HOUSING MARKET RECOVERY Ė WHEN WILL IT BE FOR YOU?
By FRANCIS VAYALUMKAL
Experts love to make predictions as to when home prices will stabilize in U.S. housing markets. As we are all looking for an answer to that, we eagerly listen. But even well-respected forecasters and analysts may disagree, and even if a forecast proves true nationally, your local market may behave in a wildly different way. This disconnect between the board national forecast and the local markets presents quite a puzzle for home buyers and home sellers who need to make major financial decisions on the basis of facts. If you want or need to sell your home, how do you know the best time to put it on the market?
The national housing market is more than large enough to encompass a wide variety of trends in different places and on different timelines. And that means, at the end of the day, you'll need to rely on your own best judgment to make decisions for yourself and your family.
Local data may be more meaningful for homebuyers, sellers
So, how can you figure out when home prices and sales hit bottom and begin to recover in your neighborhood? You may need to do your own research to find the answer. Dig up facts and figures about your own city or town and then combine that data with information about national trends to formulate your own conclusions.
Plenty of data are as close as your keyboard, though the process of sifting through it may take quite a lot of time and thoughtful analysis.You should look for information such as supply of for-sale homes, foreclosure rates, median home prices, residential construction starts, volume of homes sold, residential building permits, employment and unemployment rates, homeownership and housing vacancy rates. The sources for these vary and some research online will get you to the right places.
Supply of for-sale homes a key indicator
If you don't want to indulge in that much research, zero in on the most important statistic, which may be the supply, or "inventory," of homes that are for sale in your local area.
The inventory of for-sale homes in a local area is usually measured as a number of months' supply at a current pace of sales. The general rule is that more months of supply indicates a weaker housing market. Many months suggests plenty of homes are for sale or the pace of sales is slow. Those conditions are indicative of a market that favors buyers. Few months suggests a limited number of homes for sale or the pace of sales is fast. Those factors are indicative of a market that favors sellers.
Many local Realtor associations and multiple listing services, or MLS, collect and publish this type of information. Ideally, the data should be segmented by locale, type of home and price range, though that degree of specificity is rarely on offer.
Housing starts increase supply of for-sale homes
Two other important housing market indicators are residential building permits and new-home construction starts. These indicators are measured by local government building officials and the U.S. Census Bureau. A spike in permits or starts may indicate more optimism among homebuilders, but also can suggest a dramatic rise in the supply of for-sale homes in the near future.
Housing starts generally are a better leading indicator than housing permits because "housing starts turn into homes for sale quickly. The NAHB's Web site (http://www.nahb.org/page.aspx/category/sectionID=113) offers access to a wealth of forecasts and economic and housing data from the association and government agencies.
Most local newspapers publish stories about large employers' hiring and downsizing plans as well as unemployment figures. Employment data also can be obtained from the Bureau of Labor Statistics.
Much like do-it-yourself remodeling, personal economic analysis is not without certain pitfalls.
It's important to track inventory, starts, unemployment and other figures over time and compare them to historical highs, lows and averages to understand their importance.
Francis Vayalumkal is a mortgage banker with Colonial Bank and can be reached at (813) 719-0303 or email email@example.com
By KAMLESH PATEL, CPA
Although smart business strategies are important in any economic situation, the current weak economy makes sound business decisions critical. Your small business can take several steps to maintain your stability in the current economic environment.
Donít panic. Donít assume the sky is falling. Remain confident to employees and customers. With continued hard work, planning and perhaps some tough decisions, you will survive.
Communicate. Share information about your positioning in the weak economy. Let customers, vendors and employees know that you are on top of the situation and making changes to sustain your business.
Evaluate your budget. Identify how close your business is to meeting revenue and expenditure budgets. Calculate how much of a revenue drop your business can absorb and for how long. Review all expenses, and remember that any expense can be reduced over the long term.
Monitor cash flow. Monitor cash flow by updating your cash needs month-by-month. Also, look ahead for up to three years. Consider renewing your credit line now, rather than waiting until the renewal date.
Donít forget customer service. With much of your focus on the recession, be sure not to forget your customers. Now is a great time to review all aspects of your customer interactions, analyzing how best to convert those contacts into opportunities to enrich the relationships. Look at all of your business functions, including marketing, sales, finance, delivery, support and service, to take full advantage of all customer contact points.
Add price points. While recessionary pressures may make
you feel that you should cut your prices, try to resist. In most cases, doing so
simply lowers your profits now and devalues your products and services in the
future. Rather than lowering your prices, look for new ways to offer your
products and concentrate on differentiation. For example, revise your packaging,
reformat your products, or reconfigure your offerings to add more value.
IRS REMINDS TAXPAYERS TO TAKE ADVANTAGE OF NEW TAX BREAKS
When the IRS reminds you to take advantage of a new tax perk, you know it must be a good deal. And that is exactly what many taxpayers will find in the American Recovery and Reinvestment Act of 2009 (ARRA). That is, if they act in time.
Taxpayers who did not own their principal residence during the last three years might still have time to qualify for the first-time homebuyer tax credit of up to $8,000. However, you must close on the home before December 1, 2009. Note that the credit is reduced for higher-income earners.
There are tax perks for current homeowners as well. Energy-efficient upgrades can qualify you for a tax credit. The credit applies to eligible property placed into service in your principal residence during 2009 and 2010. Qualifying improvements include insulation; exterior windows and doors; central air conditioning systems; water heaters and furnaces burning natural gas, propane, or oil; stoves using renewable biomass fuel such as wood, pellets and plants; hot water boilers; electric heat pump water heaters; certain roofing material; and advanced main air circulating fans. Big ticket projects, such as solar water heaters and geothermal heat pumps, can reap a credit for up to 30 percent of the cost.
Looking for a new car? If you buy a qualified new car, light truck, motorcycle, or motor home before the end of the year, you can deduct the sales tax on as much as $49,500 of the purchase price. Again, the deduction phases out at higher income levels, so check the rules before you buy.
The ARRA expands higher education assistance through the American Opportunity Tax Credit, which is a new, improved version of the Hope Credit. For 2009 and 2010, the annual $2,500 maximum credit covers not only tuition, but additional education items as well, such as books and other required course materials. Whatís more, the credit is available for the first four years of college rather than just two years as allowed under the prior Hope credit.
Good recordkeeping is vital for every business
Many business owners assign low priority to recordkeeping, at least until their first tax audit. Then they find legitimate deductions have been disallowed or revenues overestimated, solely because of inadequate documentation. Without supporting evidence, tax auditors create their own estimates of income and expenses, often resulting in inflated tax assessments.
Operating without keeping records is a little like driving blindfolded. Besides saving tax dollars, proper records can help business people identify and evaluate trends in earnings and expenditures and thereby plan more intelligently. They also facilitate preparation of financial statements, which are required when applying for financing or reporting to regulatory agencies.
Recording begins with organizing original documents like sales and purchases invoices, cash register tapes, work orders, and check stubs. The individual transactions are then recapped in sales journals, check registers, disbursements journals, and similar books of original entry. These books, in turn, are summarized in general ledgers, which group activities by account categories. Using a computer does not guarantee proper end results.
You should also retain bank statements, financial statements, tax return copies, and supporting worksheets for income, payroll, excise, and sales taxes. Agreements, contracts and similar legal documents should be filed in secured areas or stored in safety deposit boxes.
The normal statute of limitations for an IRS audit is three years, but that period may be extended to six years if the agency suspects gross income has been understated by more than 25 percent. Since the statute normally starts with the due date of a return (not the actual tax year), itís wise to keep most records for seven years. Certain types of records, such as loan papers, asset purchase contracts, or long-term investment documents, should be kept for the life of the loan or asset plus seven years. Partnership agreements, articles of incorporation, operating agreements, and similar documents should be kept permanently.
H. Patel, CPA, can be reached at (813) 949-8889 or e-mail firstname.lastname@example.org
HOLIDAY GIVING OFFERS TAX BENEFITS
By SEEMA RAMROOP
With the holiday season just around the corner, now might be a good time to begin thinking about a year-end gifting strategy. Show your appreciation to those you love and to charities you admire while receiving tax savings and other benefits.
How do you develop a successful year-end gifting strategy? Here are a few suggestions:
Establish a clear goal for your gift-giving
Compare the tax savings from different gifting options
To help you start thinking about developing a strategy, we have provided some basic information about both individual and philanthropic gift-giving.
Giving to individuals
For 2009, under the annual gift tax exclusion you can give up to $13,000 to as many individuals as you choose each year. Gifts over this amount require filing a gift tax return and may incur a gift tax liability. If you are married and you and your spouse elect to split gifts, you can give each person up to $26,000 per year tax-free. Even though these gifts are not tax deductible for income tax purposes, neither you nor the recipient will have to pay income or gift tax when the gift is made. In addition, the gifted assets and all subsequent appreciation on the gifted assets are removed from your estate, thus potentially reducing future estate tax liabilities. Outright gifts are simplest, but you may also want to consider gifts in trust, gifts to 529 college savings plans and/or gifts to UGMA/UTMA custodial accounts.
Giving to charities
Most charitable gifts also provide you with a current year income tax deduction. There are several types of charitable beneficiaries, including public charities, pooled income funds, private foundations, donor-advised funds and Charitable Remainder/Lead Trusts.
Charitable Remainder Trusts: A smart way to leave a legacy
One effective and popular choice for individuals who wish to leave a lasting legacy to their favorite charity but also reap various financial benefits is the charitable remainder trust. In exchange for a future gift to charity, the charitable remainder trust may provide you with several tax and economic benefits. A charitable remainder trust allows you to:
Defer capital gains taxes. Typically, a charitable remainder trust can be funded with appreciated assets such as stocks. Because of the tax-exempt status of the trust, the appreciated assets can be sold free of immediate capital gains taxes. Instead, the capital gains are carried out to the current trust beneficiary as part of the regular distributions from the trust, and therefore are spread out over the term of the trust rather than being payable all up-front.
Increase diversification and cash flow. The resulting sale proceeds from the sale of a concentrated, highly appreciated portfolio can be reinvested in more diversified assets. You (and possibly other family members) may receive regular distributions from the trust for life or a term of years up to 20 years.
Receive a current-year federal income tax deduction. The deductible amount is the net fair market value of the property placed in the trust minus the present value of the payments to be made to you and/or your beneficiary. The deduction, which is available only if your trust meets all IRS requirements, is calculated using mandatory Internal Revenue Code formulas, interest rate assumptions and life expectancy tables (or the term of the trust if the trust is a fixed number of years).
Reduce future estate tax liabilities. Assets transferred to a charitable remainder trust are not included as a part of your taxable estate. This could reduce future estate tax liabilities faced by your family.
Remember, a charitable remainder trust is irrevocable. Assets in the trust eventually pass to charity, not to your family. You should work with your tax and legal advisors so that a charitable remainder trust, or any other year-end gifting strategy, fits into your overall estate plan. If it does, you could potentially recognize significant tax and economic benefits as well as leaving a lasting legacy to your favorite charity.
Seema Ramroop, financial advisor at MorganStanley SmithBarney in Pam Harbor, can be reached at (727) 773-4629 or e-mail email@example.com
By RAMESH PAREKH, CPA
Recognizing the need for the aging United States population, Congress and many states have enacted tax laws that encourage individuals to insure for the long-term care by providing tax incentives to buy Long Term Care Insurance (LTCI).
Under income tax rules, a medical deduction is allowed for premiums paid for medical care insurance as well as out of pocket expenses for qualified medical expenses. Premiums paid for a qualified long-term care insurance contract are considered medical expenses for the purpose of federal income tax purposes but the deductible amount of the premium is limited by age of the individual at the close of the tax year. The inflation-adjusted maximum deductible amount for 2009 is:
" Age 40 or less ----------- $320
" Age 41-50 -------------- $600
" Age 51-60 ------------- $1,190
" Age 61-70 ------------- $3,180
" Age 71 or older ------------- $3,980
The medical expense deduction can be claimed as an itemized deduction and is subject to a floor of 7.5 percent of the adjusted gross income of the taxpayer.
Example: Single individual age 55 with adjusted gross income of $50,000 has LTCI premium of $1,500 and other medical expenses of $3000 for 2009. His/her medical expense would be computed as follows:
Long Term Care Premium - Maximum deduction allowed ------------- $1,190
Other Qualified medical expenses ------------- $3,000
Total qualified medical expenses ------------- $5,190
Less 7.5% of AGI $50,000 ------------- $(3,750)
Deductible Medical Expense ------------- $1,440
Above deductible medical deduction will be part of the total itemized deductions for the individual. If the individual does not itemize his deductions, he/she will not be eligible for medical deduction. " Tax planning tip:
LTCI premiums can be paid from a Health Savings Account (HSA).
A self-employed individual can deduct 100 percent of his/her out of pocket eligible long-term care insurance premiums up to the limits without having to meet the 7.5 percent threshold discussed above.
Partnerships, LLCs and S-Corporations:
Partners of a partnership, members of a LLC and Shareholders of an S-Corporation owning more than 2 percent of ownership are taxes as self-employed individuals if the business entity pays the premium. The individual does not have to meet the 7.5 percent threshold for the deduction.
For a business operated under a C-Corporation entity, if the corporation pays for the LTCI policy of an employee, it can deduct 100 percent of the premium as a business expense without the age based limitations described above. The purchase of tax qualified LTC insurance policy is not subject to certain non-discrimination rules.
Tax planning tip:
As there is no age-based limit on deduction for a C-Corporation for deducting the premiums on employee policy, the company can use an "Accelerated Premium Policy" such as "Ten-Pay" premiums to get higher deduction.
Taxability of benefits:
Generally, benefits received under a tax-qualified LTC insurance policy are non-taxable unless the daily benefits exceed certain dollar limits.
Disclaimer: The purpose of this article is to provide general information on the subject and not a tax advice. Always consult your tax adviser for tax advice.
Ramesh Parekh, CPA, can be reached at (727) 461-9770 or e-mail firstname.lastname@example.org or email@example.com
By SHAN SHIKARPURI, C.P.A.
While the media has extensively covered the financial crisis in the banking, insurance and auto industries and other larger retail companies, etc., little or no attention has been paid to the smaller businesses (such as retail, service, etc.) who are struggling to survive during these uncertain and turbulent economic times. As businesses gauge the economic recovery plan from the Obama administration, we can be certain of new tax legislation that will contain many additional deductions and credits for individuals with adjusted gross income of $250,000 or less, as well as bonus depreciation for businesses and allowing loss carry-back for five years (currently two years) in an effort to create new jobs and jump start the economy in 2009.
The recent $787 billion economic stimulus package signed by the president contains significant tax-saving opportunities. However, this subject will be discussed in a separate column.
The purpose of this article is to make you aware of the changes that were made in 2007 and 2008 so you can take advantage of these opportunities of additional deductions and credits for both businesses and individuals for 2008 filing. Please keep in mind that a complete and comprehensive discussion of the recent tax legislations is beyond the scope of this brief article and have merely outlined the tax matters that affect businesses and individuals in our surrounding area.
The recently passed legislations are: (1) The Mortgage Forgiveness and Debt Release, enacted in December of 2007, (2) The Economic Stimulus Act of 2008 passed Feb. 13, 2008; (3) Heartland, Habitat, Harvest and Horticulture Act of 2008 enacted May 22, 2008; (4) Heroes Earning Assistance Act of 2008 passed June 17, 2008, (5) Housing and Economic Recovery Act of 2008 (July 30, 2008, and (6) Emergency Economic Stabilization Act of 2008 enacted October 3, 2008.
Some of the changes affecting individuals include:
1. Exclusion of mortgage debt relief. Up to $2 million of qualified mortgage indebtedness on principal residences is extended to the year 2012.
2. First time home buyer credit is ten percent of the purchase price up to $7,500.
3. Additional standard deduction for real estate taxes is $500 for single ($1,000 for joint filers).
4. Deductions extended through the year 2009 include: sales tax deduction, tuition and fees deduction, out of pocket educator deductions, and IRA distributions to charity.
5. Mortgage insurance premium deduction.
6. Surviving spouse sale of home (full exclusion until two years from the date of death).
Some of the changes affecting businesses:
1. Enhanced code section 179 deductions (immediate write-off of qualified equipment expense). For the year 2008, the expense limit went to $250,000 from $128,000; and asset limits went to $800,000 from $510,000.
2. The first year bonus depreciation: 50 percent of property with 20 years or less life.
3. New luxury auto first year limit is $8,000. Business mileage rate is 58.5 cents as of July 1, 2008. 4. Extension of research credit to the year 2009.
5. Extension of 15 years amortization of leasehold improvements and restaurant properties to the year 2009. 6. Extension of expensing environmental remediation costs.
7. Extension of energy conservation credits and energy efficient property credits (qualified wind turbines and qualified geothermal heat pumps) and energy efficient appliances credits.
8. Extension of deductions for energy efficient commercial buildings.
9.Bonus depreciation for re-used and re-cycled property.
Please note that the above represents a brief outline of only some of the provisions of the legislations passed in the past fourteen months. There are numerous other changes that I have not outlined, such as farmers & agricultural energy credits, tax breaks for military reservists, disaster relief provisions, and issues affecting international businesses and tax preparers, etc. If any of these affect you or your business, we encourage you to consult with your tax advisor.
Shan Shikarpuri, C.P.A., of Shan Shikarpuri & Associates, P.A. is a certified public accountants/business consultant in Palm Harbor, and can be reached at (727) 786-1800 or e-mail firstname.lastname@example.org
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