Category: Personal Finance

Appealing your property taxes

Posted on by Evan in Taxes

I’ve spoken with many past clients over the past few weeks about their property tax statements.  Many people are frustrated that their property taxes rose for the 2009-2010 property tax year even though the real market value of their home declined.  Brent Hunsberger wrote this great post on the subject for the Oregonian.

Here are the cliff notes:

*As you probably know, you can appeal your assessor’s valuations. But if you’re looking to cut costs, you’d be better off spending time exploring a refinance, a sale or driving down your homeowners insurance premiums.

*The reason: In the ’90s, Oregon voters passed not one but two constitutional amendments limiting growth in property taxes.

*In Oregon, you’ve got until Dec. 31 to fashion your petition.

*Last year, the number of tax petitions more than doubled in the Portland area’s three counties. It’s early, but this year’s volume seems no different, county officials say.

*And now some tips should you mount a challenge:

Talk to your assessors’ office first. The law allows assessors to “stipulate,” or settle, appeals before they reach the board. About one-third of them are resolved this way. It might involve some give-and-take, but it will save you time.

Gather evidence — an appraisal, comparable sales in the neighborhood, or damage-repair estimates. “The worst thing you can do is write a sentence saying, ‘Well, my neighbor’s house is worth this and that,'” Broughal says. “Give us some evidence.” Also, don’t focus on how your tax payment is higher than your neighbor’s. The value is what matters.

Clackamas County officials encourage petitioners to sit in on a hearing before they present their case.

You need not be present when your case is heard, but it’s probably a good idea. You can bring an attorney, but it likely isn’t worth the cost.

Obama signs legislation extending and expanding homebuyer tax credit

Posted on by Evan in First-Time Homebuyer, Taxes

If you haven’t heard, the United States Congress and President Obama have passed legislation that expands the first-time homebuyer tax credit and extends it into the first half of 2010. Before we go any further, we want to make it clear that we are not tax professionals and recommend that you contact a tax professional to see how this law may apply to you.

Initially, the first-time homebuyer tax credit came into law as a part of President Bush’s Housing and Economic Recovery Act of 2008. In the original form, first-time homebuyers were eligible to receive up to $7,500 in the form of a tax “credit” but were required to pay back the credit over a 15-year period.

Earlier this year President Obama signed into law the American Recovery and Reinvestment Act of 2009, which increased the maximum amount of the tax credit to $8,000 and eliminated the payback provision. To be eligible for the credit, homebuyers must have not owned a home in the previous three years, must close on their purchase no later than November 30, 2009, and must make less than $75,000 for individuals and $150,000 for households.

Under the new law, the first-time homebuyer tax credit has been extended, and a $6,500 tax credit for existing homeowners has been added. Here are the details:

· Eligibility criteria for the first-time homebuyer tax credit have not changed: a homebuyer must have not owned a home in the past three years.

· To be eligible for the $6,500 homebuyer credit, homebuyers must be buying their primary residence and have lived in their existing home for at least five of the previous eight years. (The credit is not available for vacation or investment property purchases.) Homebuyers do not have to sell their existing home to be eligible for the credit.

· The credit is available to homebuyers who qualify, as long as they enter into a sales contract no later than April 30, 2010 and close no later than June 30, 2010. The $6,500 existing homeowner tax credit becomes effective December 1, 2009.

· In addition to expanding the tax credit to existing homebuyers, the new law raises the income qualification thresholds to $150,000 for individuals and $225,000 for households.

Although many critics have pointed out that the extension and expansion of the home-buying tax credit is poor public policy, there is no question that it offers a unique opportunity for existing homeowners to purchase a new home with a generous government subsidy.

Mortgage rates remain near historic lows and, according to the Case-Shiller Home Price Index, real estate prices in the Portland-Metro area remain 20% off their July 2007 highs. If you’ve been considering a move, this may be your once–in-a-lifetime opportunity. Please contact us if you’d like to review your loan options and obtain pre-approval.

Here is a link to the section of the IRS website which summarizes the new law.

Student Loan Deferment vs. Forbearance

Posted on by Evan in Debt

Here’s something that I didn’t know until today: When a student loan is deferred it means that the student loan holder does not have to make payments until the deferment period expires & the loan does not accrue any interest.  With FHA loans a home loan applicant is able to have a deferred student loan excluded from their debt-to-income ratio so long as they can demonstrate that the student loan will be deferred for at least 12 more months.

This is different from forbearance in that when a student loan is deferred the student loan holder is not required to make monthly payments BUT the loan is still accruing interest.  In this instance the home loan applicant may be required to include the monthly payment in their debt-to-income ratios even though they may not be required to make payments for 12 months or longer.

Exstension not law yet, but it’s close

Posted on by Evan in Housing & Real Estate, Taxes

MSNBC.com is reporting that Senators have agreed on a proposal to extend the popular first-time homebuyer credit.  Here is a link to the article.

Here are the two key points which look intriguing:

*Senators agreed to extend the existing tax credit for first-time homebuyers while offering a reduced credit of up to $6,500 to repeat buyers who have owned their current homes for at least five years…

*The tax credits would be available to homebuyers who sign sales agreements by the end of April. They would have until the end of June to close on their new homes…

Does the crisis expel the EMH?

Posted on by Evan in Credit Crisis, Investing

Professor Jeremy Siegel wrote this opinion piece for the WSJ yesterday and I thought it was interesting.  In it, Siegel defends the Efficient Market Hypothesis by pointing out that the paradigm in which most Wall Street firms made decisions during the credit boom (which in hindsight look like bad decisions) were steeped in the Great Moderation where bubbles and volatility were not the norm.  As a result, there models for evaluating risk did not anticipate the level of volatility that reality has now presented.  Here are a couple excerpts which I found interesting:

*The economic response to the Great Moderation was predictable: risk premiums shrank and individuals and firms took on more leverage.

*According to data collected by Prof. Robert Shiller of Yale University, in the 61 years from 1945 through 2006 the maximum cumulative decline in the average price of homes was 2.84% in 1991. If this low volatility of home prices persisted into the future, a mortgage security composed of a nationally diversified portfolio of loans comprising the first 80% of a home’s value would have never come close to defaulting.

*Our crisis wasn’t due to blind faith in the Efficient Market Hypothesis. The fact that risk premiums were low does not mean they were nonexistent and that market prices were right.

*But this does not mean that risks have disappeared. To use an analogy, the fact that automobiles today are safer than they were years ago does not mean that you can drive at 120 mph.

What’s your take?  Do you believe in the Efficient Market Theory?  Leave your comments below.

U of P executive certificate program

Posted on by Evan in Personal Finance

I haven’t written much about my current education pursuits but plan to in an upcoming post.  But, I thought I would give the University of Portland executive certificate in financial planning program a plug since I’m currently in the middle of the course work.  Here is a link in last weekend’s Portland Business Journal’s article on the subject.

IRS amends stance on large mortgages

Posted on by Evan in Taxes

Forbes.com is reporting that the IRS has amended their stance on large mortgage interest deduction.  Prior to their amendment homeowner’s who borrowed >$1.0 million to purchase their home were only able to deduct interest on the first $1.0 million.  However, if that homeowner borrowed only $1.0 million to acquire their home and then later took out a $100,000 equity loan they were then able to deduct interest on the entire $1.1 million.

What this article is reporting is that the IRS is effectively viewing these two scenarios as being the same.  Therefore, the interest on the $1.1 million in acquisition indebtedness is now tax deductible.  Homeowners who benefit from this change can amend their taxes back 3 years to take advantage of this change.

Deleverage post #5

Posted on by Evan in Debt

Back in September 2008 I wrote this post on household deleveraging.  Although I haven’t posted on this subject in a while it is clear that the trend continues.

In this morning’s WSJ this article is featured entitled “Drought of Credit Hampers Recovery“.  In the article the authors explain that consumer debt (i.e. auto loans, credit cards, loans for recreational equipment) has fallen significantly since the collapse of the housing market and subprime crisis.

This is not a surprise as households cut back on spending and banks cut back on lending.  But the article makes it sounds like this trend is a bad thing.

I guess it’s true that a reduction in consumer spending ultimately costs jobs.  BUT, isn’t it also true that the levels of debt we saw during the boom, especially consumer debt which is “unhealthy” debt because it’s either unsecured or secured by a depreciating asset, was unsustainable?

If so, then is this really a bad thing?  Call me old-fashioned but I tend to think that this is good news.

What are your thoughts?  Has your household cut it’s debt in the last year?  Tell your story in the comment section below.

The top brass

Posted on by Evan in Personal Finance

I was reading the Portland Business Journal this weekend and came across this article about Bryan Sims and his company Brass media.  Brass media owns and operates Brass Magazine which is a publication designed to educate teenagers and young adults on money matters.

I went online this morning and began reading some of the articles and am impressed with the content.  My hat goes off to Bryan and his team for filling a much needed niche in our society.

Did you know coinisurance applies to homeowner’s insurance?

Posted on by Evan in Insurance

I’m currently enrolled in the Executive Certificate for Financial Planning class at the University of Portland.  The class is a 10-month intensive study geared towards preparing students to sit for the CFP® exam.

We just got done studying insurance and I must say thus far this has been my weakest subject.  As a consumer, like many other financial services, I knew very little about insurance policies and what I should look out for.  Fortunately for me I have a trusted adviser in Jeremy Duncan @ Country Companies (email me if you’d like to be put in touch with him) so for the most part I’m happy with my families coverages.

To give you an example of the details that one should familiarize themselves with when shopping for homeowner’s insurance.  Did you know that homeowner’s insurance policies have coinsurance?  That’s right, I emailed Jeremy to have him explain it to me and here is his response:

Coinsurance clauses are placed in policies to help protect insureds against unexpectedly rising construction costs (when we’re talking about dwellings), and to limit insurers from overpaying for claims when a client is under-insured.  How it works is kind of complex at first blush, but pretty simple once you have it.  For example, you have a policy with a 80% coinsurance clause for your dwelling.  I run a building valuation and determine that it would cost $100,000 to replace.  That means that as long as the client is insuring the dwelling above 80% (or $80,000 in our example), we would replace the building in full up to the $100,000 policy limit.  Therefore, with a coinsurance clause of 80%, the client is not required to carry the full replacement value to receive the full replacement cost.

However, if the client is not insuring to the coinsurance level and there is a loss, there would be a “coinsurance penalty”.  Here’s how the penalty is calculated:  You take the amount of insurance that the client did carry and divide it by the amount that they should have carried, and the result is the percentage of the loss that the insurer will pay.  So with our $100,000 example, if the client insured to $75,000, they are insured to 75%, below the coinsurance clause, so we would only pay 75% of the loss.

I’d recommend contacting your insurance adviser to make sure you’re all covered….