: $1,715 (0.28%)
Alabama: $587 (0.41%)
Colorado: $1,756 (0.51%)
Louisiana: $890 (0.55%)
District of Columbia: $3,378 (0.56%)
South Carolina: $924 (0.57%)
Delaware: $1,431 (0.57%)
West Virginia: $698 (0.58%)
Nevada: $1,614 (0.60%)
Wyoming: $1,337 (0.61%)

Why are my property taxes so high—or low?

While property taxes may be high in some states, lower home prices may offset this tax burden. For example, Illinois—which has the second-highest tax rate, at 2.27%—has a low median home price of only $194,500, resulting in annual property taxes hovering around $4,419. That’s less than you’d pay in other states with lower tax rates (like New Hampshire and Connecticut).

So what can you do if you live in a state with high tax rates and high home prices?

“Unfortunately, living in the Northeast has become a very expensive proposition if you want to own properties,” says Ralph DiBugnara, president of Home Qualified and senior vice president at Cardinal Financial. “But homeowners should be aware of what they can write off when it comes to homeownership, especially in these high-tax areas.”

In other words, in high-tax-rate states with pricy properties, the good news is that you are allowed to write off (or deduct) up to $10,000 of your property taxes. Just remember that this may not cover all of your property taxes; it depends on how much your home is worth.

“If your home is worth $500,000 or below, you should be able to write off all of your property taxes,” says DiBugnara. “But if your home value is above $500,000 and in a state with tax rates around 2%, most of the time this is not enough of a write-off to cover all of your property taxes.”

This problem is typical in Northeast states. Still, any write-off is better than none, right?

To help with your overall tax bill, you can also write off mortgage interest as a tax deduction for a balance of up to $750,000. And if you buy or sell a home in a tax year, in most cases you will be able to write off transfer taxes—local or state taxes charged in any real estate transaction.

Green energy sources for homes that are powered by solar are also tax-deductible. You also have the right to appeal the amount of your property taxes if you think the assessed value of your home is too high.

Also weigh what your property taxes go toward when deciding where you want to live.

“People should definitely consider property taxes when they move, alongside information about the local services that those property taxes pay for,” says Stephanie Leiser, lecturer in public policy at the Ford School at the University of Michigan. “They should consider the ‘value for the dollar’ they would get from paying property taxes.”

For example, in some communities, services like trash pickup will be covered by property taxes, while in others, there will be a separate fee.

“It’s also important to keep the overall tax picture in mind when deciding where to move,” adds Leiser. “Low property taxes may sound great, but they may be offset by higher local sales taxes or other taxes and fees.”

Source: realtor.com

February 23, 2021

Best Tax Software of 2021: TurboTax vs. HR Block vs. TaxAct

It’s many people’s least favorite time of year: tax season.

Between frantically searching for your tax forms, organizing your receipts, figuring out how much it’ll cost you to file and trying to remember the most recent updates to the tax code, tax season can be stressful … to say the least.

Thankfully, some smart software companies have made the process way easier — and, in some cases, even free.

Even the tax pros themselves are getting on board.

“I actually informally started my own tax practice using TurboTax to prepare people’s returns from my kitchen table,” said Ben Rugg, CPA.

So you can rest assured your taxes are in good hands with online tax filing services — and save yourself a boatload of money and stress.

Best Tax Software 2021: At a Glance

The three best online tax programs with paid plans are undoubtedly TurboTax, H&R Block and TaxAct. Here’s a quick look at how they stack up.

Note: The prices below are accurate as of Jan. 27, 2021 but may fluctuate throughout tax season.

Each of these three tax prep services offers a similar suite of options that are split among their free and paid tiers. The details and prices vary among them, so take a look at the features that are important to you to see which product is the right fit.

Tax Software Features, Compared

Free Editions

Each tax preparation service includes a free option for basic filers. What each covers varies, so which is best for you depends on how complex your tax situation is.

H&R Block: H&R Block’s most basic online version covers earners whose wages come entirely from W-2 income, and also includes deductions for student loan interest and child tax credits.

TurboTax: The TurboTax Free Edition covers W-2 income, the Earned Income Tax Credit (EIC) and child tax credits.

TaxAct: This tier covers W-2 income; and tax breaks for dependent deductions, Earned Income Tax Credit (EITC) and other child tax credits, student loans and education expenses for current students, and retirement income.

Support for Complicated Returns

Each service offers almost identical paid tiers for more complicated tax returns: a “Deluxe” and a “Premier” or “Premium” tier.

These tiers help you prepare your taxes when you have additional deductions and credits to claim, or you have income from anywhere other than an employer.

H&R Block: Deluxe covers additional deductions related to things like home ownership, charitable donations and Health Savings Accounts (HSAs). You’ll need Premium to cover income from freelancing, contract work, investments or real estate.

TurboTax: Deluxe covers mortgage and property tax deductions, charitable donations, student loan interest, education expenses and 1099-MISC income from freelancing or contract work. Premier covers investment and rental property income, and refinancing deductions.

TaxAct: TaxAct Deluxe is more comprehensive than the others; it covers itemized deductions, mortgage interest, real estate taxes, student loan interest, Health Savings Accounts (HSAs) and adoption credits. Premier adds options for investors, people earning royalties or K-1 income, rental property owners and foreign bank account holders.

A person sips coffee while filing their taxes. — Aileen Perilla/The Penny Hoarder

Self-Employment Support

Each service includes support for self-employment income in less expensive tiers.

But if the majority of your income comes from self-employment of any kind — as a freelancer, independent contractor or small business owner — you’ll benefit from tax prep support specifically tailored for self-employment and small business owners.

These versions are the most expensive of the basic online filing options, but they cost significantly less than paying an individual accountant to prepare your taxes. They’re a budget-friendly way to tackle your complicated paperwork and ensure you don’t miss out on vital tax breaks.

All three services provide the same basic support for self-employed filers, but here are some highlights that could help you choose:

H&R Block: An interview-style process walks you through industry-specific expenses and deductions you might miss on your own, and you’ll have access to tools covering asset depreciation.

TurboTax: Get a host of perks designed specifically for freelancers, including deductions for your line of work, ability to import your 1099-MISC with a photo, free access to Quickbooks Self Employed and access to a year-round tax estimator after filing.

TaxAct: Gain the ability to calculate personalized business deductions, calculate depreciation and access year-round planning resources.

Live Tax Assistance

All three companies offer tax help from real, live tax professionals — and this option is where they differ the most. Pay attention to these options if live tax support is important to you!

H&R Block: This is the only of the three that runs brick-and-mortar locations, where you can meet with a tax pro face-to-face. It also lets you upload documents online or drop off paperwork to let them prepare everything for you. Like the others, H&R Block also offers online assistance; you can pay an additional fee to get on-demand access from a tax professional while you prepare your returns through the DIY software.

TurboTax: In place of the DIY products, you can purchase TurboTax Live in similar tiers for on-demand answers to your questions and a line-by-line review of your returns by a CPA or EA.

TaxAct: TaxAct builds live assistance into its tiers. You can’t get it with the free version. Deluxe includes live phone support. Premier and Self-Employed include live phone support plus screen sharing.

Audit Assistance

H&R Block or TurboTax should be your go-to services if you’re concerned about a complicated tax audit. TaxAct doesn’t provide audit support for most customers.

H&R Block: The company’s Peace of Mind Extended Service Plan lets you take in any notification from the IRS to figure out what it means and get access to representation by an H&R Block enrolled agent if you need it.

TurboTax: Through its Audit Support Center, TurboTax customers get access to live, one-on-one guidance online in case of an audit.

TaxAct: TaxAct does NOT provide audit support itself. It gives TaxAct Professional users (tax pros filing taxes for clients) access to third-party service Protection Plus Audit Defense.

A cat is photographed with the H &R Block app on the phone right next to the cat. — Tina Russell/The Penny Hoarder

Mobile Apps

H&R Block, TurboTax and TaxAct all have mobile apps available for both iOS and Android. All three offer comparable functionality, though TaxAct’s apps are rated a little lower in their respective app stores than the other two.

Refund Advance

Need money now? H&R Block and TurboTax both offer a tax refund advance, while TaxAct does not. An advance from H&R Block will cost you a lot more than one from TurboTax.

H&R Block: The Emerald Advance line of advance credit to put up to $1,000 of your tax refund in your pocket before you file through a Mastercard debit card with a $45 annual fee and 36% interest rate.

TurboTax: The service offers an advance up to $3,000 (typically around 50%) of your expected federal tax refund with 0% interest and $0 loan fees. Eligible customers get access to funds within a few hours via Visa debit card.

TaxAct: TaxAct doesn’t offer a tax refund advance.

Pay with Your Refund

All three services let you use your tax refund to pay for product and filing fees, so you never see an out-of-pocket cost for your tax preparation. The competition is in the fees.

H&R Block: $39.

TurboTax: $39.99.

TaxAct: $17.99 if you’re receiving your refund by direct deposit or $9.99 if you’re receiving it on a PayPower reloadable debit card.

Guarantees

The companies offer different levels of peace of mind for using their products.

H&R Block: If there’s an error in your tax return, H&R Block will reimburse you for up to $6,000 in additional taxes owed due to its mistake.
TurboTax: If you tally up a larger refund (or similar tax liability) with another tax preparation service, TurboTax will refund your fee (or pay you $30 if you used the Free edition).
TaxAct: If there’s an error on your tax return, TaxAct will reimburse you for up to $100,000 in additional taxes owed dues to its mistake, plus refund your TaxAct fees. If you’re not totally satisfied with TaxAct for any reason, you can discontinue using it before completing your return and paying the fee.

Fees

To prepare and file your taxes online with each service, you’ll pay a product fee, filing fees for state returns, and — depending on the company — fees for live tax professional assistance.

Here’s how they compare.

Alternatively, you can download tax preparation software from each company, so you can save your tax information on your own computer. Software products are tiered similar to online tiers and include a one-time download fee and filing fees.

H&R Block vs. TurboTax vs. TaxAct: Which Is Best for You?

Any of these popular, tested tax preparation services are a good fit for you if you want to DIY your tax returns this year and file online — with added assurance from software or tax pros that you’re doing everything right.

Here are a few standout differences among H&R Block, TurboTax and TaxAct that might help you pick the best product for your situation.

H&R Block is best for you if…

You want access to in-person tax pros. H&R Block is the only of these three services that runs brick-and-mortar offices where you can work with tax pros face-to-face.

You’re concerned about a complicated audit. Both TurboTax and H&R Block provide audit assistance, but H&R Block’s service offers a better user experience and is available in-person — which could be comforting in a stressful situation.

You own a small business. All three services provide ample support for self-employed filers, but H&R Block has the most robust suite of services for year-round tax support.

Woman sits a table doing taxes. — Aileen Perilla/ The Penny Hoarder

TurboTax is best for you if…

You want live, online help. TurboTax offers online assistance with tax pros comparable to H&R Block’s service at a lower price, and Free filers get free online assistance.

You want to guarantee the biggest refund. TurboTax’s Maximum Refund Guarantee promises to refund your fees if you find a better refund with a different service.

You’re a freelancer. TurboTax’s self-employed editions offers some of the most user-friendly and robust assistance specifically designed for freelancers and independent contractors.

You need a refund advance. Eligible customers get access to a larger advance at no added cost, compared with a smaller advance for an annual fee and interest charges at H&R Block.

TaxAct is best for you if…

You’re shopping for the lowest cost. TaxAct beats its competitors significantly on price at every tier and provides live assistance from a tax professional at no additional cost.

You’re concerned about accuracy. Every tax service comes with an accuracy guarantee, but TaxAct offers one of the highest reimbursement levels at $100,000.

6 Ways to Get Free Tax Filing & Prep Assistance

In addition to these top options for affordable online filing, you can find tons of free ways to file simple returns online for free.

1. IRS Free File

You can always file your federal taxes for free-free, if you’re eligible, through the IRS Free File portal. This service is available to filers who earned $72,000 or less (in 2020), and the page also links to free fillable forms for earners at all levels.

The IRS doesn’t directly provide this service, but it partners with 13 tax preparation companies — like H&R Block and Jackson Hewitt — to facilitate your process.

2. United Way MyFreeTaxes

If you made less than $66,000 in 2019*, take advantage of United Way’s MyFreeTaxes program to file federal and state taxes online for free.

The site notes that 100 million Americans qualify for this free filing option, powered by H&R Block.

*Information for tax year 2020 wasn’t available as of this writing, but we suspect it’ll continue to be in line with the IRS Free File requirement of $72,000.

3. TaxSlayer

If a 1040EZ is all you need to file, TaxSlayer will help you do it online for free. The Simply Free edition offers a deduction finder, and you can add your state returns at no charge.

Active duty military members can file a federal return for free, regardless of your tax situation.

4. EFile

EFile offers free basic federal filing and advises this option if you’re single or married and filing jointly with no dependents. You can get 50% off the state filing fee with the promo code “50eFile.com.”

5. Volunteer Income Tax Assistance Program (VITA)

Get help with basic tax prep from an IRS volunteer through the Volunteer Tax Assistance Program (VITA) and Tax Counseling for the Elderly (TCE) programs. VITA assistance is available to:

People who “generally make $57,000 or less” (for tax year 2020).
People with disabilities.
Limited English-speaking filers.

TCE assistance is available for filers over age 60, and volunteers specialize in questions about pensions and retirement-related issues.

All volunteers are certified by the IRS and many have professional backgrounds in accounting and finance.

6. Credit Karma Tax

Credit Karma provides free federal and state tax filing for the most common tax forms, including those for more complex tax situations, like business income (Schedule C) and itemizing deductions (Schedule A).

Plus, when you create an account to use Credit Karma Tax, you’ll also get access to Credit Karma’s other free services, including a look at your credit scores from TransUnion and Equifax, details from your credit reports and credit score monitoring.

A professional helps two people prepare their taxes. — Getty Images

Should You Do Your Own Taxes or Hire a Tax Pro?

So you can file your own taxes from the comfort of your home… but should you?

Rugg told us that some circumstances add new levels of tax considerations you might miss if you don’t bring in a professional eye.

“There are five situations where taxpayers should consider using a professional — when they get married, when they buy a home, when they have a child, when they have investments and/or when they are self-employed,” he said.

One of these events might trigger you to work with a tax pro every year after. Or you might just want to bring in help for the tax year when the change happens so you can get a better understanding of your situation, the forms you’ll need; and the deductions, credits and additional tax liabilities you should know about.

You probably don’t need to work with a tax expert if you’re a single W-2 employee with no dependents or property. You should be able to easily find free a tax software/platform, instead of paying for guidance from a real person or pricy software.

We hope with the best online tax preparation software at hand, April 15 doesn’t seem so ominous anymore.

Just don’t wait until April 14 to file your taxes, and you’ll be fine.

Dana Sitar (@danasitar) has been writing and editing since 2011, covering personal finance, careers and digital media.

Source: thepennyhoarder.com

February 22, 2021

How Much Is Capital Gains Tax on Real Estate? Plus: How To Avoid It

Capital gains tax is the income tax you pay on gains from selling capital assets—including real estate. So if you have sold or are selling a house, what does this mean for you?

If you sell your home for more than what you paid for it, that’s good news. The downside, however, is that you probably have a capital gain. And you may have to pay taxes on your capital gain in the form of capital gains tax.

Just as you pay income tax and sales tax, gains from your home sale are subject to taxation.

Complicating matters is the Tax Cuts and Jobs Act, which took effect in 2018 and changed the rules somewhat. Here’s what you need to know about all things capital gains.

What is capital gains tax—and who pays it?

In a nutshell, capital gains tax is a tax levied on possessions and property—including your home—that you sell for a profit.

If you sell it in one year or less, you have a short-term capital gain.

If you sell the home after you hold it for longer than one year, you have a long-term capital gain. Unlike short-term gains, long-term gains are subject to preferential capital gains tax rates.

What about the primary residence tax exemption?

Unlike other investments, home sale profits benefit from capital gains exemptions that you might qualify for under some conditions, says Kyle White, an agent with Re/Max Advantage Plus in Minneapolis–St. Paul.

The IRS gives each person, no matter how much that person earns, a $250,000 tax-free exemption on capital gains from a primary residence. You can exclude this capital gain from your income permanently.

“So if you and your spouse buy your home for $100,000, and years later sell for up to $600,000, you won’t owe any capital gains tax,” says New York attorney Anthony S. Park. However, you do have to meet specific requirements to claim this capital gains exemption:

The home must be your primary residence.
You must have owned it for at least two years.
You must have lived in it for at least two of the past five years.
You cannot have taken this exclusion in the past two years.

If you don’t meet all of these requirements, you may be able to take a partial exclusion for capital gains tax if you meet certain exceptions (e.g., if your job forces you to move before you live in the home two years). For more information, consult a tax adviser or IRS Publication 523.

What’s my capital gains tax rate?

For capital gains over that $250,000-per-person exemption, just how much tax will Uncle Sam take out of your long-term real estate sale? Under the new tax law, long-term capital gains tax rates are based on your income (pre-2018 it was based on tax brackets), explains Park.

Let’s break it down.

For single folks, you can benefit from the 0% capital gains rate if you have an income below $40,000 in 2020. Most single people will fall into the 15% capital gains rate, which applies to incomes between $40,001 and $441,500. Single filers with incomes more than $441,500, will get hit with a 20% long-term capital gains rate.

The brackets are a little bigger for married couples filing jointly, but most will get hit with the marriage tax penalty here. Married couples with incomes of $80,000 or less remain in the 0% bracket, which is great news. However, married couples who earn between $80,001 and $496,600 will have a capital gains rate of 15%. Those with incomes above $496,600 will find themselves getting hit with a 20% long-term capital gains rate.

Your tax rate is 0% on long-term capital gains if you’re a single filer earning less than $40,000, married filing jointly earning less than $80,000, or head of household earning less than $53,600.
Your tax rate is 15% on long-term capital gains if you’re a single filer earning between $40,000 and $441,500, married filing jointly earning between $80,001 and $486,600, or head of household earning between $53,601 and $469,050.
Your tax rate is 20% on long-term capital gains if you’re a single filer, married filing jointly, or head of household earning more than $496,600. For those earning above $496,600, the rate tops out at 20%, says Park.

Don’t forget, your state may have its own tax on income from capital gains. And very high-income taxpayers may pay a higher effective tax rate because of an additional 3.8% net investment income tax.

If you held the property for one year or less, it’s a short-term gain. You pay ordinary income tax rates on your short-term capital gains. That’s the same income tax rates you would pay on other ordinary income such as wages.

Do home improvements reduce tax on capital gains?

You can also reduce the amount of capital gains subject to capital gains tax by the cost of home improvements you’ve made. You can add the amount of money you spent on any home improvements—such as replacing the roof, building a deck, replacing the flooring, or finishing a basement—to the initial price of your home to give you the adjusted cost basis. The higher your adjusted cost basis, the lower your capital gain when you sell the home.

For example: if you purchased your home for $200,000 in 1990 and sold it for $550,000, but over the past three decades have spent $100,000 on home improvements. That $100,000 would be subtracted from the sales price of your home this year. Instead of owing capital gains taxes on the $350,000 profit from the sale, you would owe taxes on $250,000. In that case, you’d meet the requirements for a capital gains tax exclusion and owe nothing.

Take-home lesson: Make sure to save receipts of any renovations, since they can help reduce your taxable income when you sell your home. However, keep in mind that these must be home improvements. You can’t take a deduction from income for ordinary repairs and maintenance on your house.

How the tax on capital gains works for inherited homes

What if you’re selling a home you’ve inherited from family members who’ve died? The IRS also gives a “free step-up in basis” when you inherit a family house. But what does that mean?

Let’s say Mom and Dad bought the family home years ago for $100,000, and it’s worth $1 million when it’s left to you. When you sell, your purchase price (or “basis”) is not the $100,000 your folks paid, but instead the $1 million it’s worth on the last parent’s date of death.

You pay capital gains tax only on the difference between what you sell the house for, and the amount it was worth when your last parent died.

What if I have a loss from selling real estate?

If you sell your personal residence for less money than you paid for it, you can’t take a deduction for the capital loss. It’s considered to be a personal loss, and a capital loss from the sale of your residence does not reduce your income subject to tax.

If you sell other real estate at a loss, however, you can take a tax loss on your income tax return. The amount of loss you can use to offset other taxable income in one year may be limited.

How to avoid capital gains tax as a real estate investor

If the home you’re selling is not your primary residence but rather an investment property you’ve flipped or rented out, avoiding capital gains tax is a bit more complicated. But it’s still possible. The best way to avoid a capital gains tax if you’re an investor is by swapping “like-kind” properties with a 1031 exchange. This allows you to sell your property and buy another one without recognizing any potential gain in the tax year of sale.

“In essence, you’re swapping one investment asset for another,” says Re/Max Advantage Plus’ White. He cautions, however, that there are very strict rules regarding timelines and guidelines with this transaction, so be sure to check them with an accountant.

If you’re opting out of the rental property investment business and putting your money in another venture that does not qualify for the 1031 exchange, then you’ll owe the capital gains tax on the profit.

For more smart financial news and advice, head over to MarketWatch.

Source: realtor.com

1. Banking

Credit Cards

Bank Accounts

E-Statements and Auto-Pay

2. Taxes

3. Budget

4. Retirement

5. Legacy Planning

Wills

Power of Attorney

Life Insurance

How a Uniform Mortgage Relief Program Could Work

What Happens After the Mortgage Relief Runs Out?

Relief for Loan Servicers Needed to Make It All Work

What About Refinances and Home Purchase Loans?

Related Articles

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Up to 20% of rental revenue can be tax-free

Landlords can deduct more home improvements immediately

One negative: Some landlord losses are now capped

How to make the tax act work for you

States with the highest property taxes

States with the lowest property taxes

Why are my property taxes so high—or low?

Best Tax Software 2021: At a Glance

Tax Software Features, Compared

Free Editions

Support for Complicated Returns

Self-Employment Support

Live Tax Assistance

Audit Assistance

Mobile Apps

Refund Advance

Pay with Your Refund

Guarantees

Fees

H&R Block vs. TurboTax vs. TaxAct: Which Is Best for You?

H&R Block is best for you if…

TurboTax is best for you if…

TaxAct is best for you if…

6 Ways to Get Free Tax Filing & Prep Assistance

1. IRS Free File

2. United Way MyFreeTaxes

3. TaxSlayer

4. EFile

5. Volunteer Income Tax Assistance Program (VITA)

6. Credit Karma Tax

Should You Do Your Own Taxes or Hire a Tax Pro?

Related Articles

What is capital gains tax—and who pays it?

What about the primary residence tax exemption?

What’s my capital gains tax rate?

Do home improvements reduce tax on capital gains?

How the tax on capital gains works for inherited homes

What if I have a loss from selling real estate?

How to avoid capital gains tax as a real estate investor