Many of us know about some end-of-the-year financial tips we can use to lower our tax obligations – maxing out our 401(k), funding an IRA, and making charitable donations. But there are several real estate-related actions that can also help. With time ticking down before the calendar rolls over to a new year, jump on some of these smart strategies that can help you hold on to more of your money.
1. Buy a house
With a quick escrow, you can close before the end of the year, which will mean you can take a nice deduction on your 2015 taxes. “We calculated that a homeowner who took the average for each of four tax benefits would claim $15,871 in home-related deductions (if he or she itemizes),” said houselogic. Those include mortgage interest, points paid on a mortgage, property taxes, and mortgage insurance.
Getting preapproved now can also mean locking in a low interest rate before the predicted rise this month.
“Americans looking to buy a home are facing pressure to act as soon as possible, as the era of rock-bottom mortgage rates that have sustained the nation’s housing market since the recession could be coming to an end,” said the Washington Post. “For years, many home buyers have enjoyed interest rates of under 4 percent, far lower than historic averages. But many analysts say that will change if the Federal Reserve begins pulling back its support for the American economy next month, as is widely expected. An increase in the central bank’s benchmark rate is likely to result in rate raises for all sorts of loans, particularly mortgages.”
The Post noted that mortgage applications were up 20 percent this fall compared to last year – perhaps a reaction to the threat of rising rates.
Quick, before interest rates go up. “The Mortgage Bankers Association expects that rates on 30-year loans could reach 4.8 percent by the end of next year, topping 5 percent in 2017,” said the Washington Post. “Rates haven’t been that high since the recession.”
But not everyone is a prime candidate for refinancing. “If you can shave at least 1 percentage point from your current mortgage rate, then refinancing probably makes sense,” said Interest.com. “Let’s say you have a 30-year fixed-rate home loan that’s charging 5.6%.Refinance at current interest rates, and you’ll reduce your monthly payments by about $90 a month for every $100,000 you borrow.
The best deal for most borrowers is the one that offers the lowest interest rate, with no points and lender fees of $2,000 or less.”
3. Make your January house payment early
If you’re already a homeowner, making your mortgage payment for January in December will allow you to deduct the interest this year.
“Unless you expect your income to rise next year, try to claim as many deductible expenses as possible by year-end so that you can take the write-offs sooner rather than later,” said Kiplinger.
4. Pay your property taxes early
“In states where property taxes are due in multiple chunks, it may make sense to pre-pay next year’s first installment before this year ends,” said Forbes. “This is especially the case for people expecting their incomes to go down in 2015. Just be sure that your mortgage company allows for pre-payments.”
5. Defer rental payments
Have rental property? “One simple way to lighten your tax burden in the coming year is to delay the receipt of payments on rental properties until after the first of the year,” said ABC News. That way it won’t be taxed until the following year.
6. Purchase a rental property
The depreciation of rental property can actually help make you money. It might be too late to pull together a purchase at this late date, but at least you’ll know what to be prepared for next year.
“It’s no secret that rental properties lose money on paper. With the power of deprecation, the fact you get to deduct the mortgage interest your renter is paying for you, and not to mention travel, property taxes, HOA fees, repairs, maintenance, home office, supplies, cell phone, etc… the tax benefits add up quickly,” said CPA Mark J. Kohler. “At the very least, you will be able to carry these losses forward indefinitely to write off against future property sales, if you aren’t able to deduct them immediately against your other income. The tax benefits can be phenomenal.”