February, 2010

President Obama traveled to Las Vegas last week with one heck of a peace offering for the homeowners there who took offense last year when the President advised Americans not to go blowing cash in sin city. According to the Associated Press, Mr. Obama announced a 1-point-five billion dollar boost in public money to help struggling homeowners stay in their homes. The program will focus primarily on the states hit hardest by the foreclosure crisis, including Nevada. The President said,. ”Government alone can’t solve this problem, but government can make a difference.” The money for the new rescue effort will come from the 700 billion dollar fund that was created to bail out the financial industry.

Is the worst of the foreclosure crisis behind us? The Wall Street Journal has an article telling us the Mortgage Bankers of America is reporting that fewer people - 3-point-6 percent - fell behind on mortgage payments in the 4th quarter than they had in in the previous quarter. This is especially encouraging news because typically, the rate of delinquent mortgages increases at the end of the year, when heating bills and holiday expenses kick in.

Jim Brinkmann, chief economist for the group, says the numbers suggest that the wave of defaults that began in 2007 is finally slowing down, and he expects the rate to drop again in the current quarter. Still, the crisis is far from over, because when people do fall behind on mortgage payments, they tend to remain in financial trouble for a long period of time.

One thing we’ve been keeping a close eye on over the past few months is inventory. The lower the inventory, the more competition there is out there and the quicker prices will stabilize. Total housing inventory at the end of December fell 6.6 percent to about 3 million existing homes available for sale, which represents around a 7-month supply at the current sales pace. Raw unsold inventory is 11 percent below a year ago, and that’s the lowest level since March 2006, and is 28 percent below the record of 4.58 million units in July 2008, so good news on the inventory front, too.

Let’s break it down regionally:

Existing-home sales in the Northeast dropped 19.5 percent to an annual level of 910,000 in December but are still 21.3 percent above a year ago. The median price in the Northeast was $241,700, that’s a jump up 3.2 percent from December 2008.

In the Midwest there was a considerable drop of about 25 percent in December, but that’s still 8.5 percent higher than December 2008. The median price in the Midwest also saw a rise to $143,200, which is 1.8 percent above a year ago.

In the South, existing-home sales dropped 16.3 percent but are 15.5 percent above December 2008. The median price in the South was $152,000, down just 1.0 percent from a year ago.

And finally, existing-home sales in the West declined just 4.8 percent to an annual rate of 1.38 million in December but are still 15.0 percent higher than a year ago. The median price in the West was $236,000, up 2.7 percent from December 2008.

So, although we’re seeing a fall in sales, that’s not unexpected. The rises in price, however are extremely promising signs and with what promises to be a busy spring market ahead — 2010 really could be the best real estate year ever.

• How much experience do you have doing your own taxes?
• Aside from your home, what else do you have on your tax plate? Medical expenses? Your own business? A number of dependents? A wide array of deductions?
• How organized are you? If you need lots of time to get your tax-related documents in order, you won’t want to do it on an accountant’s dime.
• How comfortable are you at working on a computer? Do complicated accounting programs intimidate you? Are you vigilant about backing up your important files on a regular basis?

These are all questions that need to be considered as you decide whether to hire a qualified professional to handle your tax return. So let’s ask the question… Software… or CPA?

If your tax filings have been fairly simple in the past, chances are pretty good you’ve been using software programs such as Turbo Tax or Tax Cut to help you fill out and file your returns. Those programs have certainly become much more sophisticated with each passing year, and they generally do a good job of interviewing taxpayers to make sure nothing goes missing. And the software route is becoming more and more popular. Intuit, the maker of Turbo Tax, reported last week that sales of its federal tax return software are up 11 percent compared to last year.

The economy obviously has a lot to do with those sales figures, as more people are trying to save money by doing their tax returns themselves.
You can find software to do your federal and state taxes for around 50 dollars. According to the National Association of Accountants, the average cost of hiring a pro to prepare a return with itemized deductions is 229 dollars – more than four times as much as doing it yourself.

The fact is, if your tax picture is fairly uncomplicated – even if you’re a first time homebuyer - a software program such as Tax Cut or TurboTax can probably handle the task for you. The programs will ask you detailed questions about your home purchase, including details about your mortgage, the interest you’ve paid, the credits you wish to claim and other important information.

But no matter how detailed your software is, there’s one thing it isn’t – and that’s human. A professional tax preparer has the experience and intuition to draw out the minutia of your financial history that even the best software might miss - details that could save you much more than the cost of hiring an adviser in the first place.

Your accountant is also responsible for making sure your taxes are handled correctly from year-to- year. Perhaps you have credits or losses to carry forward, or an alternative minimum tax issue that will come into play in the future. Your accountant will be there to help you next year and down the road. Software programs can deal with similar issues, but if you change computers or screw up a file transfer down the road, that burden will be yours and yours alone.

Accountants are also better, frankly, at dispensing advice. Let’s say you file one tax return as an individual, and a separate return for your business. A software program can help you to prepare both returns, but it won’t be able to help you make choices as an individual that might to minimize your tax burden as a business owner, and vice versa. A really good accountant can provide “outside the box” guidance that a program simply can’t.

Whichever route you ultimately choose – a software program or a professional - the best thing you can do is to keep yourself informed. Stay on top of changes in tax laws and the various tax incentives. That way, come tax time, you’ll be armed with the best possible information to help yourself.

• If you have private mortgage insurance, and you’ve purchased your home in the past three years, you may be eligible to deduct those insurance payments as well
• Do you work out of your home? If you have a home office that is used exclusively as a business, you can deduct the cost of maintaining that work space - from painting the walls to cleaning the carpets. And even a portion of indirect expenses, such as utility costs and garbage pickup, can be deducted.
• Does your home need new windows or a major appliance, such as a water heater, or air conditioning system? How about more insulation for your attic? The government offers tax credits for homeowners who make so-called “green” home improvements. Not only will you save on your taxes, but you’ll save a bundle on your utility bills as well by making your home more energy efficient.
• And those tax credits are not just offered by the federal government. Many states and even local governments offer green tax credits as well. You could find yourself double or even-triple dipping on the same project!
• If you have medical issues, any improvements you make to your home to treat your condition are partially, or in some cases, completely deductable. This can include things like a wheelchair ramp, home air conditioning, or in some cases, even a swimming pool.
• If a new job is the reason for your move to a new home, you may be able to deduct your moving expenses.
• And even owning a vacation home has more tax benefits than you think, including deductions for real estate taxes, personal property taxes, mortgage interest, and points.