A veteran buyer was looking at looking at some nice homes in Hollister. There seemed to be a disconnect between their enthusiasm for the homes and making the comment to buy one of them. It wasn’t that they didn’t qualify. I had already pre-approved them for much more than they were looking at. As we talked the light bulb came on! The transition from their comfortable rent to a significantly higher payment was a quantum leap for them and it was hard to swallow – until…….
I sat them down and shared what many homeowners have learned over the years. Your accountant can tell you what your new tax liability will be if you buy that tempting home. In most cases the amount you will be required to pay in income tax will DROP because of the larger amount paid toward interest and taxes. Some of us have figured that it is better to reduce our income tax withholding from our paychecks each payday rather than get our refund in a lump sum (with no earned interest) at the end of the year.
Here is their example: Sales Price: $650,000; New VA Loan: $591,800; Total Principal, Interest, Taxes and Insurance: $4,210; Income Tax Deduction at a 26% tax bracket: $898/mth; Net “House Payment” after income tax deduction: $3,312.
Same home, same terms but a house payment that feels like $3,312. That made the difference. They will simply need to take a new W4 form to their employers and have them reduce their withholdings by $898 so they will have that much more to take-home each month. While they still make the actual payment of $4,210 the additional take-home pay makes the leap in house payment more palitable.
They will break even at the end of the year: they won’t owe much income tax nor will they get much of a refund. HOWEVER, they will have received their refund during the year to help offset their new, higher payment.
Everybody was happy and moved forward with what they really wanted to do.
I love solving problems for people! Have you done this yet?
A friend was in the process of buying his parents home when he asked me if there were any tax or insurance benefits resulting from this type of sale. I startled him when I blurted out a quick ,”YES!”
Thanks to a little-known section of the California Constitution (Sec. 2 of Article X111) or, more commonly referred to as “Prop. 58″ the sale or transfer of a principal residence between parents and children is NOT subject to reassessment. Translation: My friend could purchase his parents home and continue their low property taxes as his own. The savings was huge! With a sales price of $480,000 the taxes would have been $6,002/yr. but employing Prop. 58 the parents taxes: $1,876 became their son’s property taxes. In this case that is a whopping $4,126/yr. savings!
Not only did my friend experience a monthly savings of $344 in property tax but he more easily qualified for his home loan. He needed $905 LESS income to qualify because his Prin., Int., TAXES, & Ins. was so much lower.
There is a similar opportunity when grandparents are selling to grandchildren (Prop. 193).
Of course there are conditions but they are not difficult to satisfy.
So here is an opportunity to keep the good ole home in the family and bucks in the kid’s pocket.
Greatly Reduce Your Homeowner’s Insurance Premium
Talk to homeowners and most will tell you they have never had a claim against their homeowner’s insurance. So, their deductible remains low and their premium stays high.
We were in this group until one day we started talking about reducing our housing expenses. We asked ourselves how much we could afford to pay should we have a claim. The amount was higher than our homeowner’s deductible. We called our insurance agent for a quote with a new, higher deductible. WOW! It was a big savings! we sharpened the pencil and began shopping for insurance with a sizable deductible. We ended up reducing our insurance premium by nearly $500 a year ($1,300 down to $820). And guess what? We still haven’t had a claim.
Get Your Tax Refund in Every Pay Check
Did you get an income tax refund this year? Last year? Why not get your refund in every paycheck? Here’s how: Ask your tax preparer what your actual tax liability is and divide that by the number of your pay periods (52, 26, 12 etc.). Ask your preparer for a new W4 form. Then stroll into your Human Resources office and announce that you want them to ONLY withhold $X for Fed. Taxes and $Y for State Taxes (the amount of your actual tax liability per pay period). A few employers will allow you to withhold a percentage for Fed. and another for State. Most will struggle with how many exemptions you have to claim to achieve the dollar amount. Fill our your W4 and happily hand it over to HR. No matter how they end up doing it you will bring home much more of your check every payday! For example, if you got a $2,600 tax refund and get paid every week you could take home $50 MORE EVERY WEEK or $215 MORE EVERY MONTH! At the end of the year you break even – you won’t owe any additional taxes and YOU have had your refund left in your pocket every payday during the year. Pretty cool! (Be sure to coordinate this with your tax preparer).
Let’s see, what could you do with another, say, $255 CASH each month?
