Bankruptcy can help relieve you of your debts and stop harassing creditors from contacting you but have you thought about life after bankruptcy? Will you be able to qualify for a new home?
You can be approved for a new mortgage at a normal interest rate within 24 to 30 months after your discharge. If you can prove the bankruptcy was caused by medical reasons or a divorce you probably can be approved much sooner. But there are qualifications that you must meet to get a new mortgage and this all depends upon how you re-established yourself after the bankruptcy discharge.
Even if you don’t meet all the qualifications you can still get a mortgage but it will come with a higher interest rate and a larger down payment. Lenders will be inquiring about your finances and looking to see if you’ve paid your bills on-time since the bankruptcy.
So How Much Credit is Enough?
If mortgaging a new home, it will take more than a bank card with a $500 limit to re-establish your credit. Begin by concentrating on the necessities and time will work miracles. Start establishing the following:
1. Bank checking and savings account
2. A secured credit card from a reputable institution
3. An auto loan
You will need at least 3 credit references since your bankruptcy.
Put Your Financial House in Order
It all starts with your money. Have you noticed that most people in dire financial straits seem to have everything? Large screen televisions, expensive appliances, fancy cars, etc? When you are discharged from bankruptcy you must cut expenses and stop throwing money away on useless things however the problem here lies with our mindset – we believe everything we have is a necessity; the new wardrobe, the mini-mansion, the over-priced automobile; you may very well deserve these things but if you can’t afford it you simply have to understand the obvious – You Can’t Afford It!
Did You Know –
After your bankruptcy discharge you can re-build your credit score within 24 months up to a high 800? But this requires paying all bills on time and securing new credit responsibilities to show that you’re ready.
I wish I could say that you’ll be automatically qualified but this all depends on what you’ve done since your bankruptcy and the lender’s guidelines.
Things that will Kill a Mortgage Loan Application
Start anticipating a bumpy ride; I know this sounds negative but it’s best to be prepared and after a bankruptcy it’s not a walk in the park. There are twists and turns but it will prove to be well worth the hassle so never give up.
There are things that will likely kill or just delay your chances for a new mortgage;
1. Poor credit since bankruptcy
2. High debt to income ratio
3. Job instability
4. Tax liens or levies against your paycheck
5. Insufficient down payment
Reality hurts sometimes but when you’ve been given a second chance you should know you have to prove yourself all over again. The most important thing here is to know that you must take a hard look at how you’re living and the work you must put into re-establishing your credit. This will improve your chances not only for a mortgage but living encumbered without the benefits of good credit.
Thursday, February 24, 2011
Thursday, February 17, 2011
New Homebuyers Save Bigger with a 15Yr Mortgage
Did you know more homebuyers are choosing a 15-year mortgage over a 30-year mortgage than ever before? It’s not that difficult to understand why; Not only is now the best time to buy a new home but you get to become mortgage-free sooner.
15 year mortgage loans are offered at a lower interest rate; while the 30 year mortgage interest rates are steadily climbing, the 15 year mortgage interest rates have declined.
If you would take out a $200,000 15yr mortgage loan today with an interest rate of 4.75%, your monthly mortgage loan payments would be $1043.00; compare that to today’s 15 yr interest rate and you could take out that same $200,000 mortgage loan at 4.05% with monthly payments totaling approximately $1480;
Yes, it’s a few hundred dollars more to pay off your mortgage loan sooner and that’s a hefty monthly payment, but you get to shave off 15 years to being completely mortgage free; who says you have to spend that much? You could consider a smaller home or a different part of town to lower the price of the home. The important element here is in just 15 years, you will own your home free and clear.
OK, that idea looks fabulous, right? Keep in mind, qualifying for a 15yr mortgage loan means less debt-to-income ratios with more income. Why? Well, you’re telling the lender that you can afford more for your investment.
The 15yr home mortgage loan is especially good if you’re looking at your retirement options. Many retirees are unprepared today because of many payments their still responsible for. What’s more advantageous than being mortgage free? Just think, 50 years old and your mortgage is paid off. Today’s scenario is more like 65 years old and your mortgage is paid off, so that’s 15 years advantage you have to saving over a thousand dollars per month.
Now many potential new homebuyers still sit on the fence, not sure if renting or buying a home is the best decision for them; well, hurry up with that decision because the consensus is, mortgage interest rates will gradually climb throughout the year. Today’s 4.5 to 4.75% interest rate could hit 5±% by years-end.
The 15 year mortgage won’t fit everyone’s lifestyle, but it sure is worth considering. Don’t look at it as paying a mortgage, because it’s really making an investment in your future.
Tuesday, February 15, 2011
What The New FICO 8 Score Means To You
Increasing numbers of lenders are turning to the FICO 8 score released in 2009. The new system offers 15% greater accuracy in predicting repayment. It is gaining the most use in the mortgage and large limit credit sectors. It was quickly adopted as an industry standard among home loan lenders. Even though it is not the official name and is used for other credit, it is often called the FICO 8 Mortgage Score.
What Is the New Fico 8 Score?
The FICO 8 Mortgage Score is a refined version of the old FICO, or regular credit score. By improving the model, it permits a better prediction rate for repaying loans. This increases the security and amount of credit that a lender can offer.
It uses the old FICO score range of 300 to 850. The main adjustment focus on how a few factors affect the score.
Piggybacking:”
Many people were using a scheme to artificially boost their credit rating. A friend or relative with a high credit score would add the person with a low score as an authorized user to their credit card. This boosted the lower score by piggybacking it to a well-established, creditworthy account. The new FICO 8 includes ways to distinguish between piggybacking, married couples with different names, and domestic partners to avoid this artificial manipulation of the system.
End Of High Risk Credit Inflation:
Another system manipulation targeted by the FICO 8 Mortgage Score is credit inflation. Under the old scoring system, your score would increase with your credit limits. Consumers could acquire multiple cards with expanding limits over time to artificially boost their score. Many of these people maximized their credit lines, creating huge risks.
To balance out the risk, FICO 8 takes into account how much of the credit available to a customer is being used. Large amounts of credit with a low percentage used will provide a big boost to credit scores. Some critics argue that this worsens credit inflation. Industry experts counter that a person with a lot of credit and very little of it used are most likely to repay debts. On the other hand, someone with maxed out credit cards and a second mortgage is very likely to default, even though they have a large amount of credit.
Improved Payment Histories And Targeting:
One of the most important changes is how the FICO 8 analyzes credit history. Late payments matter a bit less, compared to an overall history of repayment. Under the old system, late payments could seriously lower credit scores. Under FICO 8, the main focus is the rate of repayment. After all, someone who often pays late but always pays completely is much less of a risk than a person that is often timely but defaults on debts.
A related aspect is better targeting of consumers. A person with a poor history but a couple of recent years with better income and payments can actually carry relatively low risk. On the other hand, someone with a good history but overextended credit may be a big risk.
How Does This Affect Foreclosures And Mortgages?
Foreclosure typically causes a credit score drop of around 150 points. This is not caused by the mortgage default alone. Statistically, those experiencing foreclosure will also default on most or all of their other debts as well. This is where the FICO 8 changes can benefit those losing their home to foreclosure.
Due to the way the new system calculates scores, it is more important than ever to stay current on other debts when facing foreclosure. Under the old system, a foreclosure can cause serious negative effects for several years. FICO 8 will allow a recovery of credit score within a few years.
Pay your other debts in a timely fashion and make payment arrangements if you cannot meet your current obligations to avoid further negative reporting. Remember, the FICO 8 Mortgage Score takes into account total payment history. If you show that you are not like the average borrower and the foreclosure was an isolated default, the system will raise your credit score.
What Is the New Fico 8 Score?
The FICO 8 Mortgage Score is a refined version of the old FICO, or regular credit score. By improving the model, it permits a better prediction rate for repaying loans. This increases the security and amount of credit that a lender can offer.
It uses the old FICO score range of 300 to 850. The main adjustment focus on how a few factors affect the score.
Piggybacking:”
Many people were using a scheme to artificially boost their credit rating. A friend or relative with a high credit score would add the person with a low score as an authorized user to their credit card. This boosted the lower score by piggybacking it to a well-established, creditworthy account. The new FICO 8 includes ways to distinguish between piggybacking, married couples with different names, and domestic partners to avoid this artificial manipulation of the system.
End Of High Risk Credit Inflation:
Another system manipulation targeted by the FICO 8 Mortgage Score is credit inflation. Under the old scoring system, your score would increase with your credit limits. Consumers could acquire multiple cards with expanding limits over time to artificially boost their score. Many of these people maximized their credit lines, creating huge risks.
To balance out the risk, FICO 8 takes into account how much of the credit available to a customer is being used. Large amounts of credit with a low percentage used will provide a big boost to credit scores. Some critics argue that this worsens credit inflation. Industry experts counter that a person with a lot of credit and very little of it used are most likely to repay debts. On the other hand, someone with maxed out credit cards and a second mortgage is very likely to default, even though they have a large amount of credit.
Improved Payment Histories And Targeting:
One of the most important changes is how the FICO 8 analyzes credit history. Late payments matter a bit less, compared to an overall history of repayment. Under the old system, late payments could seriously lower credit scores. Under FICO 8, the main focus is the rate of repayment. After all, someone who often pays late but always pays completely is much less of a risk than a person that is often timely but defaults on debts.
A related aspect is better targeting of consumers. A person with a poor history but a couple of recent years with better income and payments can actually carry relatively low risk. On the other hand, someone with a good history but overextended credit may be a big risk.
How Does This Affect Foreclosures And Mortgages?
Foreclosure typically causes a credit score drop of around 150 points. This is not caused by the mortgage default alone. Statistically, those experiencing foreclosure will also default on most or all of their other debts as well. This is where the FICO 8 changes can benefit those losing their home to foreclosure.
Due to the way the new system calculates scores, it is more important than ever to stay current on other debts when facing foreclosure. Under the old system, a foreclosure can cause serious negative effects for several years. FICO 8 will allow a recovery of credit score within a few years.
Pay your other debts in a timely fashion and make payment arrangements if you cannot meet your current obligations to avoid further negative reporting. Remember, the FICO 8 Mortgage Score takes into account total payment history. If you show that you are not like the average borrower and the foreclosure was an isolated default, the system will raise your credit score.
Monday, February 14, 2011
How FHA New Guidelines Affect You
Over the course of the past few years, the Federal House Administration has implemented a number of changes to home loan rules. At first, many observers expected severe rules and difficulties for many home buyers. Thankfully, the new rules and conditions are not as bad as originally considered. They also seem very well-made to improve the housing market for lenders and buyers alike.
These changes help improve the FHA's ability to provide low interest home loans and continue to allow the agency to provide more loans to more people.
End of 2008:
580 was set as the minimum credit score. The down payment help program (Nehemiah) was ended. Down payment minimums were set to 3.5%.
Beginning of 2009:
The minimum credit score was raised again. This new standard was set at 620.
Late Fall 2010:
Further insulating the agency from high risk, the minimum score was raised to 640.
There were three main changes to the standards:
High Mortgage Insurance Standards; Private mortgage insurance, or the mortgage insurance premium, was raised from 1.75% to 2.25%. This causes a slight increase in monthly payments, but it is not considered a burden by industry experts. It is paid along with the loan, spreading out the costs over the loan lifetime.
This was implemented in April of 2010.
Down Payment and FICO Scores; The minimum score standard qualifies a purchaser for the small 3.5% down payment option. Buyers with a lower credit score may still qualify, but will be required to pay 5-10% down on the home. This reduces the risk for the FHA, while leaving low down payment loans available to buyers with a good credit history.
Reduced Seller Closing Offers; Sellers now can only provide half as much towards closing costs. Under the old policy, the person selling the home could provide up to 6% in closing cost assistance. The recent changes only allow a 3% contribution.
Rounding out these new rules, fresh standards were drafted for lender enforcement. Some homeowners will be affected more than others by these changes. Low income purchasers and those with an uneven credit history will be most burdened. However, the average home purchaser benefits greatly from these new policies.
Overall, these changes fulfill FHA's mission to provide low-cost loans and increase homeownership. They reduce the risks of lending and increase available capital. With higher repayment rates, the FHA will be able to offer more loans over the long term.
These changes help improve the FHA's ability to provide low interest home loans and continue to allow the agency to provide more loans to more people.
End of 2008:
580 was set as the minimum credit score. The down payment help program (Nehemiah) was ended. Down payment minimums were set to 3.5%.
Beginning of 2009:
The minimum credit score was raised again. This new standard was set at 620.
Late Fall 2010:
Further insulating the agency from high risk, the minimum score was raised to 640.
There were three main changes to the standards:
High Mortgage Insurance Standards; Private mortgage insurance, or the mortgage insurance premium, was raised from 1.75% to 2.25%. This causes a slight increase in monthly payments, but it is not considered a burden by industry experts. It is paid along with the loan, spreading out the costs over the loan lifetime.
This was implemented in April of 2010.
Down Payment and FICO Scores; The minimum score standard qualifies a purchaser for the small 3.5% down payment option. Buyers with a lower credit score may still qualify, but will be required to pay 5-10% down on the home. This reduces the risk for the FHA, while leaving low down payment loans available to buyers with a good credit history.
Reduced Seller Closing Offers; Sellers now can only provide half as much towards closing costs. Under the old policy, the person selling the home could provide up to 6% in closing cost assistance. The recent changes only allow a 3% contribution.
Rounding out these new rules, fresh standards were drafted for lender enforcement. Some homeowners will be affected more than others by these changes. Low income purchasers and those with an uneven credit history will be most burdened. However, the average home purchaser benefits greatly from these new policies.
Overall, these changes fulfill FHA's mission to provide low-cost loans and increase homeownership. They reduce the risks of lending and increase available capital. With higher repayment rates, the FHA will be able to offer more loans over the long term.
Wednesday, February 9, 2011
I Want To Invest In Real estate
There are key differences between investment property and a second home. Many assume that buying another house for investment purposes is just like purchasing a vacation property for the family. This can lead to a lot of frustration as the process will not meet their expectations. Understanding the differences helps to make the process of moving from personal to investment purchases a bit easier.
A major area of difference is home financing. Each type of property has distinct qualification standards. You may qualify for a second home but not for an investment property. This is caused by the higher risks involved in rentals and investment value. Market conditions, unknown tenants, and other factors cause lenders to see a greater chance of financial problems. Understanding the distinction between lending criteria and why differences exist will help you get through the investment process with less stress.
Investment Properties and Personal Use Homes
Down Payments:
A larger down payment and/or more collateral are required to finance a second home, compared to your primary house. While a loan for your first home may only require a 5 to 10 percent down payment, additional properties may need as much as 25% down. Lenders will usually require more collateral, larger down payment or shorter loan period for investment properties. Remember, the lender is attempting to balance the risks with the potential income from interest.
Interest Rates:
Interest rates usually rise for second and third properties. This is also true for leased and rental properties. Statistically, homeowners with additional property are more likely to default on at least one loan. In addition, properties which are leased or rented out can be subject to a lot of wear, tear, and damage from the temporary residents. The higher interest rate ensures a faster return on the loan for the lender, insulating them from these risks.
Homeowner’s Insurance:
Homeowner’s insurance almost always rises for secondary properties, whether for personal use or investment purposes. With personal use, such as vacation homes, the properties are left unattended and vacant for periods of time. This raises the risk of theft, unnoticed problems, and insufficient property maintenance. For investment properties, there are liability risks and a higher chance of property damage.
Other Factors
There are a few other things unique to rental and investment property that you should keep in mind:
1.A common requirement is the escrow of three months of financial obligations. This includes insurance premiums, loan payments, and taxes.
2.Only 50% to 75% of the expected lease or rental income will be taken into account when applying for a loan. You need to be able to show that you can cover a quarter to one-half of the expected payment without rental income. Documentation supporting the projected income is expected. The best way to get it is to ask the seller about their rental income from the property.
3.If there are no current occupants, the lender may require that you have a qualified lessee or renter lined up for the property. This helps reduce the risk of a loss on vacant property.
There may be other factors considered by the bank or lender for investment properties. However, a good credit rating, reliable income, and substantial down payment are universally required
A major area of difference is home financing. Each type of property has distinct qualification standards. You may qualify for a second home but not for an investment property. This is caused by the higher risks involved in rentals and investment value. Market conditions, unknown tenants, and other factors cause lenders to see a greater chance of financial problems. Understanding the distinction between lending criteria and why differences exist will help you get through the investment process with less stress.
Investment Properties and Personal Use Homes
Down Payments:
A larger down payment and/or more collateral are required to finance a second home, compared to your primary house. While a loan for your first home may only require a 5 to 10 percent down payment, additional properties may need as much as 25% down. Lenders will usually require more collateral, larger down payment or shorter loan period for investment properties. Remember, the lender is attempting to balance the risks with the potential income from interest.
Interest Rates:
Interest rates usually rise for second and third properties. This is also true for leased and rental properties. Statistically, homeowners with additional property are more likely to default on at least one loan. In addition, properties which are leased or rented out can be subject to a lot of wear, tear, and damage from the temporary residents. The higher interest rate ensures a faster return on the loan for the lender, insulating them from these risks.
Homeowner’s Insurance:
Homeowner’s insurance almost always rises for secondary properties, whether for personal use or investment purposes. With personal use, such as vacation homes, the properties are left unattended and vacant for periods of time. This raises the risk of theft, unnoticed problems, and insufficient property maintenance. For investment properties, there are liability risks and a higher chance of property damage.
Other Factors
There are a few other things unique to rental and investment property that you should keep in mind:
1.A common requirement is the escrow of three months of financial obligations. This includes insurance premiums, loan payments, and taxes.
2.Only 50% to 75% of the expected lease or rental income will be taken into account when applying for a loan. You need to be able to show that you can cover a quarter to one-half of the expected payment without rental income. Documentation supporting the projected income is expected. The best way to get it is to ask the seller about their rental income from the property.
3.If there are no current occupants, the lender may require that you have a qualified lessee or renter lined up for the property. This helps reduce the risk of a loss on vacant property.
There may be other factors considered by the bank or lender for investment properties. However, a good credit rating, reliable income, and substantial down payment are universally required
Tuesday, February 8, 2011
Have You Considered a 203K Rehab Home
Many homebuyers bypass a home that requires repairs; those obvious wires sticking out, missing appliances, outdated kitchens and even a hole in the roof probably would turn most homebuyers off. But many of these homes are uncovered gems waiting to be found and rehabbed. It just takes a special type of homebuyer with patience and vision that can see all the possibilities.
There are mortgages available specifically to buy and fix a home. These definitely should be considered if a home is in good condition, but does not meet your goals, i.e. out dated kitchen, flooring, issues with roof, etc. This program allows you to both purchase and repair a home with a single transaction.
In addition to a typical home improvement project for this type of loan package, the 203-k mortgage loan program can be used to convert a one-family dwelling to a multi-family dwelling; perfect if you need to move the in-laws in with you.
You're probably more acquainted with mortgage financing plans that provide permanent financing. That is you pay your closing fees, sign for a home, and deal with the lender on a monthly basis, when you pay your mortgage. The significance of a 203K loan allows the buyer to roll in the costs of repairs to rehabilitate the property into the mortgage loan.
When rehabilitation is involved, the lender requires the home improvements to be finished before the long-term mortgage is made. You really sit down at closing to sign off on 2 loans; a temporary one for construction/rehabbing of the property, then your 15 or 30 year mortgage after all improvements have been completed.
There are 2 FHA 203k loans; the FHA 203k Rehab and the FHA 203k
Streamline. The FHA 203k Rehab enables borrowers to obtain a single mortgage to finance the purchase and the rehabilitation costs of the property. Minimum improvements are $5,000.
The 203k Streamline key points; this loan has many of the same attributes of the 203k Rehab loan, except the Streamline loan has no minimum amount tagged onto repairs. The maximum amount of repairs is limited to $35,000 for major remodeling.
The 203k loan takes an average of 45 days to close; 30 days for minor remodeling projects and 60 days for projects involving major structure remodeling.
The qualification requirements are the same as a typical FHA mortgage loan however, you you'll need to submit a home project plan and budget for the improvements. The only additional item that the borrower needs is enough cash reserved to pay for materials and labor until they are reimbursed through the loan.
With an over-abundance of foreclosed properties that need rehabilitation, the 203K loan package is a perfect opportunity to get more house for less price (as-is market value) and be able to make improvements without borrowing from your personal savings.
Contact an experienced realtor to start looking for those missed gems.
There are mortgages available specifically to buy and fix a home. These definitely should be considered if a home is in good condition, but does not meet your goals, i.e. out dated kitchen, flooring, issues with roof, etc. This program allows you to both purchase and repair a home with a single transaction.
In addition to a typical home improvement project for this type of loan package, the 203-k mortgage loan program can be used to convert a one-family dwelling to a multi-family dwelling; perfect if you need to move the in-laws in with you.
You're probably more acquainted with mortgage financing plans that provide permanent financing. That is you pay your closing fees, sign for a home, and deal with the lender on a monthly basis, when you pay your mortgage. The significance of a 203K loan allows the buyer to roll in the costs of repairs to rehabilitate the property into the mortgage loan.
When rehabilitation is involved, the lender requires the home improvements to be finished before the long-term mortgage is made. You really sit down at closing to sign off on 2 loans; a temporary one for construction/rehabbing of the property, then your 15 or 30 year mortgage after all improvements have been completed.
There are 2 FHA 203k loans; the FHA 203k Rehab and the FHA 203k
Streamline. The FHA 203k Rehab enables borrowers to obtain a single mortgage to finance the purchase and the rehabilitation costs of the property. Minimum improvements are $5,000.
The 203k Streamline key points; this loan has many of the same attributes of the 203k Rehab loan, except the Streamline loan has no minimum amount tagged onto repairs. The maximum amount of repairs is limited to $35,000 for major remodeling.
The 203k loan takes an average of 45 days to close; 30 days for minor remodeling projects and 60 days for projects involving major structure remodeling.
The qualification requirements are the same as a typical FHA mortgage loan however, you you'll need to submit a home project plan and budget for the improvements. The only additional item that the borrower needs is enough cash reserved to pay for materials and labor until they are reimbursed through the loan.
With an over-abundance of foreclosed properties that need rehabilitation, the 203K loan package is a perfect opportunity to get more house for less price (as-is market value) and be able to make improvements without borrowing from your personal savings.
Contact an experienced realtor to start looking for those missed gems.
Monday, February 7, 2011
Don't Forget These Tax Deductions
45 million people use itemized deductions when they file their taxes, totaling almost $1 trillion in combined deductions. About twice as many people only claim standard deductions for a grand total of $500 billion. That means half as many people get twice the deductions and four times as much benefit.
That is quite a difference, but not all of it comes from regular deductions; some is derived from tax credits. Tax credits are often confused with tax breaks and deductions, but they are quite distinct.
1)Deductions subtract from your taxable income.
2)Breaks are reductions in the tax rates paid.
3)Credits are amounts added to your taxes paid balance. Credits provide the biggest benefit.
THE RECENT VEHICLE SALES TAX DEDUCTION
New vehicle purchases can incur a hefty sales tax. On a $20,000 car with a 5% sales tax, that would be $1000 just in taxes! Starting in 2009, sales taxes paid on new vehicle purchases can be deducted on federal taxes. This includes most types of common vehicles including cars, trucks, and motorcycles.
You qualify for the deduction whether or not it is itemized on Schedule A with your tax filing. While the full purchase price and/or cost of financing cannot be deducted, the full amount paid in sales tax is a deduction. There are some limitations involving time frames and income levels, so be sure to check with the latest IRS publications for accurate information.
JOB HUNTING DEDUCTIONS
This is one of the most overlooked deductions and only a small percentage of qualifying people claim it. With the ongoing trend of high unemployment, more individuals qualify for this deduction than ever before. The deduction is available whether or not you get the specific job you were seeking. Any costs directly related to the job search are deductible. This includes, but is not limited to, resume writing services, employment agency fees, transportation costs, job bank access fees, postage, and printing costs.
MILEAGE DEDUCTIONS
There are a large number of mileage deductions available. The two that have the most qualifying taxpayers are medical and charitable travel deductions. Miles traveled between home or work and the doctor's office or hospitals are all deductible at a rate of 24 cents per mile. Travel for the purposes of charity is deductible at a rate of 14 cents per mile. The availability and rate of mileage deductions can vary from year to year, so check the latest IRS publications to find which additional reductions are available to you.
RETIREMENT TAX CREDIT
Various tax incentives exist to promote retirement savings. This includes permitting pretax contributions and breaks for certain types of investment. One of the most valuable options is a tax credit for the initial investment in a retirement plan. As much as half of the first $2000 placed in retirement savings will be returned as a tax credit. Some restrictions and rate formulas apply, so review the most current information from the Internal Revenue Service.
These are just some of the many tax credits and deductions that may be available to you. As you prepare your taxes this year, be sure to check into what you may qualify for.
That is quite a difference, but not all of it comes from regular deductions; some is derived from tax credits. Tax credits are often confused with tax breaks and deductions, but they are quite distinct.
1)Deductions subtract from your taxable income.
2)Breaks are reductions in the tax rates paid.
3)Credits are amounts added to your taxes paid balance. Credits provide the biggest benefit.
THE RECENT VEHICLE SALES TAX DEDUCTION
New vehicle purchases can incur a hefty sales tax. On a $20,000 car with a 5% sales tax, that would be $1000 just in taxes! Starting in 2009, sales taxes paid on new vehicle purchases can be deducted on federal taxes. This includes most types of common vehicles including cars, trucks, and motorcycles.
You qualify for the deduction whether or not it is itemized on Schedule A with your tax filing. While the full purchase price and/or cost of financing cannot be deducted, the full amount paid in sales tax is a deduction. There are some limitations involving time frames and income levels, so be sure to check with the latest IRS publications for accurate information.
JOB HUNTING DEDUCTIONS
This is one of the most overlooked deductions and only a small percentage of qualifying people claim it. With the ongoing trend of high unemployment, more individuals qualify for this deduction than ever before. The deduction is available whether or not you get the specific job you were seeking. Any costs directly related to the job search are deductible. This includes, but is not limited to, resume writing services, employment agency fees, transportation costs, job bank access fees, postage, and printing costs.
MILEAGE DEDUCTIONS
There are a large number of mileage deductions available. The two that have the most qualifying taxpayers are medical and charitable travel deductions. Miles traveled between home or work and the doctor's office or hospitals are all deductible at a rate of 24 cents per mile. Travel for the purposes of charity is deductible at a rate of 14 cents per mile. The availability and rate of mileage deductions can vary from year to year, so check the latest IRS publications to find which additional reductions are available to you.
RETIREMENT TAX CREDIT
Various tax incentives exist to promote retirement savings. This includes permitting pretax contributions and breaks for certain types of investment. One of the most valuable options is a tax credit for the initial investment in a retirement plan. As much as half of the first $2000 placed in retirement savings will be returned as a tax credit. Some restrictions and rate formulas apply, so review the most current information from the Internal Revenue Service.
These are just some of the many tax credits and deductions that may be available to you. As you prepare your taxes this year, be sure to check into what you may qualify for.
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