Fix your Credit

Deborah Laemmerhirt  203-994-4297  homesinconnecticutforsale.com

Fix your credit.  Don’t believe the hype from fly-by-night companies that claim to be able to raise your credit score magically, especially if they say they can make negative credit information disappear. They can’t. There is no magic, but with diligence and a little time, you can raise your own credit score legitimately. Here are some critical things you need to know.


The number one rule should be obvious, and cannot be stressed enough… pay bills on time.
–Have credit cards, but use them wisely. A good rule of thumb is, if you don’t have the cash, you cannot afford the purchase.
–Keep your credit balances low in relation to your available credit. This demonstrates that you are not over-relying on credit to get by.
–Keep tabs on your credit score by getting a copy of your credit report at least once a year. 
–Plan ahead. Improving your credit score can take three to six months…. maybe longer. If your score is lower than it should be, you might want to put the application off for a few months.
–Don’t open new accounts, but don’t close existing ones. Opening new accounts too close to refinancing could make you appear overextended. On the other hand, if you close existing accounts, your score could drop. This may sound counter-intuitive, but your credit score is made up of many factors. One factor is the length of time you’ve had credit. Closing your oldest accounts could artificially shorten that time. Another factor is your overall credit balance compared to your available credit. Closing an account doesn’t change your credit balance, but it shrinks your available credit. Even though nothing has really changed, the percentage of available credit you have used appears larger, and that is a definite negative.

The Federal Trade Commission (FTC) warns consumers to be wary of “free credit report” companies. Some of these companies use deceptive advertising to give the impression they issue free credit reports, when in reality, they attempt to lock consumers into paying a monthly fee.  Log onto the FTC Web site to find out how to get your free annual credit report

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Investors – converting your primary resident to rental property!

Deborah Laemmerhirt  203-994-4297  homesinconnecticutforsale.com

Investors – converting your primary resident to rental property!

If you’re having a tough time selling your home in today’s market, one option is to convert it into a rental property. That way, you can hang in there until the local real estate market rebounds. Meanwhile, you can probably shelter most or all of the rental income with tax deductions, including depreciation write-offs.

With any luck, you’ll eventually be able to sell the property for a decent price. However, some confusing tax rules come into play when you convert a personal residence into a rental, and they can lead to unanticipated results when you sell. Below is an explanation of the complex rules, as well as some examples to show how they work.

Tax Basis for Calculating Depreciation Deductions Depends on Market Value

You can depreciate the tax basis of the building part of a residential rental property (not the land ) over 27.5 years. This allows you to shelter some of your rental income with depreciation deductions.

However a “special basis rule” applies to a rental property that was formerly your personal residence. Under this rule, the initial tax basis of the building for purposes of calculating depreciation write-offs equals the lower of:

1. The building’s fair market value (FMV) on the conversion date or

2. The building’s “regular basis” on the conversion date. This generally equals the original price, plus the cost of any improvements (not counting normal repairs and maintenance) minus any depreciation deductions you might have claimed before the property was converted into a rental (for example, because you had a deductible home office).

Key Point: If on the conversion date the building’s FMV is lower than the “regular basis” figure (possible in a bad market), you must use the lower number to calculate depreciation deductions after converting the property into a rental.

Tax Basis for Calculating a Loss Also Depends on Market Value

You can’t claim a deductible tax loss from selling a personal residence. You can only deduct losses from selling business or investment assets. Common question: Can I claim a deductible tax loss if I convert my residence into a rental and later sell it for less than I paid? Not necessarily. The “special basis rule” applies here too, and it may reduce the deductible tax loss when you sell or eliminate it entirely.

Here’s why. When you convert a former personal residence into a rental, the “special basis rule” mandates that your initial tax basis for calculating any later tax loss on sale equals the lesser of:

1. The property’s FMV on the conversion date (counting both the land and the building) or
 
2. The property’s “regular basis” on the conversion date. This generally equals the original cost of both the land and the building plus the cost of any improvements (not counting normal repairs and maintenance) minus any depreciation deductions you might have claimed before the property was converted into a rental. You must then subtract depreciation write-offs for the period after the property is converted into a rental to arrive at the basis on the date of sale. Use that basis figure to determine if you have a deductible tax loss on sale (or not).

Key Point: If on the conversion date your property’s FMV is lower than the “regular basis” (possible in a bad market), you must use the lower FMV figure to determine whether you have a deductible tax loss when the property is eventually sold.

The net effect of the “special basis rule” is to disallow for tax purposes any loss on sale that results from a decline in value that occurred before the date the property was converted into a rental. However, a loss that is attributable to a post-conversion decline in value can result in a deductible tax loss when you sell. Keep in mind that depreciation deductions claimed after the property is converted into a rental reduces the property’s basis under the “special basis rule” and make it that much harder to have a deductible tax loss on sale. All this will be much easier to understand after you check out three examples at the end of this article.

Strategy: Despite the unfavorable impact of the aforementioned “special basis rule” converting a personal residence into a rental property sooner rather than later can result in a deductible tax loss on sale if the property’s value continues to drop after the conversion date. Put another way, converting sooner rather than later could give you a bit of a tax break–in the form of a modest deductible tax loss on sale — while waiting could mean no such tax break at all.

 

Different Rule: Tax Basis for Calculating Gain Depends on Cost (not Market Value)

If the value of your property recovers after the conversion date and you eventually sell for a profit, your basis for purposes of calculating the tax gain equals the “regular basis” as of the sale date. This amount generally equals the original cost of the land and the building plus the cost of any improvements (not normal repairs and maintenance) minus any depreciation deductions (including after the property was converted into a rental).

The Rules Could Produce Unanticipated Results When Selling

When selling, the tax results might surprise you. Reason: You must use the “special basis rule” to calculate any deductible tax loss, but use the “regular basis rule” for purposes of calculating any taxable gain. If following these two rules results in two different basis numbers, you can potentially wind up in no man’s land where you have neither a tax gain nor a tax loss. That will happen when the sale price falls between the two basis numbers.

Obviously, this is confusing, but here are some examples to help illustrate the tax results that can occur with differing conversion-date FMVs and differing net sale prices.

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Kitchens – Is Bigger Better!

Kitchen – Is Bigger BetterDeborah Laemmerhirt  203-994-4297  www.homesinConnecticutForSale.com

For kitchen remodels, bigger is not necessarily better, but open spaces are in high demand, according to the Fall Houzz Kitchen Remodeling Survey of more than 7,500 remodeling homeowners.

Only a third of those renovating a kitchen are increasing the square footage of their space, while three quarters are opening up their kitchens, typically as part of a great room.

Consistent with the open concept approach, three in five respondents are incorporating an island into their new or updated kitchen.

Kitchen style differs by age group, with younger homeowners more likely to describe their future kitchen as contemporary or modern while those over 55 years old favor a traditional look. 

 

Other Take-Home Messages From The Survey:

Countertops are key to transformation: The vast majority (94 percent) of respondents plan to change their countertops. Granite and quartz are the top picks (86 percent) and many people mix and match materials for their island.

Stainless appliances are still popular: While nearly two thirds of respondents are choosing stainless, many respondents reported combining stainless appliances with appliances integrated into cabinetry for a more subtle look.

Conservative color schemes dominate: “Soft and neutral” is the most popular color scheme choice (75 percent). A much smaller group is going “bright and colorful” (14 percent) or “bold and dramatic” (11 percent).

Kitchen palette and style preferences are clearly linked: Color conservatives are more likely to choose traditional style kitchens, while those who choose more daring colors are more likely to create a contemporary or modern kitchen.

Eco-friendly matters: Nearly half of respondents cite using ecofriendly appliances and materials as important. Those who declared choosing ecofriendly materials and appliances to be “extremely important” are more likely to choose tile flooring, while all other groups favored hardwood.

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