Regular readers of the Tax Minute know that, under Section 121 of the Internal Revenue Code, you can exclude from taxable income the gain of up to $250,000 for single taxpayers and $500,000 for married taxpayers filing jointly on the sale of the primary residence that you have lived in for 2 out of the last 5 years. However, what many of these listeners don’t know is that there are a whole bunch of exceptions to the 2 out of 5 year rule which will enable you to take this exclusion. The IRS states you can take this exclusion if the primary reason for the sale is the occurrence of unforeseen circumstances. In a recent private letter ruling, the IRS stated that a couple who had 1 child when they purchased a 2 bedroom condo as their primary residence who later had a son prior to meeting the 2 year rule qualified for the reduced maximum exclusion of the gain from the sale of their home as they met the definition of unforeseen circumstances. If you sold your primary residence for a gain and lived their for less than 2 out of 5 years, I suggest you call me on the Tax Line to see if you may have a situation that meets the definition of unforeseen circumstances so that you may be able to avoid tax on the sale of your home.
If you have a question on Section 121 of the Internal Revenue Code – Home Sale Exclusion or any tax matter call Hershman, Fallstrom & Crowley at 508-754-0800
or Email us at pc@hfctax.com.
Buying your first home is a major milestone, a sign that you’ve made it. It’s also a huge financial decision that can be incredibly stressful at times. If you buy a home in poor condition or spend more than you can comfortably afford, that stress will persist long past closing.
That’s not to say you shouldn’t buy a house — far from it! Homeownership has many benefits, like the freedom to remodel and decorate to your tastes, protection from expensive rent hikes, and the potential to grow your net worth. But if you want home buying to be a good experience, there are a few pieces of advice you need to follow.
1. Get your finances in order before shopping for a mortgage
Lenders factor your income, debt, and credit score when assessing your mortgage application. A large debt load could prevent you from getting a mortgage big enough to buy in your preferred area. A low credit score could land you with a high mortgage rate — and that will cost you.
Before house hunting, pull your credit score and report. Identify factors hurting your credit score, like big credit card balances and accounts in collections. If you improve your credit score before shopping for a mortgage, you’ll benefit from lower rates.
2. Know what you can afford to spend
Just because a lender approves you for a big mortgage doesn’t mean you should spend that much. The amount of house you can actually afford depends on more factors than your income. Take Charge America recommends writing out your monthly household budget to determine what you can afford to spend on housing. Don’t forget to factor other big-picture financial goals like saving for retirement or your kid’s education into your budget, and don’t forget to include the full costs of homeownership, not just the mortgage.. Weigh your mortgage options carefully
Fixed-rate or adjustable-rate, 15-year or 30-year, government-backed or conventional — there are a lot of decisions to make when shopping for a mortgage. Do your research before meeting with lenders. When you’re ready to get pre-approved, shop around with different lenders to compare rates, fees, turnaround times, and other factors.
4. Know your must-haves and your deal-breakers
Don’t get swayed by a beautiful home that’s all wrong for you. Go into your house hunt with a clear understanding of the characteristics your home absolutely must have and the ones you can’t tolerate in a house.
It’s not much use listing requirements if they don’t match what’s actually available in your market. As you dream up your perfect home, research homes for sale in your area to get a feel for the options. With homes selling around $253,000 in Leominster, MA, first-time buyers can find great homes within their budget. However, you might realize you need to compromise on certain features to find a home you can afford.
5. Don’t wait until the last minute to start packing
Square Cow Movers puts it perfectly: “The sooner you start packing the less stressful the process will be.” Start packing as early as possible, beginning with items that are rarely used. You won’t miss off-season clothes, lawn equipment, and recreational gear if they spend a few weeks boxed up. And by packing it now, you spare yourself added stress when you’re busy closing a sale and moving. Packing early also gives you ample time to downsize your stuff so you don’t pay to move unwanted items.
Buying a home that’s all yours is a lot different than moving to a new rental. Searching for homes, applying for a mortgage, and closing on a sale are all complicated and time-consuming. Rather than navigate your first home purchase alone, hire a team of professionals to help you through the process. You’ll not only save yourself stress, you’ll buy feeling confident about your purchase.
Are you growing tired of paying rent each month and not building your net worth? Being stuck in the ‘rental trap’ isn’t much fun, but if you are determined, you can break out. Let’s explore some of the steps that you can take to make 2018 the year that you become a homeowner.
Rent Money Is Lost Money
First – why homeownership? As you may already understand, money spent on rent is ‘lost’ money. Each month you pay your rent, but you do not build any equity, own any property or get any other benefits in return. When you own a house, the money you spend each month is being invested in the home. You are building value in the home over time which you can then realize if and when you decide to sell.
Choose Your Home And Location Wisely
Do you know where in the local area you want to live? And what kind of home you want to live in? If you are a single young professional, a condo or apartment might be the perfect starter home. However, if you are married and have a family, there will be other factors such as schools and amenities to take into consideration. Invest some time in going through local real estate listings and making a short list of communities that seem like a good fit.
Polish Up That Credit Score
Ask yourself: how is your credit score looking? Is it perfectly spotless? Or do you have some past issues that need cleaning up? It is worth checking in with one of the major credit reporting agencies to find out your credit score and if there are any blemishes that need to be taken care of. You can request a free credit report once per year, so take advantage today.
Get Your Down Payment Saved Up
Finally, if buying a home in 2018 is going to be realistic, you will need to ensure that you have your down payment saved up. Although it is possible to buy a house or condo with no down payment, there are pros and cons to this approach. If you can save 10 or 20 percent of the cost of the home, it will go a long way in helping to get your mortgage approved and the sale closed.
If you are ready to break out of the rental trap and start down the path to homeownership, contact us today.
Do you know the difference between a mortgage pre-approval and pre-qualification? Take moment to watch this short video, it will help you understand the basics of pre-approvals and pre-qualifications. If you still have questions contact our office or the real estate professional who shared this link with you.
Yesterday we started talking about some Massachusetts only tax breaks. Did you recently replace a septic system or connect to your town sewer? If so, there is a septic tax credit that is available to you to offset your Massachusetts income tax. The amount of the credit is 40% of the cost, up to $15,000, for the design and construction expenses to repair or replace a failed septic system or for connecting to a public sewer system. That means you can reduce your Massachusetts income tax dollar for dollar by up to $6,000. However, you’re only allowed to take $1,500 of the credit each year and if you received a low or no interest loan to help pay for the cost, the credit needs to be reduced by the amount of interest subsidy you received. Do you have an older home that has lead paint? If so, you may be eligible for a credit equal to the cost of the removal of the lead paint up to $1,500.
Important Instructions for Getting Your Document Notarized
Now that you have your deed, power of attorney, or other important document it will need to be signed (or executed) in person, before (in front of) a Notary Public, or other duly authorized individual, legally able to take your oath, affirmation or acknowledgement. Print your documents, single sided, then please read the process below. Contact our office if you have any questions about the process at all. If your document is not properly acknowledged, it may cause significant delay.
In Massachusetts:
In Massachusetts you may find a Notary Public at some of these locations:
Insurance companies
Banks
Accountants
Real estate offices
Town halls
Libraries
Law offices
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You must appear in person before a commissioned Massachusetts Notary Public. Contact the office of the Notary Public in advance to make an appointment. The Notary Public will require that you provide valid, current, government issued, photo identification.
Bring the unsigned document to the Notary Public, sign the document in front of the Notary. The Notary will take your oath or acknowledgement, sign and apply their notary seal. Note: an embossed notary seal is not required. However, the Notary must sign the notary clause and provide their commission expiration date.
You are welcome to contact our office to schedule an appointment with one of our staff Notaries to have your documents notarized. In most cases, same day service is available. There is no fee for our notary service, however, please do not come in without making an appointment.
Outside of Massachusetts, but in the United States, or official U.S. Territory:
Massachusetts has reciprocity with all 49 U.S. States and all U.S. territories. This means that Massachusetts will recognize the acknowledgement of notaries from other states and territories. Provided that:
The Notaries follow the laws of their own state or territory
The notary clause or acknowledgement clearly states that the signing was the persons “free act and deed”
The notary clause or acknowledgement clearly states that the persons signing the document “personally appeared” before the notary.
Note: Electronic, online, remote or video notary services are not recognized in Massachusetts for real estate documents. Original signatures of the signor and Notary are required. Electronic signatures are not acceptable. Do not use the services of remote notaries, you must personally appear before the Notary, or the document will not be valid for recording in Massachusetts.
Outside of the United States:
It is a very difficult and time-consuming process to have U.S. documents notarized in foreign countries. You must plan in advance if you expect that you will not be able to appear before a Notary Public in the United States.
If you plan to have a Massachusetts document notarized in a foreign country, please visit the website for the U.S. Department of State for clear instructions on the process:
You will need to travel to the local U.S. Embassy or U.S. Consulate Office in the foreign country you are in to get the document notarized. Many Embassies and Consulates require that you schedule an appointment several weeks in advance. They do not accept walk in appointments.
Members of the U.S. Military:
Persons serving in the U.S. Armed Forces, wherever located, may acknowledge documents before a Commissioned Officer in active service in a Massachusetts or U.S. military unit with the rank of Second Lieutenant or higher in the Army, Air Force or Marine Corps, or the rank of Ensign or higher in the Navy or Coast Guard.
The Document must contain a statement that the person signing the documents is actively serving in or with the Armed Forces of Massachusetts or United States and that the person signing personally appeared, and the signing was their free act and deed.
More about Remote Online Notaries (RON)
Electronic, online, remote or video notary services are not recognized in Massachusetts for real estate documents. Original signatures of the signor and Notary are required. Electronic signatures are not acceptable for recording. Do not use the services of remote notaries, you must personally appear before the Notary, or the document will not be valid for recording in Massachusetts.
These services allow individuals to have documents notarized electronically, and they do not require anyone to appear in person. Though it may sound convenient, remote online notary services are not currently recognized under Massachusetts General Law. If you utilize the services of a Remote Online Notary (RON), you need to understand that your document will not be valid for closing.
Quick Reference
Do’s and Don’ts of Document Notarization
Do’s
Don’ts
Do plan in advance. Get the document notarized as soon as possible.
Don’t wait until a few days before the document is needed.
Do have a valid, unexpired, government issued photo identification with you to show the Notary.
Don’t show up without a photo identification.
Do print your document single sided.
Don’t print your documents double sided.
Do bring your unsigned documents to the Notary.
Don’t sign or date the documents prior to being in front of the Notary.
Do have your document notarized in the U.S.
Don’t have your document notarized outside of the U.S. unless it is absolutely necessary.
Do be prepared to pay the Notary. In Massachusetts, a Notary is limited to the amount they can charge. You should not need to pay more than $10.00 in most cases.
Don’t ask a Notary to notarize a document that they have not witnessed being signed. It is against the terms of their commission. They can be prosecuted if caught doing it.
Do make an appointment with the Notary in advance.
Don’t show up to the Notary’s office without an appointment.
Do make certain that the words “free act and deed” are included on the acknowledgement.
Don’t expect the Notary to be able to answer questions about the document. They are not required to.
Do appear in person.
Don’t use a remote, online, or video Notary service. You must appear in person for the document to be recordable in Massachusetts.
Do make sure that original documents are available for real estate closings. Copies are not acceptable.
Don’t sign documents electronically, only original documents with original signatures are accepted for real estate closings.
Do contact our office if you have ANY questions at all about getting your document notarized.
Don’t get your document notarized in any other manner than what is listed here. It may not be acceptable for recording in Massachusetts.
Yesterday we started talking about some Massachusetts only tax breaks. Did you recently replace a septic system or connect to your town sewer? If so, there is a septic tax credit that is available to yo