Owning your own home was once thought to be “The American Dream”. But after the Great Recession when home values plunged 34%, that long term view quickly changed. According to the Case-Shiller-Weiss Home Price Index, home prices declined 34% from a peak in April 2006 to a trough in January 2012. Since then prices have recovered strongly and are currently down only 12% from its peak. Nevertheless, this plunge caused many people to re-think home ownership.

However, there are tax benefits to owning a home compared to renting. Tax deductions for homeowners include mortgage interest, real estate taxes and mortgage insurance. Borrowers are required to purchase mortgage insurance when they cannot come up with a 20% down payment. Mortgage insurance is sold by the government if you have a FHA or VA loan. FHA and VA loans end up in Ginnie Mae securities. Mortgage insurance is sold by private companies, like MGIC or Radian, if your lender sells to Fannie Mae or Freddie Mac. Fannie Mae and Freddie Mac are called Government-Sponsored Enterprises or GSEs.

Mortgage interest and mortgage insurance is reported to the borrower on Form 1098. All mortgage interest is deductible except for the portion on mortgage debt that exceeds $1 million, or $500,000 for married filing separately. Mortgage insurance limitations begin when adjusted gross income exceeds $100,000, or $50,000 for married filing separately. Real estate taxes are also deductible and there are no limitations. These deductions are listed on Schedule A (Itemized Deductions) to an individual’s tax return, Form 1040.

In summary, even if your monthly payment is higher when owning a home, it may be more economic to do so. This depends on your tax bracket, annual real estate taxes, interest expense and mortgage insurance. I’ll provide more details on this topic in the weeks and months ahead as there is a lot more to discuss.

If you like the information you are seeing, please contact us for a free consultation, including a review of your prior 3 years of tax returns. We specialize in tax preparation for individuals, businesses and non-for-profit organizations. We can also help you with home purchases and home refinancing.

Regards for now,
Ivan Halpern, CPA

Halpern – Kestenbaum
718-206-0060
ivan@hkpartners.co

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Welcome to the first tax article from the firm of Halpern-Kestenbaum. Over the course of this year we will provide you with useful tax information and interesting facts about our tax laws and how tax revenues are used.

Did you ever wonder who really is in the top 1%? According to the 2014 IRS Data Book that provides information for tax year 2013, the top 1% earns approximately $475,000.

To be in the top 2%, 5% and 10% you would have to earn approximately $375,000, $195,000 and $115,000 respectively.

For the tax year 2013, the IRS processed 240 million tax returns of which 147.5 million were from individuals. US individuals and businesses paid a combined $3.1 trillion of taxes. Unfortunately the government spent $3.5 trillion that resulted in a $400B deficit.

The $3.1 trillion of tax collections comes from mostly 3 sources; i) individuals, $1.6T ii) employment taxes, $1.0 T and iii) corporations $.4T. Employment taxes are made up of social security, medicare and unemployment taxes.

1.2 million tax returns from individuals were audited, or .82% of total individual tax returns. This small percentage makes it seem very unlikely that you will be audited. But, digging a little deeper into the numbers reveals that anyone earning more than $1 million will have a 6% chance of being audited. If you earn more than $5 million, you will have a 10% chance of being audited. But, if you earn $50,000, which is the median income in the U.S., then your audit chances will be .50% (or 1/2 of 1%).

For my next article I’ll provide a few more fun facts as well as guidance on everyday tax issues. For a free consultation, including a review of your prior 3 years of tax returns, please contact us per the information below.

Regards for now,
Ivan Halpern, CPA

Halpern – Kestenbaum
718-206-0060
ivan@hkpartners.co