Friday, March 6, 2015

Spring (“?”) Ahead In Columbus, Mississippi

It may feel like winter but spring is just around the corner. Area schools and colleges are taking off the upcoming week for Spring Break.  Parents like to time vacations for this week too.  Don’t look for an abundance of events this weekend in Columbus, Mississippi. Just wait until after the break and there will be plenty of things to do every weekend. For now, let’s see what is going on this weekend.

Want to experience yoga in a new way? Visit Bliss Yoga on 5th Street South, between College Street and Third Avenue. How is yoga new? Live local musicians perform after work on Friday.  Come join the fun and start off the weekend by getting the blood pumping.

“Our Town” the three-act play that won Thornton Wilder the 1938 Pulitzer Prize for Drama comes to the Rosenzweig Arts Center this weekend. There are performances both Friday and Saturday evening, plus matinee’s on Saturday and Sunday in the cozy Omnova Theater in the RAC. Visit the RAC on the corner of Main and 5th Streets in the middle of downtown Columbus for advance ticket information. While in the RAC, take time to enjoy the exhibit featuring the work of Suzi Altman, entitled “Common Ground.”

“Our Town” is the next to the last event of the two-month long joint project by the Columbus Arts Council and the Columbus-Lowndes Public Library, entitled “The Big Read.” This program encourages young people to expand their imagination through reading.

It seems as if “Mother Nature” has the early lead on racing season at the Magnolia Motor Speedway.  Very cold temperatures forced rescheduling of the season open from last week to this week. Now the second verse is the same as the first. Racing fans have to wait two more weeks for the “Frost Buster 250.” So let’s add this caveat.  Weather permitting, the season opener is March 21st.

Weather will not cancel the country-western dance jamboree at the New Hope Community Center on Stadium Road this Saturday.  The Echo’s perform at 7:00 p.m.

This weekend is actually the shortest of the year – by one hour.  Daylight Savings Time returns Sunday at 2:00 a.m.  Be sure to set the clocks ahead one hour to be on-time for church Sunday.  There is something even more important.

Next week is the most dangerous morning commute of the year. That is because body clocks take a bit longer to adjust. You are actually getting up an hour earlier. Be extra careful on the way to work.  The other guy might really struggle staying awake.

That extra hour of daylight after work makes it much easier to preview houses in the late afternoon. Please make a private preview appointment at least 24-hours in advance by visiting your REALTOR® today.
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Andy Kalinowski is a REALTOR®, an Accredited Buyer’s Representative®, a Sales and Foreclosure Resource® and a Military Relocation Professional with CENTURY 21 Doris Hardy and Associates, LLC in Columbus, Mississippi. He has a Mississippi Real Estate license. Andy is also a member of the National Association of Realtors®. Contact him by cell (or text) phone – 662.549.3421 or by e-mail – andyk@dorishardy.com. He is also available for web video chat.

Thursday, March 5, 2015

9 Easy Mistakes Homeowners Make on Their Taxes

Don’t rouse the IRS or pay more taxes than necessary — know the score on each home tax deduction and credit.

As you calculate your tax returns, be careful not to commit any of these nine home-related tax mistakes, which tax pros say are especially common and can cost you money or draw the IRS to your doorstep.

Sin #1: Deducting the wrong year for property taxes
You take a tax deduction for property taxes in the year you (or the holder of your escrow account) actually paid them. Some taxing authorities work a year behind — that is, you’re not billed for 2013 property taxes until 2014. But that’s irrelevant to the feds.

Enter on your federal forms whatever amount you actually paid in that tax year, no matter what the date is on your tax bill. Dave Hampton, CPA, a tax department manager at the Cincinnati accounting firm of Burke & Schindler, has seen homeowners confuse payments for different years and claim the incorrect amount.

Sin #2: Confusing escrow amount for actual taxes paid
If your lender escrows funds to pay your property taxes, don’t just deduct the amount escrowed. The regular amount you pay into your escrow account each month to cover property taxes is probably a little more or a little less than your property tax bill. Your lender will adjust the amount every year or so to realign the two.

For example, your tax bill might be $1,200, but your lender may have collected $1,100 or $1,300 in escrow over the year. Deduct only $1,200 or the amount of property taxes noted on the Form 1098 that your lender sends. If you don’t receive Form 1098, contact the agency that collects property tax to find out how much you paid.

Sin #3: Deducting points paid to refinance
Deduct points you paid your lender to secure your mortgage in full for the year you bought your home. However, when you refinance, you must deduct points over the life of your new loan.

For example, if you paid $2,000 in points to refinance into a 15-year mortgage, your tax deduction is $2,000 divided by 15 years, or $133 per year.


Sin #4: Misjudging the home office tax deduction
The deduction is complicated, often doesn’t amount to much of a deduction, has to be recaptured if you turn a profit when you sell your home, and can pique the IRS’s interest in your return.

But there’s good news. There’s a new simplified home office deduction option if you don’t want to claim actual costs. If you’re eligible, you can deduct $5 per square foot up to 300 feet of office space, or up to $1,500 per year.

Sin #5: Failing to repay the first-time homebuyer tax credit
If you used the original homebuyer tax credit in 2008, you must repay 1/15th of the credit over 15 years.

If you used the tax credit in 2009 or 2010 and then within 36 months you sold your house or stopped using it as your primary residence, you also have to pay back the credit.

The IRS has a tool you can use to help figure out what you owe.

Sin #6: Failing to track home-related expenses
If the IRS comes a-knockin’, don’t be scrambling to compile your records. File or scan and store home office and home improvement expense receipts and other home-related documents as you go.

Sin #7: Forgetting to keep track of capital gains
If you sold your main home last year, don’t forget to pay capital gains taxes on any profit. You can typically exclude $250,000 of any profits from taxes (or $500,000 if you’re married filing jointly).

So if your cost basis for your home is $100,000 (what you paid for it plus any improvements) and you sold it for $400,000, your capital gains are $300,000. If you’re single, you owe taxes on $50,000 of gains.

However, there are minimum time limits for holding property to take advantage of the exclusions, and other details. Consult IRS Publication 523. And high-income earners could get hit with an additional tax.

Sin #8: Filing incorrectly for energy tax credits
If you made any eligible improvements in 2014, such as installing energy-efficient windows and doors, you may be able to take a 10% tax credit (up to $500; with some systems your cap is even lower than $500). But keep in mind, it’s a lifetime credit. If you claimed the credit in any recent years, you’re done.

Installing a solar electric, solar water heater, geothermal, or small wind energy system can also make you eligible to take the Residential Energy Efficient Property Credit.

To claim the deduction, you have to use the complicated Form 5695, which can mean cross-checking with half a dozen other IRS forms. Read the instructions carefully.

Sin #9: Claiming too much for the mortgage interest tax deduction
Taxpayers are allowed to deduct mortgage interest on home acquisition debt up to $1 million, plus they can also deduct up to $100,000 in home equity debt.

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.
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G. M. Filisko wrote this article appeared on National Association of Realtors® web site and is used with permission. She is an attorney and award-winning writer. A frequent contributor to publications including Bankrate, REALTOR Magazine, and the American Bar Association Journal, she specializes in real estate, personal finance, and legal topics.

Visit Houselogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.


Andy Kalinowski is a REALTOR®, an Accredited Buyer’s Representative®, a Short Sales and Foreclosure Resource® and a Military Relocation Professional with CENTURY 21 Doris Hardy and Associates, LLC in Columbus, Mississippi. He has a Mississippi Real Estate license. Andy is also a member of the National Association of Realtors®. Contact him by cell (or text) phone – 662.549.3421 or by e-mail – andyk@dorishardy.com.  He is also available for web video chat.

Wednesday, March 4, 2015

Three Good Reasons To Get Preapproved

Homebuyer novices do not realize the importance in mortgage pre-approval. There are several, but let’s look at the three that are most important to the buyer.

Know The Houses To Preview – A buyer that does not get pre-approved first does so without a realistic idea on the financial amount of home they can afford. While they “think” they have a good idea, it is much better to know. The buyer could be buying a house well below their financial level. There is nothing wrong with that. Unfortunately a common trait among buyers is to find a great house that is several thousand dollars above their financial capability. That only brings disappointment and even frustration.

Pre-approval gives the buyer confidence that every house they preview is within their price point. Many times a buyer wants to preview houses slightly above their price point, hoping to get the seller to negotiate a favorable price within their affordability range. That is all well and good. Knowing that a seller is under no legal or moral obligation to adjust the price allows the buyer to more readily accept an unfavorable reply.

Review Financial Records – Mortgage pre-approval allows an expert review of all financial records including a thorough review of the records maintained by the three credit reporting agencies – ExperianEquifaxand TransUnion. Think of this review as a regular check up with the family doctor. If there is something wrong physically, don’t you want to know about it?

A review of credit information by an expert is essential to do more than just correct mistakes. Perhaps there is a high debt balance on more than one credit account. A mortgage lender can suggest which one most adversely affects pre-approval. The lender also considers income versus debt ratio. Mortgage lenders can also explains the pros and cons about asking a creditor for debt forgiveness.

A final advantage to working with a lender in advance is to receive a specific explanation on the limitations of certain mortgages.  As an example, a buyer might make decisions about using a FHA mortgage on a house priced well below the market value but needing work prior to occupancy. Some mortgages do not allow non-cosmetic rehabilitation projects for completion after the closing.

Knowing the basic requirements of each mortgage package is an essential part of buyer/borrower education. Get solid advice on the front end to avoid disappointments later.

Strengthen Purchase Offer – A seller has no reason to negotiate with a buyer who does not have a mortgage pre-approval letter. What assurance does the seller have that the buyer can make the purchase? This is why the pre-approval letter is so important. A seller and the listing agent know the identity of the lender. The listing agent verifies that the buyer is pre-approved. But the lender cannot disclose the amount on the pre-approval letter, only that the buyer/borrower is pre-approved.

One of the hardest concepts for a buyer to understand is the strength of that letter. A savvy buyer’s agent will not let the seller see the actual pre-approval letter. Instead they make reference to it in a written purchase offer. They promise the seller full access to the seller only upon acceptance of the offer.

Such a strategy benefits the seller. They know the buyer has the money and can begin to understand where the exact financial limitation line is. The buyer has the advantage of limiting sensitive financial information to only those that actually need to see it.

Work With A Local Lender – There are a number of reputable and experienced mortgage lenders that do not have a local office. What the buyer/borrower needs to realize is that the total amount of the mortgage plus interest combined is a six-digit number. Buying a house is probably the largest single financial transaction in a lifetime.

That’s why it pays to establish a personal relationship with the lender. Retain the ability to walk into the office, shake the lender’s hand and look the lender in the eye during those rough spots that happen in every real estate transaction. Ask pertinent questions about the rates and the most importantly the terms of the mortgage. Find the lender with the best terms combined with customer service.

Working with a local lender and REALTOR® is an unbeatable combination to insure a buyer sees only houses within the price point and preparing a purchase offer that reflects the fair market value. 
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Andy Kalinowski is a REALTOR®, an Accredited Buyer’s Representative®, a Short Sales and Foreclosure Resource® and a Military Relocation Professional with CENTURY 21 Doris Hardy and Associates, LLC in Columbus, Mississippi. He has a Mississippi Real Estate license. Andy is also a member of the National Association of Realtors®. Contact him by cell (or text) phone – 662.549.3421 or by e-mail – andyk@dorishardy.com.  He is also available for web video chat.

Tuesday, March 3, 2015

Preparing A House For The Market

Anyone thinking about selling a home tries to gain a competitive advantage over other listed homes or For Sale By Owner Homes. There are a number of ways to gain that advantage without sacrificing the seeming most important factor – the price. While price is an important factor, it is more important to make the buyer realize the value in your home. Let’s discuss a few ways to make a home more appealing to buyers.

Address Deferred Maintenance – A running toilet or inoperable light switch may seem like a small problem. To a buyer that toilet or light switch says many things. None of those things are good for the seller either.

Buyers question if there are other problems with the house. Could there be larger hidden problems that the seller has not addressed? Why does the seller lack pride in ownership?  How can a seller justify the price when there are these visible deficiencies? 

Here is a very simple tip. It’s not an energy saver either. Make sure there is a working light bulb in every socket. Many times owners remove two bulbs from a ceiling fan. When selling a house, put a bulb in every socket. The buyer can clearly see that there are no obvious electrical problems. Brighter rooms help sell a house.

Here is a general rule of thumb for the seller. If there is a $100 unrepaired deficiency, a buyer will ask for a $1,000 reduction in price.  Take the cost effective solution. Avoid those maintenance situations.

Declutter The House – This is a major project. It is impossible to do it in one day or even one weekend. Too much furniture in a room makes it look smaller. Try to remove one or two pieces of furniture and see the difference. Want a helpful tip?

Get rid of any heavily soiled, damaged or broken piece of furniture. Toss any appliance that doesn’t work. Don’t have a kitchen countertop filled with appliances. Two or three are fine. Store those appliances used less than daily in a cabinet. Removing half the clothes from any closet makes the closet appear bigger. No wall should have more than one picture.

Decluttering really accomplishes two or three objectives. One is making the house seem bigger. Second it begins the moving process. The more serious a homeowner is about moving, the more serious they become about decluttering. Rent a storage building or a portable device. Declutter changes the home into a house – and that is what is for sale.

Paint Professionally In Neutral Colors – A fresh coat of paint is the least expensive home improvement project that nets the largest return on investment. An amateur can achieve professional painting results. Don’t skimp by forgetting to buy masking tape. Be sure to tape areas where paint colors join such as ceilings, molding or windows. Cover over electrical sockets to avoid accidently painting them.

If a wall had lots of pictures prior to decluttering, fill those small holes before painting. Be sure to use sand paper so there is a smooth appearance.  Remember in any painting job, about 60 percent of the job does not involve a brush or a roller.  The biggest part of painting is preparing to paint.

Avoid using hard colors such as a deep red, green or blue. Instead use softer colors such as white or beige. Keep plenty of paint on the roller. Use a brush near taped areas. A paint specialist at any home improvement store can provide other valuable tips.

Steam Clean Carpets – The house now looks great. There are no repairs. The clutter is gone. The walls and ceilings have that fresh appearance. The job is just about complete.

If the house has any carpeting, get that carpeting professionally steamed cleaned. There are two reasons to hire a professional. Most of the “do it yourself” steam cleaners only clean the surface. They do little to remove dirt and grime embedded into the fabric. A professional can also advise if a carpet is beyond cleaning and needs replacement.

Steam cleaning also removes any unpleasant odor from pets and tobacco. Young children that have not reached potty training age or old people that lose control of themselves can leave an unpleasant scent that turns off buyers. Carpeting retains those smells.

Here is another helpful tip. Open all windows periodically. Let the fresh air in and get the stale air out.

Want More Tips – One of the two primary jobs of the listing agent is to market the house to the buyer. Your REALTOR® has other tips about making a good impression on the buyer.
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Andy Kalinowski is a REALTOR, an Accredited Buyer’s Representative®, a Short Sales and  Foreclosure Resource® and a Military Relocation Professional with CENTURY 21 Doris Hardy and Associates, LLC in Columbus, Mississippi. He has a Mississippi Real Estate license. Andy is also a member of the National Association of Realtors®. Contact him by cell (or text) phone – 662.549.3421 or by e-mail – andyk@dorishardy.com.  He is also available for web video chat.

Monday, March 2, 2015

Why Getting A Home Inspection Is So Important

When a buyer finds a great home to purchase, and then negotiates the price and terms with the seller, the next order of business is hiring a home inspector. Let’s discuss why this is a very important step early in the purchase process. Let’s also discuss some other facts about the necessity of a home inspection.

Reason – A home inspection is one way a buyer reduces the risk of buying a house with defects. The seller may not realize the house has problems. Many of the deficiencies that a home inspector discovers occur because of changes in building or safety codes. As an example, a house built to code in 1970 may not have ground fault interrupters (GFI) in the kitchen or bathroom. The GFI provides protection from an electrical shock when there are critical differences between the “hot” and “neutral” wires. While installation of GFI outlets are today’s standards, they were not 40 years ago.

The home inspector does more than just inspect electrical outlets. A house consists of several systems. These include the roof, insulation, plumbing and structural systems in addition to the electrical issues.

Qualifications – During the home preview phase, the buyer has the job of concentrating on finding a house that fits the household needs, wants and desires. Your REALTOR® is an expert when it comes to selling real estate and knowing how to negotiate and close a sale. It is very common for neither the buyer nor the REALTOR® to have the technical experience that qualifies either as an expert in the many systems found inside a house.

The Mississippi Real Estate Commission licenses the home inspectors. Most inspectors have a construction background. During the inspection the home inspector climbs onto the roof to check the grit of the shingle for a determination of the remaining life expectance. While on the top, they also look for other obvious problems, especially near the chimney or exhaust outlets. The inspector crawls into the attic to check the amount of insulation, observe any traces of roof leaks or other potential problems.

How fast the does heating and cooling system change room temperature? How quickly does the water heater provide hot water – and what is the temperature of that hot water? Those are just a few of items evaluated.

Findings – After completing a three to four hour physical property inspection, the buyer receives a detailed written report that includes photographs. The buyer receives the report because the buyer hired the inspector. That’s the way it should be. The inspector works for the buyer, not the seller. That way the buyer has the assurance of receiving a full and accurate report, rather than one filtered by the seller.

Most purchase contracts include language that for the sale to proceed, the house must pass inspection. Identifying potential problems early in the transaction is also important, from two standpoints.

Major Problems – Suppose there are major problems with the house. That is the main reason for completing the home inspection early in the process. The purchase contract may need renegotiation. The buyer may have second thoughts about completing the purchase. Early identification of problems gives each side time to take logical second steps in their best interests.

It is possible that the seller could make all required repairs, regardless of the cost to keep the transaction alive. It is possible the seller could refuse. In this case the buyer has the option of walking away from the transaction without a financial penalty.

Minor Problems – Something as easy to repair as a GFI is a minor problem. Most buyers write language into the purchase contract that the seller makes minor repairs up to the amount indicated in the purchase offer. The buyer uses the inspectors report as documentation for requesting those minor repairs. The buyer prioritizes the minor repairs starting with ones deemed most serious to the least serious.

Validation – The buyer or the seller does not have to accept the word of the home inspector. Either party can hire a specialist, especially if the inspector discovers a potential problem that goes beyond the scope of the inspection, or for a second opinion. As an example, a buyer could find a great house but the geology is one of a shifting Earth. A buyer could want the expert advice of a structural engineer to explain why a wall appears to lean.

Finding A Home Inspector – Your REALTOR® has a list of all area licensed home inspectors. The REALTOR® also receives a copy of the inspection report and prepares the paperwork to send to the listing agent and the seller.
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Andy Kalinowski is a REALTOR®, an Accredited Buyer’s Representative®, a Short Sales and Foreclosure Resource® and a Military Relocation Professional with CENTURY 21 Doris Hardy and Associates, LLC in Columbus, Mississippi. He is a Mississippi Real Estate license. Andy is also a member of the National Association of REALTORS®. Contact him by cell (or text) phone – 662.549.3421 or by e-mail – andyk@dorishardy.com.  He is also available for web video chat.

Friday, February 27, 2015

Ending To A Busy February In Columbus, Mississippi

It’s time for the weekly blog feature for community events. There is a reason for this. It is impossible to sell someone a house in Columbus, Mississippi if they don’t want to move here because of a perception about the lack of quality of life programs. Columbus has a quality of life that is as good as or better than other comparable communities its size. Let’s see what is going on this weekend.

Saturday is the final day that BMH Golden Triangle offers bone density screening at a greatly reduced price. Visit the Outpatient Pavilion on Baptist Boulevard and Leigh Drive starting at 8:00 a.m. but bring your check book or cash. Leave the plastic money at home. The regular cost is $575. Pay by check or cash and receive the screening for just $50 with part of that $50 benefitting United Way of Lowndes County.

An estimated 10 million Americans over the age of 50 have osteoporosis. Another 34 million have low bone mass. If immediate action is not taken, half of all Americans over 50 will have weak bones from osteoporosis and low bone mass by 2020. Bone disease affects both men and women of all ethnicities. Find out if you are at risk!

The screening is a simple 15-minute non-invasive scan that can detect bone disease before symptoms even occur. Just 15 minutes can make a lifetime of difference but will reap a huge reward for. The test is mainly for those 40 and older.

This is also the final weekend for the exhibit of Peruvian photographer Liese Ricketts entitled “Espectaculos Que (con) Mueven” or “Moving Spectacles” in gallery of the Rosenzweig Arts Center on the corner of Main and Fifth Streets. In 2010, Ms. Ricketts visited small family circuses on the extreme outskirts of Lima, Peru and created this photo exhibition. The RAC is open Tuesday through Saturday from 9:00 a.m. until 5:00 p.m.

First United Methodist Church hosts the Team HOPE Community Health Fair on Saturday starting at 10:00 a.m. in the FUMC Family Life Center.  Use the entrance on 6th Street North, between Main and College Streets.  Dr. Rick deShazo, the host of Mississippi Public Radio’s Southern Remedies and medical students from the University of Mississippi Medical Center in Jackson will be on hand to offer a variety of health screening tests for free.

It’s Survival of the Fittest by the Columbus Jaguars at the West Lowndes High School Gym on South Frontage Road. Enjoy a special performance by David Horton and the New Hope Dance Xpress. Doors open at 9:00 a.m. for the lone 11:00 a.m. performance.

The Youth Services Department and the Local History Department of the Columbus- Lowndes Public Library have a great program Saturday at 2:00 p.m. at the Library on the corner of Seventh Street North and Third Avenue. It’s the history of our county through American Girl dolls.

The event is intended for school age boys and girls interested in learning more about Lowndes County and Columbus’s past. It gives children a stronger sense of our historical community to help them form real world connections between our past and our future. American Girl dolls will include Marie- Grace and Cecile Rey (both of 1858) among others.

Columbus received four inches of snow this weekend. Although the snow melted, it did force the postponement of the seventh-annual United Sprint Car Series Frostbuster 250 at Magnolia Motor Speedway for one week.  The new dates are Friday and Saturday March 6-7. The event includes two full programs of racing in the USCS. Look for details next week.

Anyone have another real estate need this weekend? Please make a private preview appointment at least 24-hours in advance by visiting your REALTOR® today.
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Andy Kalinowski is a REALTOR®, an Accredited Buyer’s Representative®, a Sales and Foreclosure Resource® and a Military Relocation Professional with CENTURY 21 Doris Hardy and Associates, LLC in Columbus, Mississippi. He has a Mississippi Real Estate license. Andy is also a member of the National Association of Realtors®. Contact him by cell (or text) phone – 662.549.3421 or by e-mail – andyk@dorishardy.com. He is also available for web video chat.

Thursday, February 26, 2015

Tax Deductions for Rental Homes

Although being a landlord certainly has its cons, tops among its pros are the tax deductions rental homeowners enjoy.

From finding tenants to fixing faucets, renting out a home can be a lot of work. If that doesn’t dissuade you, you’ll appreciate collecting the rent checks and taking advantage of tax deductions.

In fact, you can use many rental property expenses to offset your rental income. IRS Publication 527 has all the details.

Writing off Rental Home ExpensesMany rental home expenses are tax deductible. Save receipts and any other documentation, and take the deductions on Schedule E. Figure you’ll spend four hours a week, on average, maintaining a rental property, including recordkeeping.

In general, you can claim the deductions for the year in which you pay for these common rental property expenses: 
  • Advertising
  • Cleaning and maintenance
  • Commissions paid to rental agents
  • Home owner association/condo dues
  • Insurance premiums
  • Legal fees
  • Mortgage interest
  • Taxes
  • Utilities

 Less obvious deductions include expenses to obtain a mortgage, and fees charged by an accountant to prepare your Schedule E. And don’t forget that a rental home can even be a houseboat or trailer, as long as there are sleeping, cooking, and bathroom facilities. Moreover, the location of the rental home doesn’t matter. It could even be outside the United States.

Limits on Travel ExpensesYou can deduct expenses related to traveling locally to a rental home for such activities as showing it, collecting rent, or doing maintenance. If you use your own car, you can claim the standard mileage rate, plus tolls and parking. For 2014, it’s 56 cents per mile.

Traveling outside your local area to a rental home is another matter. You can write off the expenses if the purpose of the trip is to collect rent or, in the words of the IRS, “manage, conserve, or maintain” the property. If you mix business with pleasure during the trip, you can only deduct the portion of expenses that directly relates to rental activities.

Repairs vs. ImprovementsAnother area that requires rental home owners to tread carefully is repairs vs. improvements. The tax code lets you write off repairs—any fixes that keep your property in working condition—immediately as you would other expenses. The costs of improvements that add value to a rental property or extend its life must instead be depreciated over several years. (More on depreciation below.)

Think of it this way: Simply replacing a broken window pane counts as a repair, but replacing all of the windows in your rental home counts as an improvement. Patching a roof leak is a repair; re-shingling the entire roof is an improvement. You get the picture.

Deciphering DepreciationDepreciation refers to the value of property that’s lost over time due to wear, tear, and obsolescence. In the case of improvements to a rental home, you can deduct a portion of that lost value every year over a set number of years. Carpeting and appliances in a rental home, for example, are usually depreciated over five years.

You can begin depreciating the value of the entire rental property as soon as the rental home is ready for tenants and you hold it out for rent, even if you don’t yet have any tenants. In general, you depreciate the value of the home itself (but not the portion of the cost attributable to land) over 27.5 years. You’ll have to stop depreciating once you recover your cost or you stop renting out the home, whichever comes first.

Depreciation is a valuable tax break, but the calculations can be tricky and the exceptions many. Read IRS Publication 946, “How to Depreciate Property,” for additional information, and use Form 4562 come tax time. You may need to consult a tax adviser.

Profits and Losses on Rental HomesThe rent you collect from your tenant every month counts as income. You offset that income, and lower your tax bill, by deducting your rental home expenses including depreciation. If, for example, you received $9,600 rent during the year and had expenses of $4,200, then your taxable rental income would be $5,400 ($9,600 in rent minus $4,200 in expenses).

You can even write off a net loss on a rental home as long as you meet income requirements, own at least 10% of the property, and actively participate in the rental of the home. Active participation in a rental is as simple as placing ads, setting rents, or screening prospective tenants.

If your modified adjusted gross income (same as adjusted gross income for most persons) is $100,000 or less, you can deduct up to $25,000 in rental losses. The deduction for losses gradually phases out between income of $100,000 and $150,000. You may be able to carry forward excess losses to future years.

Let’s say that for the year rental receipts are $12,000 and expenses total $15,000, resulting in a $3,000 loss. If your modified adjusted gross income is below $100,000, you can deduct the full $3,000 loss. If you’re in a 25% tax bracket, a $3,000 loss reduces your tax bill by $750, plus any applicable state income taxes.

Tax Rules for Vacation HomesIf you have a vacation home that’s mostly reserved for personal use but rented out for up to 14 days a year, you won’t have to pay taxes on the rental income. Some expenses are deductible, though the personal use of the home limits deductions.

The tax picture gets more complicated when in the same year you make personal use of your vacation home and rent it out for more than 14 days.

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.
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Donna Fuscaldo wrote this article appeared on National Association of Realtors® web site and is used with permission. She has written about personal finance for more than decade for Dow Jones Newswires, the Wall Street Journal, and Fox Business News. She’s currently a freelance writer with her own home office.

Visit Houselogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.


Andy Kalinowski is a REALTOR®, an Accredited Buyer’s Representative®, a Short Sales and Foreclosure Resource® and a Military Relocation Professional with CENTURY 21 Doris Hardy and Associates, LLC in Columbus, Mississippi. He has a Mississippi Real Estate license. Andy is also a member of the National Association of Realtors®. Contact him by cell (or text) phone – 662.549.3421 or by e-mail – andyk@dorishardy.com.  He is also available for web video chat.