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Frequently Asked Questions
Question: Can I find out the value of my home through
the Internet?
Answer: You can get some idea of your home's value
by searching the Internet. A number of websites and
services crunch the numbers from historic public records
of home sales to produce statistics. Some services offer
an actual estimate of value based on acceptable software appraisal standards. They also depend on historic home
sales records to calculate the estimate. Neither of
these services produce official appraisals. They also don't
factor in market nuances or other issues a certified
appraiser or real estate professional might when they
assess your home's value.
Question: What are the standard ways of finding
out how much a home is worth?
Answer: A comparative market analysis and an appraisal are the standard methods for determining a home's value. Your real estate agent will be happy to provide a comparative market analysis, an informal estimate of value based on comparable sales in the neighborhood. Be sure you get listing prices of current homes on the market as well as those that have sold. You also can research this yourself by checking on recent sales in public records. Be sure that you are researching properties that are similar in size, construction and location. This information is not only available at your local recorder's or assessor's office but also through private companies and on the Internet. An appraisal, which generally costs $200 to $300, is a certified appraiser's opinion of the value of a home at any given time. Appraisers review numerous factors including recent comparable sales, location, square footage and construction quality.
Question: What are the pros and cons of adding on
or buying new?
Answer: Before making a choice between adding on to an existing home or buying a larger one, consider these questions:
1. How much money is available, either from cash reserves or through a home improvement loan, to remodel your current house?
2. How much additional space is required? Would the foundation support a second floor or does the lot have room to expand on the ground level?
3. What do local zoning and building ordinances permit?
4. How much equity already exists in the property?
5. Are there other affordable properties that would satisfy your changing housing needs?
Ultimately, the decision should be based on individual needs, the extent of work, and what will add the most value. For more information, check out "The Do-able Renewable Home," a booklet published by the American Association of Retired Persons, available online at homemods.org.
Question: How do I find a home inspector?
Answer: In order to find a home inspector, Dian Hymer, author of "Buying and Selling a Home: A Complete Guide," Chronicle Books, San Francisco; 1994, advises looking for someone with demonstrable qualifications. "Ideally, the general inspector you select should be either an engineer, an architect, or a contractor. When possible, hire an inspector who belongs to one of the home inspection trade organizations."
The American Society of Home Inspectors (ASHI) has developed formal inspection guidelines and a professional code of ethics for its members. Membership to ASHI is not automatic; proven field experience and technical knowledge of structures and their various systems and appliances are a prerequisite. One can usually find an inspector by looking in the phone book or by inquiring at a real estate office or area Realtor association. Rates for the service vary greatly. Many inspectors charge about $400, but costs go up with the scope of the inspection.
Question: What kind of home insurance should I get?
Answer: A standard homeowners policy protects against fire, lightning, wind, storms, hail, explosions, riots, aircraft wrecks, vehicle crashes, smoke, vandalism, theft, breaking glass, falling objects, weight of snow or sleet, collapsing buildings, freezing of plumbing fixtures, electrical damage and water damage from plumbing, heating or air conditioning systems, according to the Insurance Information Institute, a Washington, D.C.-based nonprofit group for the insurance industry. Such policies are "all-risk" policies, which cover everything except earthquakes, floods, war and nuclear accidents. A basic policy can be expanded to include extra coverage, such as for floods and earthquakes and even workers' compensation for servants or contractors. Home-based business-coverage, an increasingly popular rider, does not cover liability associated with the business.
Insurance experts recommend that homeowners obtain insurance equal to the full replacement value of the home. On a 2,000-square-foot home, for example, if the replacement cost is $80 per square foot, the house should be insured for at least $160,000. For personal items, homeowners can increase their coverage beyond the depreciated value of items such as televisions or furniture by purchasing a "replacement-cost endorsement" on personal property. Some experts recommend an inflation rider, which increases coverage as the home increases in value.
Question: Are property taxes deductible?
Answer: Property taxes on all real estate, including those levied by state and local governments and school districts, are fully deductible against current income taxes.
Question: Are taxes on second homes deductible?
Answer: Mortgage interest and property taxes are deductible on a second home if you itemize. Check with your accountant or tax adviser for specifics.
Question: Are points deductible?
Answer: If you are a buyer, and you or the seller pays points, they are deductible for the year in which they are paid only. You also can deduct any points you pay when you refinance your home, but you must do so ratably over the life of the loan. Consult your tax or financial advisor.
Question: Are seller-paid points deductible?
Answer: As of Jan. 1, 1991, homeowners have been able to deduct points paid by the seller. This deduction previously was reserved only for points actually paid by the buyer.
Question: Are there tax credits for first-time home buyers?
Answer: Many city and county governments offer Mortgage Credit Certificate programs, which allow first-time home buyers to take advantage of a special federal income tax write-off, which makes qualifying for a mortgage loan easier.
Requirements vary from program to program. People wanting to apply should contact their local housing or community development office. Here is a list of four general requirements to keep in mind:
1. Some credit may be claimed only on your owner-occupied principal residence.
2. There are maximum income limits, which vary by locality and family size.
3. You must be a first-time home buyer, which means you must not have had any kind of ownership interest in a principal residence during the past three years. This restriction may be waived, however, if you are buying property within certain target areas.
4. Allocations must be available. A local MCC program may have to decline new applications when it runs out of funds.
Question: Explain the home mortgage deduction . .
Answer: The mortgage interest deduction entitles you to completely deduct the interest on your home loan for the year in which you paid it. Mortgage interest is not a dollar-for-dollar tax cut; it reduces taxable income. You must itemize deductions in order to do this, which means your total deductions must exceed the IRS's standard deduction.
Another point to remember is that the amount of interest on your loan goes down each year you pay on your mortgage (all standard home-loan formulas pay off interest first before significantly paying into principal). That's why paying extra on your principal every year can help you pay off your loan early.
Question: How are fees and assessments figured in a homeowners association?
Answer: Homeowners association fees are considered personal living expenses and are not tax-deductible. If, however, an association has a special assessment to make one or more capital improvements, condo owners may be able to add the expense to their cost basis. Cost basis is a term for the money an owner spends for permanent improvements throughout their time in the home and is used to reduce eventual capital gains taxes when the property is sold. For example, if the association puts a new roof on a building, the expense could be considered part of a condo owner's cost basis only if they lived directly underneath it. Overall improvements to common areas, such as the installation of a swimming pool, must be considered on a case-by-case basis but most can be included in the cost basis of any owner who can show their home directly benefits from the work.
To find out more about how the IRS views condo association fees, look online to IRS Publication 17, "Your Federal Income Tax," which includes a section on condos. Or order a copy by calling (800) TAX-FORM.
Question: How do I save on taxes?
Answer: Here are some ways to save money on taxes:
1. Mortgage interest on loans up to $1 million is completely deductible for the year in which you pay it to buy, build or improve your principal residence plus a second home.
2. Points, or loan origination fees, also are deductible no matter who pays them, the buyer or the seller.
3. Most homeowners, except the wealthy and those living in high-priced markets, no longer need to worry about capital gains taxes. The exemption has been raised to $500,000 for married couples and $250,000 for single owners. It can be taken every two years. Homeowners should always keep all receipts of permanent home improvements and of mortgage closing costs. If you do have to pay capital gains taxes, these costs can be added to your adjusted cost basis. Consult your tax adviser for more information.
Resources: "Tax Information for First-Time Homeowners," IRS Publication 530, and "Selling Your Home," IRS Publication 523. Call (800) TAX-FORM to order or download from irs.gov.
Question: Should I buy a vacation home?
Answer: Today a vacation home can be purchased for investment purposes as well as enjoyment. And yes, there are tax benefits. Some people buy a vacation home with the idea of turning it into a permanent retirement home down the road, which puts them ahead on their payments. Another benefit is that the interest and property taxes are tax deductible, which helps to offset the cost of paying for a second home. A vacation home also can be depreciated if you live in it fewer than 14 days a year, or 10 percent of the rented days — whichever is greater.
Question: What are the rules for mortgage credit certificates?
Answer: To qualify for a mortgage credit certificate, both your income and the purchase price of the home must fall within established city guidelines. These guidelines vary by city but generally only permit people who earn an average income or slightly higher than average income. A limited number of cities have authorized the MCC program. Contact your municipal housing department for more information.
Question: What home-buying costs are deductible?
Answer: Any points you or the seller pay to purchase your home loan are deductible for that year. Property taxes and interest are deductible every year. But while other home-buying costs (closing costs in particular) are not immediately tax-deductible, they can be figured into the adjusted cost basis of your home when you go to sell (any significant home improvements also can be calculated into your basis). These fees would include title insurance, loan-application fee, credit report, appraisal fee, service fee, settlement or closing fees, bank attorney's fee, attorney's fee, document preparation fee and recording fees. Points paid when you refinance an existing mortgage must be deducted ratably over the life of the new loan.
Question: When is the best time to buy?
Answer: Here are some frequently cited reasons for
buying a house:
1. You need a tax break. The mortgage interest deduction can make home ownership very appealing.
2. You are not counting on price appreciation in the short term.
3. You can afford the monthly payments.
4. You plan to stay in the house long enough for the appreciation to cover your transaction costs. The costs of buying and selling a home include real estate commissions, lender fees and closing costs that can amount to more than 10 percent of the sales price.
5. You prefer to be an owner rather than a renter.
6. You can handle the maintenance expenses and headaches.
7. You are not greatly concerned by dips in home values.
Question: Where do I get information on IRS publications?
Answer: The Internal Revenue Service publishes a number of real estate publications. They are listed by number:
521 "Moving Expenses"
523 "Selling Your Home"
527 "Residential Rental Property"
534 "Depreciation"
541 "Tax Information on Partnerships"
551 "Basis of Assets"
555 "Federal Tax Information on Community Property"
561 "Determining the Value of Donated Property"
590 "Individual Retirement Arrangements"
908 "Bankruptcy and Other Debt Cancellation"
936 "Home Mortgage Interest Deduction"
These publications are available for free online (irs.gov) or by calling (800) TAX-FORM.
Question: What is the difference between market value and appraised value?
Answer: The appraised value of a house is a certified appraiser's opinion of the worth of a home at a given point in time. Lenders require appraisals as part of the loan application process; fees range from $200 to $300. Market value is what price the house will bring at a given point in time. A comparative market analysis is an informal estimate of market value, based on sales of comparable properties, performed by a real estate agent or broker. Either an appraisal or a comparative market analysis is the most accurate way to determine what your home is worth.
Copyright © 2005 Inman News Features
All Rights Reserved
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