Many people aren’t aware of the fact that, in most situations, there really is no gift tax. Here’s why…

$14,000 Annual Exclusion

The federal government gives each of us an allowance to gift anybody $14,000 per year without incurring any gift tax. This $14,000/year replenishes every year, and it’s $14,000 per person. So, theoretically, I could gift every person that I know $14,000 today, and then another $14,000 next year and the year after, and there would be NO gift tax.

$5,450,000 Lifetime Exclusion

What most people don’t realize, is that there’s a second allowance of $5.45mm! In other words, let’s say that I want to give you $114,000. That’s $100,000 more than what I can give you out of my $14,000 annual bucket. That’s not a problem at all, because I also have the $5,450,000 bucket. The $5.45mm bucket is called my “Lifetime Exclusion.” If I use any of it during my lifetime, I simply reduce my estate tax exclusion by that amount.

So in our example, if I gift you $114,000, I would take $14,000 out of my annual bucket and $100,000 out of my lifetime bucket. My annual bucket replenishes each year. But my lifetime bucket does NOT replenish. In fact, I must reduce my lifetime ...

Tax Tips When Owning a Home

Feb 22
Category | Blog

Did you just close on your new home? It was a fun journey, wasn’t it? You applied for your mortgage and with your preapproval letter in hand you went shopping and found the perfect home. You now have a place to call your very own and you’re no longer paying your landlord’s rent. But now that you’re all moved in and settled, it’s also time to start thinking about income taxes and as a homeowner, there are some tax advantages you now have that you didn’t when you were a renter.

You probably know this already but perhaps the single biggest advantage is the mortgage interest deduction. What you probably didn’t know is that very early on with a new mortgage, the bulk of your monthly payment goes toward interest to the lender and less to the principal balance. That means almost all of your monthly payment in the early years is an income tax deduction. Interest is deducted from your gross income, reducing your income tax obligation. For example, with a 30 year term on a $300,000 loan at 3.75%, the principal and interest payment is $1,389 and in just the first year, your total interest paid is $11,155 which is the amount that will be deducted from your taxable income.

Your new lender will send a form 1099-INT which will list the amount of interest paid during the previous year. If you just closed in December and are ready to file but have not yet received ...

As you begin the process to find and purchase a new home you will quickly learn the road to homeownership is laid with acronyms. Two of the most mysterious you will certainly hear are PMI and LTV.

PMI stands for Private Mortgage Insurance. It is insurance that a borrower must purchase, in certain scenarios, that protects the lender’s obligation on a mortgage if a borrower defaults.

LTV stands for Loan To Value. It is a way to compare the amount of your mortgage loan and the value of your home.

Your LTV changes over time, and once it reaches 80 percent or lower, the PMI is no longer a requirement.

Here’s how it works:

Say you have $10,000 saved to buy a house, and the house you want to buy is $180,000.

That means if you qualify for a mortgage, the lender is paying $170,000, which is 94% of the obligation to the seller. The Loan To Value (LTV) is 94% ($170,000 divided by $180,000).

In most cases, the lender will require the borrower to purchase PMI to protect the money they are providing to purchase the home if the LTV is above 80%.  So in the example above, the borrower would have to pay the mortgage costs (principal and interest) as well as a ...

As housing inventories remain constrained in many markets, some buyers may face increased competition and more bidding wars heading into the spring-selling season. Bidding for a new home can get pretty fierce in today's market.  Here are three potential solutions to avoid getting outbid on your new home:

  1. Turn in your loan paperwork BEFORE you place an offer.  In many cases, you are bidding against cash buyers who don't need to wait for financing approvals.  Look at it this way:  if you were the seller, would you prefer to do business with a buyer who needs to wait for financing approvals, or a cash buyer who can close the deal quickly?  With that in mind, it's important to be proactive and provide your mortgage lender with things like your source of down payment funds, your asset documentation, your credit report and your income documentation.  This way, you'll be in a better position to close the deal quickly and compete with those cash buyers.
  2. Pay cash, but do it right.  Keep in mind that you only have 90 days after closing to place a mortgage on a property that you bought with cash if you want to secure your tax deduction. ...

The Lowdown on Down Payments

Jan 27
Category | Blog

MYTH: You need to put 20% down to purchase home.

FACT:  There are many options out there, you can qualify for a mortgage and get your new home without a 20% down payment

“There’s a lot of misconception out there about down payments,” says Steve Grossman, at NJ Lenders. “First-time homebuyers typically fall victim to this myth the most often. The fact is that there are a lot of loan programs that permit a borrower to get a mortgage without having a 20 percent down payment.” Steve continued to describe how knowing the available options can aid a buyer in the early steps of their home search process.

Let’s begin by defining what a down payment is and how it is viewed by lenders. Most lenders will want to see that you have something saved towards purchasing your home. The idea is that if you put your own money into the purchase, you have an incentive to make the mortgage payments because you want to protect your initial investment in the home. This is called a down payment, and it’s almost always calculated as a percent of the home purchase price. You make the down payment, and the lender provides the rest of the money to purchase the home.

Many lenders will offer borrowers a mortgage if they have at least 3-5% of the home purchase price. “There are four other key factors ...

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