 Last
Minute Tax Tips and Alerts
The only
good news may be the three day reprieve.
Thanks to an April 15 Washington, DC holiday,
federal income taxes this year are due on April 18.
Many of us are chronic procrastinators, and find
ourselves rushing at the last minute to submit them
on time. Last minute filers face higher risks that
they could make errors, miss important deductions,
or make unwise decisions in the process of meeting
the filing deadline. If you happen to be one of the
procrastinators, here is potpourri of IRS and other
resources to help you with your 2010 taxes:
Tax Changes --
View a list of tax changes, including Affordable
Care Act tax provisions, child-related tax changes,
deductions for new motor vehicle taxes, and more.
FreeFile --
Everyone is eligible for FreeFile. Those with an
Adjusted Gross Income (AGI) of $58,000 or less can
use FreeFile tax software while those with a higher
AGI can use FreeFile fillable forms.
Check Refund
Status -- If you've
already filed your 2010 federal tax return, use this
online tool to look up the status of your refund.
More Resources
from IRS.gov
Be aware that part of mortgage debt forgiveness
may be taxable. There has been an increase in
mortgage debt forgiveness for homeowners whose
mortgages are underwater and who are unable to keep
up with their monthly payments. Negotiations
underway may open the door for increased mortgage
debt forgiveness in the future. Depending on the
circumstances, some of the amount that is forgiven
may have to be treated as taxable income, and
taxpayers need to be aware of the rules if their
mortgage debt was partly or entirely forgiven in
2010, or may be forgiven in 2011 or 2012. If this
applies to you, here are 10 facts you need to know
about mortgage debt forgiveness.
1. Normally, debt forgiveness results in
taxable income. However, under the Mortgage
Forgiveness Debt Relief Act of 2007, you may
be able to exclude up to $2 million of debt
forgiven on your principal residence.
2. The limit is $1 million for a married
person filing a separate return.
3. You may exclude debt reduced through
mortgage restructuring, as well as mortgage
debt forgiven in a foreclosure.
4. To qualify, the debt must have been
used to buy, build or substantially improve
your principal residence and be secured by
that residence.
5. Refinanced debt proceeds used for the
purpose of substantially improving your
principal residence also qualify for the
exclusion.
6. Proceeds of refinanced debt used for
other purposes – for example, to pay off
credit card debt – do not qualify for the
exclusion.
7. If you qualify, claim the special
exclusion by filling out Form 982, Reduction
of Tax Attributes Due to Discharge of
Indebtedness, and attach it to your federal
income tax return for the tax year in which
the qualified debt was forgiven.
8. Debt forgiven on second homes, rental
property, business property, credit cards or
car loans does not qualify for the tax
relief provision. In some cases, however,
other tax relief provisions – such as
insolvency – may be applicable. IRS Form 982
provides more details about these
provisions.
9. If your debt is reduced or eliminated
you normally will receive a year-end
statement, Form 1099-C, Cancellation of
Debt, from your lender. By law, this form
must show the amount of debt forgiven and
the fair market value of any property
foreclosed.
10. Examine the Form 1099-C carefully.
Notify the lender immediately if any of the
information shown is incorrect. You should
pay particular attention to the amount of
debt forgiven in Box 2 as well as the value
listed for your home in Box 7.
For more information about the Mortgage
Forgiveness Debt Relief Act of 2007, visit IRS.gov.
A good resource is IRS Publication 4681, Canceled
Debts, Foreclosures, Repossessions and Abandonments.
Taxpayers may obtain a copy of this publication and
Form 982
either by downloading them from IRS.gov or by
calling 800-TAX-FORM (800-829-3676).
More and more homeowners are establishing home
offices. Some use home offices for teleworking part
of the time to their job. Others, including many who
have lost their jobs in the current recession, are
creating a new future for themselves by establishing
home-based businesses. Whether you are self-employed
or an employee, if you use a portion of your home
for business, you can very likely take a home office
tax deduction. Here are six things you need to
know about the Home Office deduction:
1. Generally, in order to claim a business
deduction for your home, you must use part of your
home exclusively and regularly:
● as your principal
place of business, or
● as a place to
meet or deal with patients, clients or
customers in the normal course of your
business, or
● in any connection
with your trade or business where the
business portion of your home is a separate
structure not attached to your home.
2. For certain storage use, rental use, or
daycare-facility use, you are required to use the
property regularly but not exclusively.
3. Generally, the amount you can deduct depends
on the percentage of your home used for business.
Your deduction for certain expenses will be limited
if your gross income from your business is less than
your total business expenses.
4. There are special rules for qualified daycare
providers and for persons storing business inventory
or product samples.
5. If you are self-employed, use Form 8829,
Expenses for Business Use of Your Home to figure
your home office deduction and report those
deductions on line 30 of Form 1040 Schedule C,
Profit or Loss From Business.
6. If you are an employee, additional rules apply
for claiming the home office deduction. For example,
the regular and exclusive business use must be for
the convenience of your employer.
For more information see IRS Publication 587,
Business Use of Your Home, available at
http://www.IRS.gov
or by calling 800-TAX-FORM (800-829-3676).
Here’s some helpful links:
● Publication 587, Business
Use of Your Home (PDF
214K)
● Form 8829, Expenses for
Business Use of Your Home (PDF
64K)
● Form 8829 Instructions (PDF
29K)
● Schedule C, Profit or
Loss from Business (PDF
111K)
● Schedule A, Itemized
Deductions (PDF)
For those who have been self employed over the
past year or may be contemplating doing so in the
future, here is some information about a special tax
deduction for the self-employed. You may be able to
deduct premiums paid for medical and dental
insurance and qualified long-term care insurance for
you, your spouse, and your dependents if you are one
of the following:
● A self-employed
individual with a net profit reported on
Schedule C (Form 1040), Profit or Loss From
Business, Schedule C-EZ (Form 1040), Net
Profit From Business, or Schedule F (Form
1040), Profit or Loss From Farming.
● A partner with
net earnings from self-employment reported
on Schedule K-1 (Form 1065), Partner's Share
of Income, Deductions, Credits, etc., box
14, code A.
● A shareholder
owning more than 2% of the outstanding stock
of an S corporation with wages from the
corporation reported on Form W-2, Wage and
Tax Statement.
The insurance plan must be established under your
business.
● For self-employed
individuals filing a Schedule C, C-EZ, or F,
the policy can be either in the name of the
business or in the name of the individual.
● For partners, the
policy can be either in the name of the
partnership or in the name of the partner.
You can either pay the premiums yourself or
your partnership can pay them and report the
premium amounts on Schedule K-1 (Form 1065)
as guaranteed payments to be included in
your gross income. However, if the policy is
in your name and you pay the premiums
yourself, the partnership must reimburse you
and report the premium amounts on Schedule
K-1 (Form 1065) as guaranteed payments to be
included in your gross income. Otherwise,
the insurance plan will not be considered to
be established under your business.
● For more-than-2%
shareholders, the policy can be either in
the name of the S corporation or in the name
of the shareholder. You can either pay the
premiums yourself or your S corporation can
pay them and report the premium amounts on
Form W-2 as wages to be included in your
gross income. However, if the policy is in
your name and you pay the premiums yourself,
the S corporation must reimburse you and
report the premium amounts on Form W-2 as
wages to be included in your gross income.
Otherwise, the insurance plan will not be
considered to be established under your
business.
For more information see IRS Publication 535,
Business Expenses (PDF)
, available at
http://www.IRS.gov
or by calling 800-TAX-FORM (800-829-3676).
Homeowners who made some energy efficient
improvements to their home or purchased
energy-efficient products last year may qualify for
a tax credit this year. Here are six energy-related
tax credits created or expanded by the American
Recovery and Reinvestment Act of 2009 (ARRA).
1. Residential Energy Property Credit:
This tax credit is for homeowners who make
qualified energy efficient improvements to
their existing homes. This credit is 30
percent of the cost of all qualifying
improvements. The maximum credit is $1,500
for improvements placed in service in 2009
and 2010 combined. The credit applies to
improvements such as adding insulation,
energy efficient exterior windows and
energy-efficient heating and air
conditioning systems.
2. Residential Energy Efficient Property
Credit: This tax credit will help
individual taxpayers pay for qualified
residential alternative energy equipment,
such as solar hot water heaters, solar
electricity equipment and wind turbines
installed on or in connection with their
home located in the United States and
geothermal heat pumps installed on or in
connection with their main home located in
the United States. The credit, which runs
through 2016, is 30 percent of the cost of
qualified property. ARRA removes some of the
previously imposed annual maximum dollar
limits.
3. Plug-in Electric Drive Vehicle Credit:
ARRA modifies this credit for qualified
plug-in electric drive vehicles purchased
after Dec. 31, 2009. The minimum amount of
the credit for qualified plug-in electric
drive vehicles, which runs through 2014, is
$2,500 and the credit tops out at $7,500,
depending on the battery capacity. ARRA
phases out the credit for each manufacturer
after they sell 200,000 vehicles.
4. Plug-In Electric Vehicle Credit:
This is a special tax credit for two types
of plug-in vehicles — certain low-speed
electric vehicles and two- or three-wheeled
vehicles. The amount of the credit is 10
percent of the cost of the vehicle, up to a
maximum credit of $2,500 for purchases made
after Feb. 17, 2009, and before Jan. 1,
2012.
5. Credit for Conversion Kits: This
credit is equal to 10 percent of the cost of
converting a vehicle to a qualified plug-in
electric drive motor vehicle that is placed
in service after Feb. 17, 2009. The maximum
credit, which runs through 2011, is $4,000.
6. Treatment of Alternative Motor Vehicle
Credit as a Personal Credit Allowed Against
AMT: Starting in 2009, ARRA allows
the Alternative Motor Vehicle Credit,
including the tax credit for purchasing
hybrid vehicles, to be applied against the
Alternative Minimum Tax. Prior to the new
law, the Alternative Motor Vehicle Credit
could not be used to offset the AMT. This
means the credit could not be taken if a
taxpayer owed AMT or was reduced for some
taxpayers who did not owe AMT.
Links:
●
Form 5695,
Residential Energy Credits
●
FS-2009-10,
Energy Provisions of the American Recovery and
Reinvestment Act of 2009
Charitable contributions made to qualified
organizations may help lower your tax bill. However,
you can’t always tell by the organization’s name.
Some may sound like they are “charitable”
organizations, but they are not. In addition there
are record keeping requirements that apply in some
instances. Here are eight tips to help ensure your
contributions pay off on your tax return:
1. If your goal is a legitimate tax
deduction, then you must be giving to a
qualified organization. Also, you cannot
deduct contributions made to specific
individuals, political organizations and
candidates. See IRS Publication 526,
Charitable Contributions, for rules on what
constitutes a qualified organization.
2. To deduct a charitable contribution,
you must file Form 1040 and itemize
deductions on Schedule A.
3. If you receive a benefit because of
your contribution such as merchandise,
tickets to a ball game or other goods and
services, then you can deduct only the
amount that exceeds the fair market value of
the benefit received.
4. Donations of stock or other non-cash
property are usually valued at the fair
market value of the property. Clothing and
household items must generally be in good
used condition or better to be deductible.
Special rules apply to vehicle donations.
5. Fair market value is generally the
price at which property would change hands
between a willing buyer and a willing
seller, neither having to buy or sell, and
both having reasonable knowledge of all the
relevant facts.
6. Regardless of the amount, to deduct a
contribution of cash, check, or other
monetary gift, you must maintain a bank
record, payroll deduction records or a
written communication from the organization
containing the name of the organization, the
date of the contribution and amount of the
contribution. For text message donations, a
telephone bill will meet the record-keeping
requirement if it shows the name of the
receiving organization, the date of the
contribution, and the amount given.
7. To claim a deduction for contributions
of cash or property equaling $250 or more
you must have a bank record, payroll
deduction records or a written
acknowledgment from the qualified
organization showing the amount of the cash
and a description of any property
contributed, and whether the organization
provided any goods or services in exchange
for the gift. One document may satisfy both
the written communication requirement for
monetary gifts and the written
acknowledgement requirement for all
contributions of $250 or more. If your total
deduction for all noncash contributions for
the year is over $500, you must complete and
attach IRS Form 8283, Noncash Charitable
Contributions, to your return.
8. Taxpayers donating an item or a group
of similar items valued at more than $5,000
must also complete Section B of Form 8283,
which generally requires an appraisal by a
qualified appraiser.
For more information on charitable contributions,
refer to Form 8283 and its instructions, as well as
Publication 526, Charitable Contributions. For
information on determining value, refer to
Publication 561, Determining the Value of Donated
Property. These forms and publications are available
at
http://www.irs.gov
or by calling 800-TAX-FORM (800-829-3676).
Lastly, homeowners need to be aware of tax scams
that always surface as April 15 approaches. These
scams are illegal and can lead to problems for
taxpayers including significant penalties, interest
and possible criminal prosecution. The schemes take
several shapes, ranging from promises of large tax
refunds to illegal ways of “untaxing” yourself. You
are better off applying for a tax extension than
getting caught up by a fraudster. As long as you’ve
paid at least 90% of the tax you owe for 2010, there
won’t be any expensive penalties for a filing
extension.
Here are three important guidelines to keep in
mind:
● You are
responsible and liable for the content of
your tax return.
● Anyone who
promises you a bigger refund without knowing
your tax situation could be misleading you,
and
● Never sign a tax
return without looking it over to make sure
it is accurate.
Beware of these common schemes:
Return Preparer Fraud:
Dishonest tax return preparers can cause many
headaches for taxpayers who fall victim to their
ploys. Such preparers derive financial gain by
skimming a portion of their clients’ refunds and
charging inflated fees for return preparation
services. They attract new clients by promising
large refunds. Choose carefully when hiring a tax
preparer. As the saying goes, if it sounds too good
to be true, it probably is. No matter who prepares
your tax return you are ultimately responsible for
its accuracy and for any tax bill that may arise due
to a questionable claim.
To increase confidence in the tax system and
improve compliance with the tax law, the IRS is
implementing a requirement that all paid tax return
preparers register with the IRS and obtain a
preparer tax identification number (PTIN). Later
this year, registered preparers will have to pass a
competency exam and take continuing education
courses.
Identity Theft:
It pays to be choosy when it comes to disclosing
personal information. Identity thieves have used
stolen personal data to access financial accounts,
run up charges on credit cards and apply for new
loans. The IRS is aware of several identity theft
scams involving taxes or scammers posing as the IRS
itself. The IRS does not use e-mail to contact
taxpayers about issues related to their accounts. If
you have any doubt whether a contact from the IRS is
authentic, call 800-829-1040 to confirm it.
Frivolous Arguments:
Promoters have been known to make outlandish
claims such as that the Sixteenth Amendment
concerning congressional power to establish and
collect income taxes was never ratified; that wages
are not income; that filing a return and paying
taxes are merely voluntary; and that being required
to file Form 1040 violates the Fifth Amendment right
against self-incrimination or the Fourth Amendment
right to privacy. Don’t believe these or other
similar claims. Such arguments are false and have
been thrown out of court. Taxpayers have the right
to contest their tax liabilities in court, but no
one has the right to disobey the law.
For more information about these and other tax
scams visit the IRS Web site at
http://www.irs.gov.
Remember that for the genuine IRS Web site be sure
to use .gov. Don't be confused by internet sites
that end in .com, .net, .org or other designations
instead of .gov. The address of the official IRS
governmental Web site is
http://www.irs.gov.
Links:
●
Tax fraud alerts
●
The Truth about
Frivolous Tax Arguments
top
A
First Step to Tax-Free E-Commerce
E-commerce helps American homeowners in many ways.
Over the past decade, several state and local
governments have sought to change current law and
force consumers to pay sales taxes on their
out-of-state Internet purchases. This tax increase
would reduce the use of Internet commerce because
the sales tax, on top of existing
shipping and handling charges
on Internet purchases, would make it more expensive
for consumers to buy an item from many online
retailers. Those efforts run strongly against the
desires of their constituents. A Parade Magazine
survey of several years ago revealed that 85% of the
population opposes sales taxes on any
Internet purchases whatsoever. Internet shopping
saves time
and provides more choices to today’s harried
consumers.
Congress took a step towards encouraging the
expansion of e-commerce on February 16 with the
introduction of House Resolution 95 by nineteen U.S.
Representatives from both sides of the aisle. The
Resolution sends a strong statement that state and
local governments should not force homeowners or
other consumers to pay sales taxes on online
purchases in other states, nor should they force
small online businesses and entrepreneurs in those
states to collect and remit those sales taxes as a
service to the nearly 15,000 state and local sales
tax jurisdictions outside of their home state. This
resolution is an important first step to putting all
of e-commerce on an equal footing as other worthy
state and local sales tax exemptions, such as
exemptions many state or local governments provide
for all prescription drug purchases and/or
back-to-school purchases.
This important legislation represents the first step
towards a permanent Internet sales tax holiday.
According to American Homeowners Grassroots Alliance
President Bruce Hahn, “A permanent Internet sales
tax holiday would be good policy, and has the
overwhelming support of voters. We need to reduce
the U.S. demand for foreign oil, the production of
greenhouse gasses, and reduce costs for state and
local governments. A permanent Internet sales tax
would help accomplish all three objectives and help
homeowners and other consumers in other ways at the
same time.” One way to reduce gas consumption and
greenhouse gasses is for consumers to leave their
car in the driveway and buy goods and services on
the Internet. The products can be delivered by their
local postal carrier or the FedEx or UPS trucks, all
of whom pass by everyone’s home every day anyway. By
keeping our cars in the driveway we reduce traffic
congestion, reducing road repair and other
transportation infrastructure support costs for
financially strapped state and local governments.
Increasingly, consumers have found e-commerce
platforms, such as Amazon, eBay or Craigslist to be
the perfect place to hold virtual yard sales. It
saves the inconvenience of having to drag perhaps
hundreds of items from the attic or basement out to
the front yard or driveway, and then having to bring
the half of them that don’t sell back in. If
efforts to expand Internet sales tax collection are
successful, homeowners could also be forced to
collect sales taxes on those Internet sales. Like
small online businesses and entrepreneurs, it would
be just as difficult for those homeowners to collect
and remit sales taxes from their buyers for the
15,000 different tax collectors in other states. If
homeowners are required to collect sales tax for
other state and local governments, their local tax
collectors will also then likely demand that
homeowners collect sales taxes on their physical
yard sales proceeds. They may show up at your home
for the yard sale and can make the good point that
if you are going to collect a yard sales taxes for
other governments that don’t provide you any
services, the least you could do is collect a yard
sales tax for your own state and local governments.
All of these factors help explain why homeowners
should urge their U.S. Representative and Senators
to support this worthy resolution. It is a small but
important first step to a tax free Internet. You can
help by contacting all three of your federal
legislators by using the Congressional lookup tool
at the American Homeowners
website.
Feel free to copy/paste any of the arguments in this
article that you agree with in your message to them.
State and local governments need to build on this
first step towards a tax-free Internet. They should
repeal rather than expand Internet sales taxes
because it is both good public policy and the
overwhelming desire of their constituents. There are
also many better ways for state and local
governments to address current budget shortfalls.
Many have already made the types of difficult
spending cuts that have already been forced on many
of their constituents by the weak economy. Still,
some others should cut more before they start
looking for this type of new tax revenue.
If state or local governments need new revenue,
polls show that there’s far less voter opposition to
other alternatives to Internet sales taxes, such as
increasing taxes on alcohol and tobacco. If those
tax increases also reduced public consumption of
these substances, consumers’ health would benefit
and government and private healthcare costs would be
reduced. There is also far less voter opposition to
such tax increases as temporary income surtaxes on
the super rich, if new state tax revenues were
absolutely necessary. It would be better policy and
would better align with their constituent’s wishes
for state policymakers to generate new revenues from
sin taxes and surtaxes on the wealthy, and pair
those increases with a permanent Internet sales tax
holiday.
top
Rentals Driving
Housing Liquidity
 Rentals provide mobility for accidental landlords and
their tenants.
Recent dismal housing construction and sales data
reflects both our current weak economy and the
tougher home
mortgage qualification requirements. Recent public opinion
polls paint a bleak picture of the public perception of the
future of housing values. This is reflected in an increased
demand for rental housing. That demand is beginning to drive
rental prices up, bringing investors back into the market,
and providing mobility to some underwater homeowners.
The continuing decline in home values in many areas,
coupled with low mortgage interest rates, is beginning to
make these homes attractive to investors. In many areas
there has been a surge in cash purchases by investors
looking for better returns than they’re currently getting on
the stock market. This is good news though; investor
movement back into the residential real estate market is
likely to soon contribute to price stabilization.
Today 70% of people who move each year are renters,
according to a February 14-16 survey by Ipsos. The current
illiquid residential real estate market makes renting a
prudent decision for people in the early stages of their
careers when job-related geographic moves are more likely.
On March 10 real estate website Zillow.com launched "Rent
Zestimates," a tool that can be used as a starting point for
determining a home or apartment's estimated monthly rent
price. This tool should help both renters and landlords with
estimated rent prices for more than 90 million homes and
apartments across the country.
According to the Ipsos poll, nearly two-thirds (61
percent) of current renters who were polled do not research
fair rent prices before signing their lease. Rent Zestimate
estimated rent prices offer a powerful new way for consumers
to research prices for specific homes or apartments. In
combination with additional market information on rentals,
Rent Zestimates can help renters determine a fair rental
price and negotiate before signing their lease.
Rent Zestimates are also valuable tools for "accidental
landlords," who represent one-fourth of respondents who are
homeowners intending to move in the next three years and who
are considering renting out their home, according to the
survey. Most (69 percent) respondents said they will
research similar rentals in their area to determine a price,
but Rent Zestimates offer a unique data point for landlords
to decide how much to charge. Because of increased demand,
rental rates are going up in many areas. That’s good news
for some underwater homeowners who previously have been
unable to move to another area to take a better job because
they didn’t have enough cash to pay off their mortgage. With
rents increasing they can come much closer to covering their
current mortgage payments if they rent out their current
home and take that job in another city. Consumers can find
Rent Zestimates on map searches and individual home detail
pages on Zillow.com® and all
Zillow mobile
applications, including apps for
iPhone,
iPad
and
Android.
"Buyers and renters are not exclusive categories – many
people are considering both options when shopping for a new
home. Similarly, many would-be sellers in today's housing
market are considering whether to become landlords rather
than sell at a loss," said Zillow CEO Spencer Rascoff. "We
created Rent Zestimates to empower people with information
and data to make the right real estate decision for them."
top
Spring into Spring!
It’s a time for renewal of nature, of our spirits, and of
our homes.
Your interests might be in gardening or redecorating, or
maybe you’re getting ready to sell your home. Either way,
spring is the time for those home related projects. Many
spring projects are more than just rejuvenating to the
spirit. Some can also save money, make money, and/or improve
your health.
Growing vegetables is a simple and rewarding pursuit, and
nothing tastes as good as home grown. Gardens are also very
scalable - a garden can be as small as a few pots on a condo
balcony, and a large backyard garden might provide enough
produce to get a family through next winter. Timing is the
most critical factor. Each vegetable has its own timetable
and characteristics. Some can be started from seeds indoors,
and they must be planted early enough to be put in the
garden when the weather is warm enough. Because southern
climates are warmer, the date you plant the seeds and put
the seedlings out will vary depending on where you live.
Seed packets will contain that information, so read the
backs before you buy any. If it is too late to start a
particular seed indoors, you can still buy young plants and
plant them directly in the garden.
Warm-season plants (tomatoes, eggplant, peppers and
several others), can be started indoors from seed in March
or April, depending on where you live. There are also
“cool-season” crops – such as lettuce, radishes and peas,
which should go in earlier and yield their produce earlier.
All benefit from warm and sunny window locations, as well as
plant lights.
If you are planting outside you’ll want to till the
ground for best results, and work in needed nutrients, lime.
etc., when you do. This is also a good time to remove weeds.
Soil test kits will help you identify what’s needed. Renting
a power tiller may be needed for a large area, but you can
use a shovel or a three-prong cultivator in a small garden.
Herbs are great garden additions because they have far
better taste when fresh. Most require relatively little
space to grow if that is an issue. Some, like oregano,
thyme, and sage, will come back year after year, and others,
like chives, will self seed if you let them.
Some people prefer flowers instead of vegetables, or a
combination of the two. Some of the same factors mentioned
above apply to flowers. Some flowers, like marigolds,
discourage deer and are a smart addition to a vegetable
garden if deer are a pest in your area. Other flowers
attract welcome guests, like hummingbirds. Flowers that are
particularly attractive to butterflies might best be kept
apart from gardens, since some butterfly caterpillars are
also fond of vegetables.
Spring is also a great time to clean up and clear out
your home. These days many people just sell their stuff on
eBay, craigslist or Amazon because it is more convenient and
they usually make more money than selling it at a yard sale.
It can also make space and defray some of the costs of some
fairly inexpensive redecorating. A new rug, chair, and/or
painting can change the whole mood of a room.
Clearing out space is also a good idea if you are
thinking about selling your home this spring. In that case
think twice before replacing anything you sell. One of the
principles of home “staging” – the art of making your home
more attractive to buyers – is to have less stuff in your
rooms because it makes them look bigger. Planting flowers is
another way to add curb appeal, and what prospective home
buyer would not like the thought of harvesting fresh veggies
from their garden this summer?
Other cost effective curb appeal projects include
adding shrubbery to an under landscaped yard and repainting
inside and/or out if your home needs it. A home inspection
is a good idea because you can identify and take care of any
minor problems before a buyer’s inspection identifies them.
Buyers can be turned off by a long list of needed repairs,
because it suggests lack of ongoing maintenance and the
potential for even more problems. If the inspection uncovers
more serious problems you may want to factor them into the
price and sell the home “as is”.
Remodeling projects are also popular in the spring.
Homeowners have gotten more conservative in terms of their
scope of in recent years. This is a reflection of both
weaker home prices and a weaker economy. Nevertheless
remodeling is often a more sensible alternative than moving
to upgrade your housing resources. Between commissions and
other expenses, selling costs can easily approach 10% of a
home’s value. In some cases it is the only alternative
because of the housing market.
By contrast, sensible remodeling costs can often add
80-90% of their costs to your homes net value. That can also
move into the positive ROI range if you’re willing to do
some of the finish work (like painting) yourself. We’ve
provided the returns of some of the better options in
archived issues of
Home
Base. They include such projects
as kitchen and bathroom updates and give the best payback
when a room is currently outdated and the upgrades are nice
but not over the top. If you like your current neighborhood
and your home lends itself to the kind of remodeling
projects that would upgrade it to your satisfaction, this
may be the best way to go.
As always, we recommend that homeowners get everything in
writing. Contractor disputes are common and can best be
avoided when areas of potential misunderstanding are
eliminated. That is best done by using a comprehensive
contact that covers everything such as the six page plain
English
Home
Remodeling Contract published by the
American Homeowners Foundation.
top
 Bankers Announce Major Reductions of Homeowners’ Mortgage
Balances
Sudden policy reversal surprises
homeowners, consumer groups, policymakers.
In a surprise April 1 announcement,
the nation’s largest banks have agreed to reduce mortgage
balances in cases where the mortgage debt exceeds a home’s
current value and the financially stressed homeowners are
unable to keep up with their current payments. The
announcement represents a complete reversal of both current
lender practices and the lenders’ position in ongoing
negotiations with state attorneys generals, the U.S. Justice
Department, and the Department of Housing and Urban
Development as recently as March 28. Preliminary estimates
are that well in excess of $20 billion of mortgage debt will
be written off.
The announcement renders moot the
March 28 offer by of the nation’s largest banks to those
policymakers. The bankers had responded to the policymakers’
proposal for mortgage balance write-offs with a counter
offer, the “Draft Alternative Uniform Servicing Standards”
that did not include principle reductions, borrower relief,
or penalties. The incentive for lenders to reach a
compromise is their expectation that, as part of the
agreement, the government policymakers would, as a quid pro
quo, forgo criminal and civil prosecutions of the companies
and senior personnel accused of violations.
Recently most lender home mortgage
modifications have run on a parallel two track process. The
lender would make a temporary trial modification to a
troubled homeowner’s mortgage interest rate that in some
cases might also conform to the Administration’s HAMP
program requirements. At the same time the lender would also
begin the internal part of the foreclosure process on the
same homeowner. Various lender administrative inadequacies
including staffing shortages would usually prevent the
homeowner from complying with the trial modification
requirements anyway. The lender would then be positioned to
complete the foreclosure that much sooner, and could also
claim that they had tried to be sensitive to the homeowner’s
challenges.
Very few mortgage balance reductions
have been completed to date, and in most cases the
reconstituted mortgage balances are believed to still be
considerably higher than the home’s current market value. In
other words the homeowner is still underwater, but just not
as deeply.
Consumer organizations are delighted
with the turnabout, which will stabilize home values and
benefit all homeowners, the economy and the lenders’
stockholders. “Many of these homeowners were not financially
sophisticated and should never have been granted those
mortgages in the first place,” said American Homeowners
Grassroots Alliance President Bruce Hahn. “If lenders had
applied responsible underwriting standards, they would not
have made loans to people that were highly unlikely to be
able to repay them,” he added.
The one downside of the agreement is
that the investigation of lender and loan servicer practices
and potential prosecutions will not go forward. The outcome
of the investigation would provide useful information to
policymakers, and the prosecution of senior executives in
criminal and/or civil cases would discourage further
violations in the future.
National Association of Mortgage
Lenders President G. Reedy Riphouf said that the avoidance
of prosecutions was not the major motivator for their policy
reversal. “With Congressional efforts to eliminate Fannie
and Freddie and repeal HAMP well underway, we’re going to be
truly the only game in town. We were too big to fail before,
and that will be even more so in the future. Our CEOs and
senior managers don’t have to worry about losing their jobs
or bonuses either, because neither their stockholders nor
their Boards of Directors had the cojones to do anything to
them after the subprime meltdown anyway.”
Taking all of that into consideration,
there’s really no reason for the lenders not to write down
mortgage balances for distressed homeowners. In effect they
have already lost the money because of the asset’s deflated
value, even if it isn’t reflected on their books. Bankers
will get some badly needed PR, which could reap rewards in
the future. If a $20 billion write down further trashes
their stockholders’ equity and their company’s future
viability, taxpayers will just bail them out again anyway.
“Is this a great country, or what?” concluded Riphouf.
top
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Please take the time to contact your legislators and express your
views on pending policy issues covered in this
month’s Home Base. It's easy - you can reach your
legislators by email in a couple of mouse clicks,
and you can use the content in Home Base and
elsewhere on our website to help you develop your
message.
To look up the phone number, email, and/or postal address of your
U.S. Representative or your two U.S. Senators, (or
your state representative or state senator)
click here. You can also look up which
legislators represent your zip code if you don’t
recall their names.
A personal meeting is a particularly effective way
to get their attention and reinforce your message.
Many legislators are also happy to meet personally
with their constituents when they are back home on
weekends or when Congress is not in session. Most
are back in their home states now running hard for
the November election, so they are particularly open
to hearing the views of their constituents.
Please consider also requesting a follow up
face-to-face meeting in their home state or home
district offices near you when you contact their
Washington DC offices on policy issues.
Is there a policy issue that
is particularly important to you which significantly
impacts homeowners or home ownership? We are in the
process of updating our annual issue guide for 2011.
We share this document with federal and state
legislators and with the media. Any member may
propose a position on a policy issue, so please
check the
American
Homeowners Grassroots Alliance's 2011 Issue Guide.
If it isn't on the list, we invite you to send us an
email and tell us why you think the American
Homeowners Grassroots Alliance should take a
position and work on it.
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