Your Best Investment

Sometimes, there are costs associated with not taking a particular action.  If a person left their money in a certificate of deposit earning 2% when they could have made an investment that earned 8%, the difference is the opportunity costs associated to not taking action.
If a couple has a down payment and good credit, locking in a low interest rate mortgage for 30 years could easily provide their lowest cost of housing.  If that couple waits three years to purchase a home, the price would probably be higher as would the mortgage rate.
However, assuming the price and interest rate remained constant, look at what the opportunity costs might be compared to doing nothing.
If their money was invested in a certificate of deposit at 2.00%, in two years their $8,750 would have grown to $9,104.  They would have earned $354 and had to pay ordinary income tax on the interest.
If their money was invested in the stock market that had increased 7%, in two years they would have a profit of $1,268 which would be subject to long-term capital gains tax.
On the other hand, it the same investment was used to buy a home that increased in value at 3% annually, the equity would be $31,938 or an increase of $23,188. Tax would not be triggered until the home is sold and may not be due then based on their homeowner’s principal residence exclusion.
The home goes up in value due to appreciation and the unpaid balance goes down because of amortization.  The dramatic difference in growth in the equity of the home is effected by leverage: the use of borrowed funds controlling the asset.
A home is a place of your own where you can feel safe and secure, to enjoy with your family and friends and in many instances, a very good investment.  It is difficult to measure the opportunity costs of intangibles but not necessarily money.
Make your own projections with Your Best Investment.

Capital Improvement Register

Homeowners can raise the basis or cost in their home by money spent on capital improvements. The benefit is that it will lower their gain and may save them taxes when they sell their home.
Improvements must add value to your home, prolong its useful life or adapt it to new uses. Repairs are routine in nature to maintain the value and keep the property in an ordinary, operating condition.
Additions of decks, pools, fences and landscaping add value to a home as well as new floor covering, counter-tops and other updates. Replacing a roof, appliances or heating and cooling systems would be considered to extend the useful life of the home. Completing an unfinished basement or converting a garage to living space are common examples of adapting a portion of the home to a new use.
Other items that can raise the basis in your home are special assessments for local improvements like sidewalks or curbs and money spent to restore damage from casualty losses not covered by insurance.
Here’s a simple idea that could save you money years from now.
Every time you spend money on your home other than the house payment and the utilities, put the receipt or canceled check in an envelope labeled “Home Improvements.” Regardless of whether you know if the money would be classified as maintenance or improvements, the receipt or cancelled check goes in the envelope.
Years from now, when you’ve sold your home and you need to report the gain on the property, you or your accountant can go through the envelope and determine which of the expenditures will be adjustments to your basis.
Some people disregard this idea because of the generous exclusion allowed on principal residences. At the unknown point in the future when you sell your home, circumstances may have changed and the proof of these expenditures will be valuable. The tax laws could lower the exclusion amount or eliminate it altogether. Your marital status may change because of death or divorce. The market value of your home may skyrocket.
Since the future is unknown, it is better to keep track of the improvements as they are made and how much is spent on them. Download an Improvement Register and examples or read more in Publication 523 on Increases to Basis.

Save Thousands!

If you invest in a savings account, you’ll make less than 1% and would have to pay income tax on the earnings. On the other hand, contribute something extra to your house payment and you’ll earn at the mortgage interest rate which is certain to be more than you are earning in the bank.
Making additional principal contributions on your mortgage will save interest, build equity and shorten the term. An extra $100 a month in the example shown will save thousands in interest and shorten the term of the mortgage as well.

Reducing your cost of housing is another way to improve the investment in your home. Becoming debt free is a worthy goal that is achieved with discipline and good decisions. Suggestions like this are part of my commitment to help people be better homeowners when they buy, sell and all the years in between.
Check out what would happen if you were to make additional payments on your mortgage.

Change Your Air Filters!

A dirty air filter decreases the effectiveness of your HVAC system because it inhibits airflow and allows dirt, dust, pollen and other materials to blow through the system.
The challenge is how often it should be changed to keep the system working efficiently and extend the equipment life.   Too often and you’re wasting money and not often enough and your increasing the operating and maintenance costs.
Fiberglass panel filters are inexpensive and easy to find but they’re not very efficient and they allow most dust to pass through.  They were popular years ago but there are much better products available currently.
Pleated air filters are available in MERV ratings from 5 to 12. As these filters collect dirt and other particles, they become less efficient to the point of impacting air flow.  Allergy sufferers can benefit from this type of filter.  These should be changed every two to three months based on local conditions.
HEPA filters stand for High Efficiency Particulate Arrestance. They are very efficient and more expensive than previously described filters.  Since they are very efficient, they require changing more frequently; possibly, every month.
Electrostatic air filters are permanent and washable. They generally cost more initially but the savings will be based on how long they last.  This type does not add to landfill issues or produce ozone.
Improperly maintained filters will lower the quality of the air in the home, have a negative impact on air flow, cause it to use more electricity and eventually require maintenance to the systems.
In an attempt to easily compare filters, a rating system was created called MERV, an acronym for Minimum Efficiency Reporting Value.  The rating from 1 to 16 indicates the efficiency of a filter based on standards set by ASHRAE.  Higher ratings indicate a greater percentage of particles are being captured in the filter.
To create a system to remind you when to change your filters, set a reminder on your electronic calendar to recur for whatever frequency you determine is best for you.   Be sure to keep a supply of filters on hand to be ready to change them out when the time comes.

Have You Done a Home Inventory?

How old is your bedroom furniture and what did you pay for it?  Don’t know?  That’s okay, let’s try an easier question.  When did you buy the TV in your family room and is it a plasma, LCD or a LED?
Whether you are the victim of a burglary, a fire or a tornado, most people are comforted they have insurance to cover the losses.  However, unless you’ve filed a claim, you may not be familiar with the procedures.
The adjustor will want to know the date and how the loss occurred.  Assuming you have contents coverage, the claim for personal belongings is separate from damage to the home.
You’ll be asked to provide proof of purchase, like receipts or cancelled checks, or a current inventory.  If they’re not available, you can reconstruct an inventory from memory.  The challenge is trying to remember things you may not have used for years and may not miss for years more.
Relying on memory can be a very expensive alternative.  A prudent homeowner will create a home inventory with pictures or videos while all of their belongings are in the home and they can see them.
Download a home inventory to make your project a little easier.

Traveling This Summer?

Planning a summer trip is usually focused on what you’ll do, see and experience.  Enjoy it even more by spending a little time before you leave to make sure your home is safe while you're gone.
Consider these suggestions along with your other normal efforts:

• Tell your neighbors you’ll be out of town and to be aware of any unusual activity.
• Notify your alarm company .
• Discontinue your postal delivery.
• Use timers on interior lights to make it appear you’re home as usual.
• Don’t make it easy for burglars by leaving messages on voice mail or posting on social networks.
• Post on social networks about your vacation after you’ve returned.
• Remove the hidden spare keys and give one to a trusted neighbor or friend.
• Lock everything, double-check and set the alarm.
• Take pictures of your belongings in case you need them.
• Disconnect TVs and other equipment in case of unexpected power surges.
• Adjust your thermostat.
• Arrange for lawn care.
• Consider disconnecting the garage door opener.
• Put irreplaceable valuables in a safety deposit box.

 It’s nice to go out of town on a well-deserved trip and it’s always nice to get back home…especially when it is just the way you left it.

Now Is The Time To Buy

With interest rates lower than they’ve been in over 40 years, it may be difficult to think of a “window of opportunity” closing.  However, it isn’t difficult to understand that it may very probably cost more to live in a home in the near future due to rising interest rates and prices.
Zillow recently reported results from a nationwide study that home values are expected to appreciate by 4.5% through the end of the year.  Coupled with Freddie Mac’s projection that rates are going up, the cost of housing for buyers by the end of the year will be higher than it is now.
While uncertainty of the future can stagnate some people, the fear of loss can be much more devastating when a person realizes that the amount they pay to live and enjoy a home could have been considerably lower had they acted when prices and mortgage rates were lower.
The following example considers a $250,000 purchase today with a FHA mortgage compared to what it might be at the end of the year with a higher price and interest rate as discussed earlier.  The net effect is that it will cost $191.87 to live in the very same home based on the cost of waiting to buy.
To see what the cost might be for your price range, use this Cost of Waiting to Buy spreadsheet.

Tax Deductible

Prepaid interest, sometimes called “points”, is generally tax deductible when a person pays them in connection with buying, building or improving their principal residence.  When points are paid on a refinance, they are not a current deduction but have to be taken prorate over the life of the mortgage.
For instance, if $3,000 in points were paid on refinancing a 30 year mortgage, a deduction of $100 per year is allowed.  When the loan is paid off or replaced by refinancing again or the home is sold and the mortgage paid off from the proceeds, the balance of any un-deducted points may be taken in that tax year.
Your tax professional needs to be made aware of any of these situations so that he or she can accurately reflect the deductions in your return.  Currently, the most common situation is homeowners may be refinancing their home for the second, third or even, fourth time. If there are points that have not been completely deducted, they need to be treated in the year of refinancing.
For more information, see points in IRS Publication 936; there is a section on Refinancing in this publication. For advice considering your specific situation, contact your tax professional.

Homeowner Taxpayer

IRS allows taxpayers the option to take the standard deduction or the itemized deduction.  The astute taxpayer will compare to see which one will result in the greatest deduction and the election can be made each year.
The 2013 standard deduction for a married couple filing jointly is $12,200 and $6,100 for a single taxpayer.  It doesn’t require any proof of actual expense and has no requirement for home ownership.
Items that can be included on Schedule A for itemized deductions include:

• Certain taxes paid for state and local income tax, general sales tax, real estate property taxes, personal property taxes or other taxes paid
• Qualified home mortgage interest, investment interest or possibly, mortgage insurance premiums
• Charitable contributions
• Casualty or theft losses
• Medical and dental expenses that exceed 7.5% of adjusted gross income if born before 1/2/49 or 10% if born after 1/2/49
• Job expenses and other miscellaneous deductions that exceed 2% of adjusted gross income

A non-homeowner taxpayer who has been taking the standard deduction needs to consider that it isn’t just the ability to deduct the mortgage interest and property taxes.
While the standard deduction might be the obvious choice for a non-homeowner, the combination of the mortgage interest and the property taxes plus other allowable deductions not recognized previously such as charitable contributions, now makes taking the itemized deductions significantly more advantageous.

Funny Videos from Safeco

Safeco Insurance is a proud sponsor of the 2014 Winter Olympics, and Triplett is proud to sell Safco Insurance!

Feel free to watch Safeco's humorous videos about the Olympics from the perspective of Marty and Edna.

http://www.youtube.com/user/SafecoTV