Taxes Archives - Page 4 of 5 - Metro Atlanta Homes

Selling Your Atlanta Home After Making Improvements

If you’re selling your Atlanta home after you’ve made substantial improvements, known as capital improvements, the money you spent on those improvements could help lower your tax bill when you sell.

Atlanta home improvements can save you on your tax bill when you sell your home. Tax rules let you add capital improvement expenses to the cost basis of your�Atlanta home. Why is that a big deal? Because a higher cost basis lowers the total profit, or capital gain, in IRS-speak�you’re required to pay taxes on.

The tax break doesn’t affect everyone. Most home owners are exempted from paying taxes on the first $250,000 of profit for single filers ($500,000 for joint filers). If you move frequently, maybe it’s not worth the effort to keep up with your capital improvement expenses. But if you plan to live in your house a long time or make lots of upgrades, saving receipts is a smart move.

How Improvements Can Affect Your Atlanta Home Cost Basis

To figure out how improvements affect your tax bill, you first have to know your cost basis. The cost basis is the amount of money you spent to buy or build your Atlanta home including all the costs you paid at the closing: fees to lawyers, survey charges, transfer taxes, and home inspection, to name just a few. You should be able to find all those costs on the settlement statement you received at your closing, also known as your HUD-1 Statement.

Next, you need to account for any subsequent capital improvements you made to your Atlanta home. Let’s say you bought your home for $300,000 including all closing costs. That’s the initial cost basis. You then spent $25,000 to remodel your kitchen. Add those together and you get an adjusted cost basis of $325,000.

If you lived in your home as your main residence for at least two out of the last five years, any profit you make on the sale will be taxed as a long-term capital gain. You sell your Atlanta home for $575,000. That means you have a capital gain of $250,000 (the $575,000 sale price minus the $325,000 cost basis). You’re single, so you get an automatic exemption for the $250,000 profit. End of story.

Had you not factored in the money you spent on the kitchen remodel, you’d be facing a tax bill for that $25,000 gain that exceeded the automatic exemption. By keeping receipts and adjusting your basis, you saved about $5,000 in taxes based on the 15% tax rate on capital gains. Well worth taking an hour a month to organize your home-improvement receipts, wouldn’t you say?

This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice.

When to Expect Your Tax Refund

With tax season upon us again, many people are wondering when they might expect to receive their tax refund.

Some people believe that getting a large tax refund is not as desirable as more accurate withholding throughout the year, as a large refund represents a loan paid back by the government interest-free. Optimally, a return should result in a payment owed of just less than would cause a penalty charge, which is 100% of the prior year’s tax (110% for high income individuals), 90% of the current year’s tax, or $1,000 for individuals who have direct withholding and do not pay estimated tax.

However, some people use the tax refund as a simple “savings plan” to get money back each year (even though it is excess money that they paid earlier in the year). Another argument is that it is better to get a tax refund rather than to owe money, because in the latter case one might find oneself without sufficient money in their checking account to make the necessary payment. When properly filled out, the Form W-4 will withhold approximately the correct amount of tax to eliminate a refund or amount owed, assuming the W-4 was filled out at the beginning of the tax year.

If you’re one of the lucky ones expecting to get a tax refund this year, here’s some news about when you can expect to get that tax refund after you file your taxes…

For more information on tax refunds and other tax related information, just click over to the Taxes Category under Atlanta Real Estate Categories to the right.

Forgiven Atlanta Mortgage Debt Remains Untaxed for Another Year

Atlanta mortgage debt remains untaxed for another year. With all the talk about the “Fiscal Cliff” approved by Congress at the 13th hour, little attention was given to a key part of the extension that prevents distressed�Atlanta homeowners from being taxed on forgiven mortgage debt.

The exception for “qualified principal residence indebtedness” was created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners whose mortgages have been restructured to prevent foreclosures, or those who have gone through “short sales,” selling their homes for less than what is owed in mortgages.

The exception allows homeowners to exclude from their income certain cancelled debt on their principal residence.

The relief act’s extension was seen as vital to the recovering housing market. Short sales nationwide had been surging in anticipation of the exception’s end on Dec. 31. The exception will now expire on Dec. 31, 2013.

Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable.

The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if married filing separately for the tax year), at the time the loan was forgiven.

The amount of debt forgiven must be reported on Form 982 and this form must be attached to your tax return.

RealtyTrac reports that a total of 193,059 U.S. properties in some stage of foreclosure or bank-owned (REO) were sold during the third quarter of 2012, an increase of 21 percent from the previous quarter, but down 3 percent from the third quarter of 2011.

For continuous updates on how new or extended legislation surrounding the “Fiscal Cliff” deal finally approved by Congress could affect your Atlanta mortgage debt or taxes, stay tuned to our site. We’ll bring you updates from time to time as they become relevant to Atlanta real estate or Atlanta mortgage debts or rates.

Atlanta Home Values Could Be Affected By Limiting Tax Deductions

Limiting real estate tax deductions could definitely affect Atlanta home values, and it’s an issue you’re likely to hear more about as Congress and the Obama administration continue negotiations on the comprehensive tax reform that could send the economy over the “fiscal cliff.”

What Could Happen to Atlanta Home Values?

Any significant reductions in these long-established tax benefits would inevitably trigger declines in Atlanta home values. Under some circumstances, they could be well into the double digits � 15%, according to Lawrence Yun, chief economist of the National Association of Realtors. “That’s how much we can expect values to fall as buyers discount the value of the deduction in their purchase offers,” according to Yun.

Cutting back on real estate write-offs could make homes less attractive financially, but other potential features of a final tax compromise could counteract the loss of deductions, softening the net impact on values. Plus no one on Capitol Hill is talking at the moment about eliminating the mortgage interest or property tax write-offs, just capping them in some way for higher-income individuals.

But would limiting real estate deductions necessarily lead to lower Atlanta home values? A 1995 study by the consulting firm Data Resources Inc. estimated that a consumption-based “flat tax” that repealed all deductions would lead to a 15% aggregate decline in home values, costing owners $1.7 trillion in equity holdings.

More recently, a 2010 study for the Tax Policy Center of the Brookings Institution and the Urban Institute sought to model the effects of Obama’s tax reform proposals for fiscal 2011 � limiting mortgage interest and property tax deductions to the 28% bracket level, and the simultaneous increase in the highest-income tax brackets back to the levels existing before 2001.

In one scenario, when taxpayers in the 33% bracket had their mortgage interest deductions limited to 28%, with no other tax changes, housing values dropped 6.9% to 15%, according to the study. The restrictions would have the heaviest effects on houses in areas of the country with relatively high local tax rates and where the costs of renting a home or apartment are favorable when compared with the costs of purchasing.

The reference to “certain assumptions” is key here. Nobody knows what shape tax reform � if it occurs in 2013 � will take: How drastically Atlanta home values could be pared back, how long a transition period would be provided and what other elements in the final deal might serve to cushion the effect on homes, such as by spurring more vigorous economic growth, lower federal deficits and debt.

But for a segment of the economy such as Atlanta home values, where asset values are tied in part to long-standing tax subsidies, almost any change that reduces those benefits appears likely to have at least a mildly negative effect on pricing. That is what is now in play on Capitol Hill.

Stay tuned to our site. We’ll keep you up to date on Atlanta home values, and how they may be affected by any tax reform that Congress may enact.

Property Taxes When Buying a Atlanta Home

One might think that when you buy a Atlanta home, your property taxes will be what the previous owner paid, right? WRONG!

When buying a Atlanta home, your taxes will most likely be higher than what the seller of that house was paying.

Why Taxes May Be Higher on Your New�Atlanta Home:

Property taxes when buying a home When you buy a Atlanta home, your new taxes will be based on the sales price. It’s common sense if you think about it. The sellers of the property probably paid a lot less for the house than you just did whenever they bought it (unless they bought it a year or two ago). Their taxes were based on that price, plus whatever the legally allowable annual raises in taxes were.

Once the city/county assessors office gets the paperwork on the new sales price of your home, the taxable value is adjusted and your taxes will likely go up.

Don’t rely on the current taxes advertised on a house to set your budget. Know what your taxes will be after you buy and you’ll be all set. How do you do that?

Try going to Google or Bing and finding your city or state’s property tax estimator. Try searching for “Atlanta estimated property taxes.” If that doesn’t get you any results, try to search for a more specific query such as “Atlanta estimated property tax” or “Atlanta property tax estimator.” Keep trying, you’ll find it eventually.

Finding the correct property taxes you’ll be paying when you move into your new Atlanta home is important. If all else fails, call the local Atlanta assessor’s office and ask what your taxes will be based on the value you’re buying your home for.

If you’re our client and we’re helping you find the perfect Atlanta home, we’ll assist you in determining what your new property tax rate will be. Just ask us. The last thing we want for you is to have budget shock when you get a property tax bill that is much higher than what you may see listed for taxes for a particular property.

Tax Benefits of Owning Atlanta Real Estate

While there are many advantages to owning Atlanta real estate, Tax Benefits of owning real estate the tax benefits are some of the most important to consider. For decades, the Federal Government has incentivized homeownership through tax benefits that are not available to renters. These benefits not only help reduce the homeownership costs, but also the costs of buying and selling a home. In order for a homeowner to take full advantage of most benefits, you must itemize your taxes.

1) Mortgage Interest Deduction

The mortgage interest deduction (MID) is easily one of the best tax benefits available to homeowners. After searching, finding, and purchasing Atlanta real estate for sale, a new homeowner is able to deduct all the interest paid on their mortgage payments. For the first few years of the loan, interest tends to be the largest component of the mortgage payment. Because of this, the MID is a very beneficial tax advantage to homeowners.

2) Property Tax Deduction

For income tax purposes, it’s possible to fully deduct the real estate property taxes paid on a first home. By taking advantage of these property tax deductions, a homeowner can effectively reduce their total tax burden. To learn more, check out Schedule A (Form 1040), line 6.

3) Capital Gains Exclusion

When considering Atlanta real estate, it’s important for a buyer to develop a long-term plan that includes the capital gains exclusion. So long as a homeowner has lived in their home for two of the last five years, they can take advantage of the exclusion. Individuals can exclude up to $250,000, whereas couples can exclude up to $500,000. It’s possible to claim the exclusion once every 2 years.

Ultimately, there are a lot of tax advantages and benefits available to homeowners — the tricky part is finding them. For those who wish to learn more about these tax advantages and others, seek out a certified public accountant (CPA) or tax attorney to assess all the available options.

If you’re wanting to take advantage of the tax benefits of owning Atlanta real estate in 2012, you’ll need to close on your home before December 31st. With the amount of time it’s taking many lenders to approve and close on a mortgage these days, the sand is seeping out of the hourglass for you to purchase and close in this calendar year.

Atlanta Mortgage Tax Deductions At Risk

Atlanta mortgage tax deductions could be going away, all thanks to Congress’s new federal debt ceiling plan.

mortgage tax deductions The compromise legislation created an unusual mechanism � an evenly split, 12-member bipartisan supercommittee � that could call for major cutbacks on real estate write-offs by Thanksgiving. All it will take is a single vote by a lone senator or House member who breaks with his or her party to put the mortgage interest deduction into serious play.

The legislation signed by the president Aug. 2 calls for a two-step increase in the federal debt ceiling plus spending cuts of about $917 billion. It also created the Joint Select Committee on Deficit Reduction to slash an additional $1.5 trillion from the deficit over the coming decade.

The committee is required to vote on a plan to achieve these objectives by Nov. 23, using revenue increases, spending cuts or a combination. If the committee members cannot agree on a plan, or if either chamber of Congress votes it down, automatic and severe spending cuts of $1.5 trillion will be imposed equally on the Department of Defense and domestic programs including Medicare provider payments.

After decades of being considered politically protected, why are Atlanta mortgage write-offs suddenly on the chopping block? Sheer size is the No. 1 reason. The congressional Joint Committee on Taxation estimates that the home mortgage interest deduction will cost the federal government $100 billion during fiscal 2011 and $107.3 billion in 2012. Between 2008 and 2012, the cumulative write-offs for mortgage interest are projected to total just under half a trillion dollars.

Defenders of the write-offs argue that high levels of homeownership are essential to economic growth and social stability and fully justify the tax system preferences they receive. National opinion polls regularly find widespread support for the write-offs, even among renters.

Critics, on the other hand, consider the write-offs inherently unfair, saying they’re skewed to benefit upper-income owners disproportionately.

Where is all this headed? Atlanta mortgage write-offs could be in greater political jeopardy in the next three months than they’ve been at any time in the past 25 years. Stay tuned to our blog and we’ll keep you updated on where all of this may shake out, and just how it may affect your Atlanta mortgage write-offs.

Most Atlanta Second Homes Will Escape New Tax

Owners of most Atlanta second homes will not be affected by the new 3.8 percent tax on some investment income that will take effect in January 2013. The new tax will hit those taxpayers with adjusted gross incomes over $200,000 a year ($250,000 for married couples filing jointly).

Adjusted gross income is the number at the bottom of the front page of Form 1040. It includes dividends, interest capital gains, wages and retirement income, plus results from partnerships and small businesses. It does not include itemized deductions such as mortgage interest and charitable gifts or personal exemptions.

Most second homes will escape new tax The new tax was passed by Congress in 2010 with the intent of generating an estimated $210 billion to help fund President Obama’s health care and Medicare plans. It was recently upheld in a controversial ruling by the Supreme Court.

Atlanta second homes that are not rented out and used only as a second residence have always been subject to capital gains tax on any gain. Also, gain is a net number. It is not simply the difference between the original purchase price and the eventual sales price. Homeowners can subtract real estate commissions, excise tax, and capital improvements before arriving at a net figure for capital gains purposes. If the home is not rented out and thus not an “investment property,” it is ineligible for a tax-deferred exchange.

A person’s primary residence still retains its favored status — even for those who have high incomes. The new “Medicare” tax still won’t apply to the first $250,000 on profits from the sale of a personal residence — or to the first $500,000 in the case of a married couple selling their home. The entire exemption on the sale of a primary residence remains intact and can be claimed every two years.

Unless you have significant income ($200,000, or $250,000 for married couples filing jointly), you, along with 97 percent of the U.S. population, will pay no additional tax on a Atlanta second home in 2013.

Real Estate Surtax If You Sell Your Atlanta Home in 2013?

Real Estate Surtax Won’t Affect Many�Atlanta Home Sellers

Real Estate Surtax If You Sell Your Home in 2013? When the U.S. Supreme Court upheld the health-care law in June, it rekindled an issue that had been relatively quiet for the past year: A 3.8 percent “real estate tax” on�Atlanta home sales beginning in 2013 that is said to be buried away in the legislation.

With major portions of the law scheduled to take effect less than six months from now, questions are being raised again: Is there really a 3.8 percent transfer tax on real estate coming in 2013? Does it preempt the existing capital gains exclusions for Atlanta home sellers, as some have claimed?

Yes, upper-income individuals face a new 3.8 percent surtax that takes effect Jan. 1 on certain investment income, including some of their real estate transactions. But it’s not a transfer tax and it’s not likely to affect the vast majority of homeowners who sell their primary residences next year.

How The Surtax Could Affect You Selling Your Atlanta Home Next Year:

The National Association of Realtors’ tax staff provides this example of how the 3.8 percent levy might affect you next year:

Say you and your spouse have adjustable gross income (AGI) of $325,000 and you sell your home at a $525,000 profit. Assuming you qualify, $500,000 of that gain is wiped off the slate for tax purposes. The $25,000 additional gain qualifies as net investment income under the health-care law, giving you a revised AGI of $350,000. Since the law imposes the 3.8 percent surtax on the lesser of either the amount that your revised AGI exceeds the $250,000 threshold for joint filers ($100,000 in this case) or the amount of your taxable gain ($25,000), you end up owing a surtax of $950 ($25,000 times .038).

The 3.8 percent levy can be confusing, and it can bite deeper when your taxable capital gains are far larger or you sell a vacation home or a piece of rental real estate, where all the profits could subject you to the investment surtax.

If you’re wondering if this “hidden surtax” could affect you and your individual tax situation if selling your Atlanta home next year, definitely talk to a tax professional for advice.

3 Common Home Tax Concerns

3 Common Home Tax Concerns From incentives to deductions, taxes are complicated and can be confusing even for the seasoned property owner. Understanding the ins and outs of some common property tax concerns can help save you money and put your mind at ease. Here are 3 very common tax topics relating to real estate:

1. Natural Disaster Relief

If your home is affected by a natural disaster, your damage costs will be deductible from both state and federal income taxes. Disasters include fires, floods, earthquakes, hurricanes and more. Homeowners can deduct their losses by filing an amended return for the tax year before the event happened. This helps to minimize the wait for refund money that can be used to make repairs or pay for living expenses.

2. Historic Rehabilitation

If your home is a certified historic home, then you may be able to receive a break on your taxes. Many states offer tax incentives, reductions and abatement programs for owners of residential historic homes. These programs are described on the National Trust’s website, which also offers resources and tips for owners of historic homes. Visit the site at https://www.preservationnation.org.

3. Home Improvement Deductions

Many sellers ask if they can deduct the cost of improvements made to their homes from their taxes. The answer is not black and white.

Yes, you can deduct improvements, but only after the home has been sold. This is because improvements add to the basis of your home. Because your basis is subtracted from your selling price to figure out what your home sale gain is, these tax deductions can only be made after your home is sold and your basis is defined.

The IRS has specific qualifications for what counts as a taxable “improvement.” These are renovations that add to your home’s value and extend its “useful life. A taxable improvement examples might include an extra bathroom or updating plumbing, heating or electrical systems.