The benefit of insurance is to transfer the risk of loss to a company in exchange for a premium. The deductible is an amount the insured pays out of pocket before the insurance starts covering the cost of the loss. The challenge is to balance the risk an insured can accept with the premium being charged.
To manage insurance premiums, policy holders often consider adjusting their deductibles. Lower deductibles result in less money out of pocket if a loss occurs in return for higher premiums. Higher deductibles will lower premiums but require that the insured bear a larger amount of the first part of the loss.
Insurance companies offer deductibles as a specific dollar amount or as a percentage of the total amount of insurance policy. The amount is usually shown on the declaration page of homeowner and auto policies.
A small fire in a $300,000 home that resulted in $5,000 of damage might not be covered because it is less than the 2% deductible which would be $6,000. If the homeowner can afford the cost of repairs in exchange for lower premiums, it might be worth it. On the other hand, if that loss would be difficult for the homeowner, a change in the deductible for higher premiums could be considered.
Raising deductibles can save money in the present when paying the premium but could cause problems later if a claim occurs. Homeowners should review deductibles with their property insurance agent to be familiar with the amounts and make any changes that would be appropriate.
The new tax law that was signed into effect at the end of 2017 will affect all taxpayers. Homeowners should familiarize themselves with the areas that could affect them which may require some planning to maximize the benefits.
Some of the things that will affect most homeowners are the following:
- Reduces the limit on deductible mortgage debt to $750,000 for loans made after 12/14/17. Existing loans of up to $1 million are grandfathered and are not subject to the new $750,000 cap.
- Homeowners may refinance mortgage debts existing on 12/14/17 up to $1 million and still deduct the interest, so long as the new loan does not exceed the amount of the existing mortgage being refinanced.
- Repeals the deduction for interest on home equity debt through 12/31/25 unless the proceeds are used to substantially improve the residence.
- The standard deduction is now $12,000 for single individuals and $24,000 for joint returns. It is estimated that over 90% of taxpayers will elect to take the standard deduction.
- Property taxes and other state and local taxes are limited to $10,000 as itemized deductions.
- Moving expenses are repealed except for members of the Armed Forces.
- Casualty losses are only allowed provided the loss is attributable to a presidentially-declared disaster.
The capital gains exclusion applying to principal residences remains unchanged. Single taxpayers are entitled to $250,000 and married taxpayers filing jointly up to $500,000 of capital gain for homes that they owned and occupied as principal residences for two out of the previous five years.
Not addressed in the new tax law, the Mortgage Forgiveness Relief Act of 2007 expired on 12/31/16. This temporary law limited exclusion of income for discharged home mortgage debt for principal homeowners who went through foreclosure, short sale or other mortgage forgiveness. Debt forgiven is considered income and even though the taxpayer may not be obligated for the debt, they would have to recognize the forgiven debt as income.
These changes could affect a taxpayers’ position and should be discussed with their tax advisor.
Planning to go to the Masters next April 2-9th and don’t have a place to stay. Each year, there are homeowners who rent their home for a big premium during the Masters because hotels are in short supply and demand for private homes is up.
Homeowners go on vacation and make tax-free income while temporary tenants rent their home. Homeowners can benefit from a little known provision in the tax code that does not require taxpayers to recognize the income derived from renting their home for less than 15 days per year. See Plan Ahead for Tax Time When Renting Out Residential or Vacation Property- special rules.
This situation can particularly benefit homeowners where there are large sporting events nearby like golf and tennis tournaments, championship games or other high attendance venues. The demand for a private residence can be more attractive than staying in a hotel which makes the price go up.
Obviously, there are challenges with personal belongings and damage but getting a premium rental rate and not having to recognize the income could be worth it. You’ll certainly want to discuss this with your tax professional prior to making this decision. You’d probably also want to get some help from an experienced real estate professional.
Some police departments report as high as 98% of calls are false alarms. Not only is this an incredible waste of police resources that could be available for legitimate emergencies, it annoys neighbors, startles pets and results in expensive false alarm fees.
Know your codes – entering an incorrect keypad code is a common mistake leading to false alarms. The solution is to create codes that are easy for all members of the family to remember without them being obvious to potential burglars like your street number. Let everyone know when you change your code.
Secure windows and doors – be sure that all windows and doors are closed before activating your alarm. Disarm your system before opening a window or door.
House guests – tell visitors that you have an alarm system and when you normally arm it. Housekeepers, baby sitters, outside family and close friends also need to be aware of your procedures and possibly give them a code to disarm the system if it is accidentally activated.
Batteries – most systems have battery backup in case the power goes out. Know how often you need to replace the batteries; some last considerably longer than others.
Motion detectors – pets can trigger a motion detector and then, the alarm. There are sensors made for households with pets providing an alternative to turning them off. Other things that could activate motion detectors are helium balloons or curtains and plant leaves being blown in front of a sensor.
Home alarm systems are valuable to homeowners by increasing security, providing peace of mind and lowering insurance premiums. Some municipalities require a license fee for any home with an alarm. Use your alarm wisely.
During the holidays as throughout the year, getting cash from an ATM is normal for many people. ATM’s are available 24 hours a day and they’re located in bank branches, convenience stores, grocery stores, malls, airports, sports venues and on street corners.
Unfortunately, the convenience aspect can compromise personal safety especially if you are distracted or not paying attention. Planning for an ATM withdrawal and applying common sense can help you avoid trouble.
- Be aware of your surroundings throughout the entire transaction like people sitting in a nearby parked car or someone offering to help you.
- Safeguard your PIN. Don’t share it with anyone. Don’t write it down. Don’t use your birthdate, last four digits of your phone number or other obvious numbers.
- If there are other people at the ATM to make a withdrawal, shield the keypad when entering your PIN number.
- Keep your car doors locked and windows raised, except for your driver’s window, when using a drive-up ATM.
- Minimize the time spent at the ATM by being prepared with your card ready, what you plan to do and do not count your money until you are in a safe place away from the ATM.
- Take your receipt with you and destroy it if you decide to discard it.
- Be aware that some thieves use skimming devices to steal account and PIN numbers. If something doesn’t look “just right”, consider finding another machine to use.
- Especially at night, pay attention to locations with adequate lighting and being visible from the street. Don’t compromise your safety just because it is convenient.
- After you have your money, pay attention to see if someone might be following you. If you are concerned, go to a nearby police or fire station or well-trafficked business and call the police.
- If you feel uneasy during a transaction, cancel it, remove your card and LEAVE.
There may be a time in the not too distant future when we don’t have a need for cash anymore. Until that time, paying attention to simple safety precautions can help protect us during the holidays and throughout the year.
If you’re beginning to feel the pressure of running out of time to find the perfect gift, here are a few suggestions that may not be on their “list” but will certainly be appreciated.
The gift of really listening without interrupting, daydreaming or planning your response can be exactly what people want when they have something important to say.
The gift of affection with appropriate hugs, kisses and pats on the back can demonstrate your love for family and friends better than words.
The gift of laughter by sharing articles, cartoons and funny stories will say “I love to laugh with you.”
The gift of a simple, written note shows sincerity and real heartfelt sentiment that may be remembered for a lifetime and could even change a life.
The gift of a sincere compliment supports a person’s need to be accepted and appreciated. “You look great in that color”, “That was outstanding” or “I really enjoyed that” can make someone’s day.
The gift of random kindness or good deeds like holding a door or allowing someone to move ahead of you in a checkout lane shows respect for others.
Your smile, however, may be your most rewarding gift. Invariably, the person receiving the smile will in turn, smile back. The gift you gave will now be given back to you. It will be the right size and you can always use one more smile.
You’ve got $500,000 in liquid assets for your retirement and you’re still 15 years away. All your bills are paid; you have a small mortgage on your home; cars are paid for and great credit. Don’t break your arm patting yourself on the back yet.
People think more about what they’re going to do when they retire than whether they’ll have the funds to do them. Ask anyone who has retired, it takes more money than you thought it did. Let’s look at a hypothetical situation.
To retire with $125,000 income in today’s dollars with a life expectancy of 25 years after retirement, you’ll need to have a net worth of $1.5 million at retirement including what Social Security may provide. Your $500,000 will grow to $1,045,420 in 15 years which will leave you about a half million short. You’ll need to save $24,149 each year for the next 15 years to reach your goal.
Is this surprising? Did you imagine that this example would be that far from its goal? It might seem staggering to save $24,000 each year but there is another way…investing in rentals.
Real estate over the long term has proven to be a solid, predictable investment. Cash flows, appreciation, equity buildup and tax advantages are the components that contribute to the rate of return. Increasing rents, available financing and solid appreciation make rentals particularly attractive in today’s environment.
Call me at (805) 701-8410 to find out more about how rental homes can help you reach your retirement goals.