10 Most Stolen Cars
A car is stolen every 26 seconds in America. Nearly half of these are never recovered, having been scrapped for parts or smuggled to another country. Anti-theft devices can help deter criminals, but as the technology of car alarms progresses, so does the crafty nature of auto thieves.
The chances of your car being stolen are approximately 190 to 1. Of course, this number fluctuates based on where you live and what sort of car you drive. The chances that someone wants your rusted El Camino are pretty slim, but that shiny new Escalade in the driveway is awfully tempting to a would-be car thief. Cars with a good market value, whether they are flashy or just practical, are always the most coveted.
The following is a list of the most stolen vehicles in America in 2005, according to the National Insurance Crime Bureau (NICB). These cars are model years 2003 – 2005.
1. Honda Civic
2. Toyota Camry
3. Honda Accord
4. Dodge Caravan
5. Chevrolet C/K 1500
6. Ford F-150
7. Dodge Ram Pickup
8. Acura Integra
9. Toyota Pickup
10. Nissan Sentra
Thursday, February 21, 2008
Thursday, February 14, 2008
Life Insurance
What are accelerated benefits?
Since the 1980s, many life insurance companies have offered terminally ill insureds an what has been come to be known as an “accelerated death benefits option”. The Accelerated Death Benefit allows the policy owner to receive, in advance of the insured person’s death, a significant portion of the death benefit that otherwise would be paid after death to the beneficiaries. Often as much as 80%, and sometimes more, is available at any time within the last year or two of the person’s projected life.
The funds received from accelerated benefits can be used by the policy owner for any purpose he or she chooses, whether to pay for extra or experimental medical care, to take a trip, to improve a home, hire nursing staff, or anything else.
As accelerated death benefits originally were created as an act of grace (sometimes terms a “policy liberalization”) by the insurance companies, long after the policies were issued, many policies do not mention them. While more recent policies are more apt to have accelerated death benefits provisions built in, do not let the absence of a provision deter you from asking the company if it offers such a benefit if the policy is silent, or a more attractive benefit than the policy itself provides. While practices vary from company to company, sometimes the accelerated death benefits take the form of “loans” and an “assignment” with the balance of the face amount, less any interest, to be paid to the insured's estate on death.
Since the 1980s, many life insurance companies have offered terminally ill insureds an what has been come to be known as an “accelerated death benefits option”. The Accelerated Death Benefit allows the policy owner to receive, in advance of the insured person’s death, a significant portion of the death benefit that otherwise would be paid after death to the beneficiaries. Often as much as 80%, and sometimes more, is available at any time within the last year or two of the person’s projected life.
The funds received from accelerated benefits can be used by the policy owner for any purpose he or she chooses, whether to pay for extra or experimental medical care, to take a trip, to improve a home, hire nursing staff, or anything else.
As accelerated death benefits originally were created as an act of grace (sometimes terms a “policy liberalization”) by the insurance companies, long after the policies were issued, many policies do not mention them. While more recent policies are more apt to have accelerated death benefits provisions built in, do not let the absence of a provision deter you from asking the company if it offers such a benefit if the policy is silent, or a more attractive benefit than the policy itself provides. While practices vary from company to company, sometimes the accelerated death benefits take the form of “loans” and an “assignment” with the balance of the face amount, less any interest, to be paid to the insured's estate on death.
Wednesday, February 13, 2008
Save Money on Homeowners Insurance
18 Ways To Save Money On Your Homeowners Insurance
Call an agent today and review all 18 ways to save money on your Homeowners insurance or any Property insurance. There is a good chance that you may be missing some important discounts that you are entitled to. An agent can help you get the lowest possible premium.
1). Age of Home – If you have a newer home, you may be eligible to pay lower premiums. Also, if you have recently renovated your home and updated your heater, plumbing, wiring and roof, your insurer may now consider your homes age to be only as old as the most recent update on your home. Call your agent for the details.
2). Blanket Endorsement for Jewelry – Insuring jewelry can be expensive if you list each item individually on your policy. Consider a blanket endorsement on your policy that will cover many items of jewelry up to a specified limit on the policy. Often there will be a specific limit per piece of jewelry in addition to the total amount covered. For example, the policy may insure all jewelry in the home up to $10,000 but no more than $2500 for any one piece of jewelry. Contact your agent for more details.
3). Claim-Free – To be eligible for this discount you must be claim free for a period of time. Usually 3 or 5 years.
4). Credit – Your credit plays a major role in determining what your final policy premium will be. Many insurers can no longer give you an accurate quote for a policy until they actually check it out. Insurers used to look at things like your loss or claims history and a few other factors to determine your rate. However, in recent years, insurers have added your credit as a major tool in evaluating what your final premium will be. Generally with these companies, a good insurance score (or good credit score) means a more favorable rate. This practice has gone on in the banking industry for as long as most folks can remember. The philosophy is that a group of risks with good credit in the same area will have fewer losses than a similar group in the same area with bad credit. In today’s insurance marketplace, good credit can mean lower policy premiums.
5). Dead Bolt Lock – Do all exterior doors in your home have a dead bolt lock? If yes, you may qualify for this discount.
6). Dwelling Coverage Amount – Review the dwelling coverage amount on your homeowners’ policy. You could be over-insured. Many insurers base this amount of coverage on the purchase price of the home. If the home is completely destroyed and must be replaced, the land will still be there and the insurer will be rebuilding from the ground up. The land value is often a big part of the purchase price of a home. Also, obtain the exterior square footage of your home, and call your agent to have he or she assess the correct replacement cost of your home. The insurer often obtains the square footage from you and if it is not accurate, your home could be over insured or even worse, underinsured. You want it to be just right. You bear the ultimate responsibility for insuring your home to the proper amount. The dwelling coverage amount is the single most important area of your policy to review with your agent. Call today.
7). Employee Discount – If you are an employee of your insurer or of a company that has a special program with your insurer, you may qualify for a discount or a discounted rating plan.
8). Fire Extinguisher – Homes equipped with fire extinguishers afford the homeowner a great tool to help put out a small fire before the whole house burns down. If you have one, you may be eligible for a discount.
9). Have Your Policy Re-Written – Many insurance companies periodically develop different rating plans and premiums for the same policies. If your policy was re-written with the exact same coverage in the new plan, your rate would likely be different in this newer rating plan. You could pay more or less in the new rating plan. Also, most companies will charge an extra premium for a claim and will continue to charge you until the end of the policy term. This could mean that you could pay significantly more than necessary if you had your policy re-written after the loss is over 3 to 5 years old. Often, there may be some disadvantages to having your policy re-written so check with your agent.
10). Increase Your Deductible – Many policies carry a standard $500 deductible , but you can request a higher deductible such as $750, $1000 or higher and often save a substantial amount of money. By agreeing to be responsible for a bigger part of the total amount of the claim, the insurer will reward you with a lower premium. For many, this is one of the best ways to save money over time. Call your agent for all of your options.
11). Jewelry in Vault – If you insure jewelry on your policy and store it in a vault or safe deposit box when not in use, you may be eligible for a significantly lower premium on those items listed on your policy.
12). Multiple Policies With the Same Company - Many insurers will give you a multi-policy discount if you have more than one line of insurance with them. Consider purchasing your auto, home and life insurance from the same insurer. This will generally also put you in a more favorable position with the company from claims to underwriting.
13). Previous Insurer – Many insurers will give you a discount if you are currently insured with specific insurer and switch to a new insurer. Some insurers do this to try to induce clients to move their company.
14). Rate Territory - Most insurers develop rating territories or areas to help determine what premiums to charge you. You would expect to pay more if you live in a big city than if you live outside the city is an example of this. Check with your agent to make sure that you are being properly rated for the territory that you live in. Often, many rating territories have more than one zip code and even though your policy shows the correct zip code, you could be rated in the wrong county and paying the wrong premium! Call your agent today to explore this often over-looked option.
15). Retired Discount – If you are a certain age (usually 55 or 65 years old & up) and are retired, many insurers will give you a discount on your policy. Don’t miss out on this one if you qualify, it can be a big one and you must call your agent to get credit for the discount.
16). Roof Type – Depending on what type of roof you have, you may qualify for different types of policies from the insurer. For example, if you have a flat roof on your home you may not qualify for the same type of policy as you would if the roof was pitched or an "A" shaped roof. Your roofing material could also be considered as well.
17). Security System – If you purchase a security system for your home, almost every insurer will give you a discount. If your home alarm system is capable of notifying the police and/or the fire department directly should either be triggered, you will generally get a bigger discount for having both. Having either will generally give you a discount as well.
18). Smoke Detector – Homes equipped with smoke detectors save lives and almost all insurance companies will give you a discount if you have them.
Contact Jim Somborovich: js@allstate.com
Call an agent today and review all 18 ways to save money on your Homeowners insurance or any Property insurance. There is a good chance that you may be missing some important discounts that you are entitled to. An agent can help you get the lowest possible premium.
1). Age of Home – If you have a newer home, you may be eligible to pay lower premiums. Also, if you have recently renovated your home and updated your heater, plumbing, wiring and roof, your insurer may now consider your homes age to be only as old as the most recent update on your home. Call your agent for the details.
2). Blanket Endorsement for Jewelry – Insuring jewelry can be expensive if you list each item individually on your policy. Consider a blanket endorsement on your policy that will cover many items of jewelry up to a specified limit on the policy. Often there will be a specific limit per piece of jewelry in addition to the total amount covered. For example, the policy may insure all jewelry in the home up to $10,000 but no more than $2500 for any one piece of jewelry. Contact your agent for more details.
3). Claim-Free – To be eligible for this discount you must be claim free for a period of time. Usually 3 or 5 years.
4). Credit – Your credit plays a major role in determining what your final policy premium will be. Many insurers can no longer give you an accurate quote for a policy until they actually check it out. Insurers used to look at things like your loss or claims history and a few other factors to determine your rate. However, in recent years, insurers have added your credit as a major tool in evaluating what your final premium will be. Generally with these companies, a good insurance score (or good credit score) means a more favorable rate. This practice has gone on in the banking industry for as long as most folks can remember. The philosophy is that a group of risks with good credit in the same area will have fewer losses than a similar group in the same area with bad credit. In today’s insurance marketplace, good credit can mean lower policy premiums.
5). Dead Bolt Lock – Do all exterior doors in your home have a dead bolt lock? If yes, you may qualify for this discount.
6). Dwelling Coverage Amount – Review the dwelling coverage amount on your homeowners’ policy. You could be over-insured. Many insurers base this amount of coverage on the purchase price of the home. If the home is completely destroyed and must be replaced, the land will still be there and the insurer will be rebuilding from the ground up. The land value is often a big part of the purchase price of a home. Also, obtain the exterior square footage of your home, and call your agent to have he or she assess the correct replacement cost of your home. The insurer often obtains the square footage from you and if it is not accurate, your home could be over insured or even worse, underinsured. You want it to be just right. You bear the ultimate responsibility for insuring your home to the proper amount. The dwelling coverage amount is the single most important area of your policy to review with your agent. Call today.
7). Employee Discount – If you are an employee of your insurer or of a company that has a special program with your insurer, you may qualify for a discount or a discounted rating plan.
8). Fire Extinguisher – Homes equipped with fire extinguishers afford the homeowner a great tool to help put out a small fire before the whole house burns down. If you have one, you may be eligible for a discount.
9). Have Your Policy Re-Written – Many insurance companies periodically develop different rating plans and premiums for the same policies. If your policy was re-written with the exact same coverage in the new plan, your rate would likely be different in this newer rating plan. You could pay more or less in the new rating plan. Also, most companies will charge an extra premium for a claim and will continue to charge you until the end of the policy term. This could mean that you could pay significantly more than necessary if you had your policy re-written after the loss is over 3 to 5 years old. Often, there may be some disadvantages to having your policy re-written so check with your agent.
10). Increase Your Deductible – Many policies carry a standard $500 deductible , but you can request a higher deductible such as $750, $1000 or higher and often save a substantial amount of money. By agreeing to be responsible for a bigger part of the total amount of the claim, the insurer will reward you with a lower premium. For many, this is one of the best ways to save money over time. Call your agent for all of your options.
11). Jewelry in Vault – If you insure jewelry on your policy and store it in a vault or safe deposit box when not in use, you may be eligible for a significantly lower premium on those items listed on your policy.
12). Multiple Policies With the Same Company - Many insurers will give you a multi-policy discount if you have more than one line of insurance with them. Consider purchasing your auto, home and life insurance from the same insurer. This will generally also put you in a more favorable position with the company from claims to underwriting.
13). Previous Insurer – Many insurers will give you a discount if you are currently insured with specific insurer and switch to a new insurer. Some insurers do this to try to induce clients to move their company.
14). Rate Territory - Most insurers develop rating territories or areas to help determine what premiums to charge you. You would expect to pay more if you live in a big city than if you live outside the city is an example of this. Check with your agent to make sure that you are being properly rated for the territory that you live in. Often, many rating territories have more than one zip code and even though your policy shows the correct zip code, you could be rated in the wrong county and paying the wrong premium! Call your agent today to explore this often over-looked option.
15). Retired Discount – If you are a certain age (usually 55 or 65 years old & up) and are retired, many insurers will give you a discount on your policy. Don’t miss out on this one if you qualify, it can be a big one and you must call your agent to get credit for the discount.
16). Roof Type – Depending on what type of roof you have, you may qualify for different types of policies from the insurer. For example, if you have a flat roof on your home you may not qualify for the same type of policy as you would if the roof was pitched or an "A" shaped roof. Your roofing material could also be considered as well.
17). Security System – If you purchase a security system for your home, almost every insurer will give you a discount. If your home alarm system is capable of notifying the police and/or the fire department directly should either be triggered, you will generally get a bigger discount for having both. Having either will generally give you a discount as well.
18). Smoke Detector – Homes equipped with smoke detectors save lives and almost all insurance companies will give you a discount if you have them.
Contact Jim Somborovich: js@allstate.com
Thursday, February 7, 2008
Long Term Care Insurance
Long-term Care Insurance
Long-term care refers to the many services beyond medical care and nursing care used by people who have disabilities or chronic (long-lasting) illnesses. Long-term care insurance helps you pay for these services, which can be very expensive. A policy also ensures that you can make your own choices about what long-term care services you receive and where you receive them.
Ordinary health insurance won't cover it.
People are living longer and longer these days. That's good news, but the flip side of that is there are more years in which there's a risk of serious health problems. And that could literally cost all of your remaining life's savings. Unfortunately, ordinary health insurance policies and Medicare usually do not pay for long-term care expenses. Medicaid, a federal/state health insurance program, will only pay for long-term care if you've already spent most of your savings or other assets. So, there's long-term care insurance.
Long-term care insurance typically covers the cost of:
Help in your home with daily activities like bathing, dressing, eating and cleaning.
Community programs, such as adult day care.
Assisted living services that are provided in a special residential setting other than your own home. These services may include meals, health monitoring, and help with daily activities.
Visiting nurses.
Care in a nursing home.
When is the right time to buy a policy?
Many people don't think about long-term care until they get into their 70s and 80s and their health begins to fail. At these ages, you may be too high a risk for an insurer to cover you; or if you do qualify, the premiums can be astronomical. In fact, some long-term care policies have restrictions on age and health status.
The best time to buy long-term care insurance may be middle-age. It's the time when you have the highest likelihood of being eligible for a policy and, just as important, when premiums costs might be lower.
Is a policy right for you?
Long-term care insurance is probably not for everyone, but—with soaring health care costs, insurers increasingly restricting coverage and eligibility, and people's need to stretch retirement savings through more years—it's a good idea to consider it seriously. Your goals should be to protect your assets, minimize your dependence on other family members, and control where and how you receive long-term care services.
On the other hand, consider the cost. Long-term care insurance is expensive. An individual who's 65 years old and in good health can expect to pay between $2,000 and $3,000 a year for a policy that covers nursing home care and home care, with premiums adjusted for inflation. You may not want to buy a policy if the cost of premiums will lower your standard of living or force you to give up other things you need right now. And look ahead, as well. Be sure you'll be able to afford the premiums if your income declines.
Key Issues to Review
Be sure you consider each of these issues:
Coverage. You can choose long-term care policies that pay only for nursing home care, or only for home care. Or, you can opt to purchase coverage for a mixture of care options that includes nursing home, assisted living, and adult day care. Some will pay for a family member or friend to care for you in your home.
Daily or Monthly Benefit. The daily or monthly benefit is the amount of money the insurance company will pay for each day or month you are covered by a long-term care policy. If the cost of care is more than your daily or monthly benefit, you will need to pay the balance out of your own pocket.
Benefit Period. Your benefit period determines the length of time you will receive benefits from your policy. You can choose a benefit period that spans from two to six years, or the rest of your life.
Elimination or Waiting Period. During this period, you must pay all of your long-term care expenses out of your own pocket. This period could last anywhere from 0 to 100 days. The longer the waiting period is, the lower your premiums will be.
Inflation Protection. With health care costs rising to new heights every year, buying a policy without inflation protection is probably buying a policy that won't cover much of your expenses. There are two main kinds of inflation protection: the right to add coverage at a later date; and automatic coverage increases.
Non-Forfeiture Benefit. Policies with this benefit will continue to pay for your care even if you stop paying premiums. This policy feature can add 10 percent to 100 percent to your premium.
Long-term care refers to the many services beyond medical care and nursing care used by people who have disabilities or chronic (long-lasting) illnesses. Long-term care insurance helps you pay for these services, which can be very expensive. A policy also ensures that you can make your own choices about what long-term care services you receive and where you receive them.
Ordinary health insurance won't cover it.
People are living longer and longer these days. That's good news, but the flip side of that is there are more years in which there's a risk of serious health problems. And that could literally cost all of your remaining life's savings. Unfortunately, ordinary health insurance policies and Medicare usually do not pay for long-term care expenses. Medicaid, a federal/state health insurance program, will only pay for long-term care if you've already spent most of your savings or other assets. So, there's long-term care insurance.
Long-term care insurance typically covers the cost of:
Help in your home with daily activities like bathing, dressing, eating and cleaning.
Community programs, such as adult day care.
Assisted living services that are provided in a special residential setting other than your own home. These services may include meals, health monitoring, and help with daily activities.
Visiting nurses.
Care in a nursing home.
When is the right time to buy a policy?
Many people don't think about long-term care until they get into their 70s and 80s and their health begins to fail. At these ages, you may be too high a risk for an insurer to cover you; or if you do qualify, the premiums can be astronomical. In fact, some long-term care policies have restrictions on age and health status.
The best time to buy long-term care insurance may be middle-age. It's the time when you have the highest likelihood of being eligible for a policy and, just as important, when premiums costs might be lower.
Is a policy right for you?
Long-term care insurance is probably not for everyone, but—with soaring health care costs, insurers increasingly restricting coverage and eligibility, and people's need to stretch retirement savings through more years—it's a good idea to consider it seriously. Your goals should be to protect your assets, minimize your dependence on other family members, and control where and how you receive long-term care services.
On the other hand, consider the cost. Long-term care insurance is expensive. An individual who's 65 years old and in good health can expect to pay between $2,000 and $3,000 a year for a policy that covers nursing home care and home care, with premiums adjusted for inflation. You may not want to buy a policy if the cost of premiums will lower your standard of living or force you to give up other things you need right now. And look ahead, as well. Be sure you'll be able to afford the premiums if your income declines.
Key Issues to Review
Be sure you consider each of these issues:
Coverage. You can choose long-term care policies that pay only for nursing home care, or only for home care. Or, you can opt to purchase coverage for a mixture of care options that includes nursing home, assisted living, and adult day care. Some will pay for a family member or friend to care for you in your home.
Daily or Monthly Benefit. The daily or monthly benefit is the amount of money the insurance company will pay for each day or month you are covered by a long-term care policy. If the cost of care is more than your daily or monthly benefit, you will need to pay the balance out of your own pocket.
Benefit Period. Your benefit period determines the length of time you will receive benefits from your policy. You can choose a benefit period that spans from two to six years, or the rest of your life.
Elimination or Waiting Period. During this period, you must pay all of your long-term care expenses out of your own pocket. This period could last anywhere from 0 to 100 days. The longer the waiting period is, the lower your premiums will be.
Inflation Protection. With health care costs rising to new heights every year, buying a policy without inflation protection is probably buying a policy that won't cover much of your expenses. There are two main kinds of inflation protection: the right to add coverage at a later date; and automatic coverage increases.
Non-Forfeiture Benefit. Policies with this benefit will continue to pay for your care even if you stop paying premiums. This policy feature can add 10 percent to 100 percent to your premium.
Tuesday, February 5, 2008
Tax Breaks
Overview Retirement Real Estate College Autos Debt Health Care Insurance Taxes ADVERTISEMENT
by Bill Bischoff
June 9, 2006
THINKING ABOUT PURCHASING your first home? Then you're probably well aware of the potential tax breaks coming your way.
In case you're not, let's review. While the cost of renting is generally a nondeductible expense (except for when part of the home is used for business purposes), homeowners can claim an itemized deduction for interest on up to $1 million worth of mortgage debt used to acquire or improve their principal residence. Ditto for interest on up to $100,000 of home-equity debt secured by their principal residence. Real-estate property taxes can be claimed as an itemized deduction, too. You also can generally deduct any points you paid (or the seller paid on your behalf) to take out the mortgage.
But you probably knew all that, right? Now for the tax-law catches your realtor probably never told you about. Don't worry: What's detailed below probably won't have you running back into the arms of your landlord. But it just might give you a more realistic expectation of how homeownership will affect your future tax bills.
The Standard-Deduction Factor
The first thing to understand is that your actual tax breaks from home ownership may be less than expected if you were claiming the standard deduction before you bought. Why? Because the standard deduction is a tax-law freebie. You don't need to have any personal deductions whatsoever to claim it. For 2006, the standard deduction amounts are $10,300 for joint filers, $5,150 for singles, and $7,550 for heads of households.
When your itemized deductions are less than the standard deduction, you simply forgo itemizing and claim the standard allowance instead. Many folks are in this situation until home ownership triggers deductions for mortgage interest and property taxes. Those write-offs — when added to other itemized deductions for state and local income taxes, personal property taxes, and charitable donations — are usually enough to exceed the standard-deduction amount.
The question is: How much of a tax break did you really reap from your home ownership write-offs? For example, say you're married and would have claimed the joint standard deduction of $10,300. Then you buy a house and pay $12,000 a year for mortgage interest and $2,500 for property taxes. On first blush, you might think you've just lowered your taxable income by a whopping $14,500 ($12,000 + $2,500). Not so fast! Assume you also pay state income taxes of $2,000 and contribute $450 to charities. So your total itemized deductions add up to $16,950 ($12,000 + $2,500 + $2,000 + 450). That's only $6,650 above the standard deduction you would have claimed in the absence of buying a home. So you really netted only $6,650 in additional write-offs vs. the $14,500 you might have expected.
Now, if you were already itemizing before you bought or were very close to doing so, your additional deductions from mortgage interest and property taxes will reduce your taxable income dollar for dollar (or nearly so). The point is: Be sure to consider the standard-deduction factor when calculating your anticipated tax savings. That way, you won't be shocked by an unforeseen tax bill next April.
The High-Income Phaseout Factor
If you're a high earner, you're less likely to be affected by the standard-deduction factor. Why? Because you probably have enough itemized deductions (from state and local taxes and charitable contributions) to exceed the standard-deduction amount even without any write-offs for home-mortgage interest and real-estate property taxes. Instead, you may have to worry about the dreaded deduction-phaseout rule that afflicts high-income types.
Once your 2006 adjusted gross income (AGI) exceeds $150,500 (regardless of whether you file joint or single taxes), the phaseout rule reduces your itemized deductions by 2% of the excess. For instance, say your AGI is $300,000. Your otherwise allowable itemized deductions are reduced by $2,990 [($300,000 - $150,500) x .02]. If your AGI is $500,000, your otherwise allowable itemized deductions are reduced by $6,990 [($500,000 - $150,500) x .02]. You get the idea. Not all itemized deductions are affected by this nasty rule, but mortgage interest and real-estate property taxes are. The law provides that taxpayers can't lose more than 53.33% of their deductions under this rule, but that's small comfort to its victims. In fact, itemized deductions for some high earners are curtailed to the extent they wind up back in the standard-deduction mode. When that happens, they don't receive any actual tax benefit from their mortgage interest and property-tax expenses.
Bottom line: If you expect your AGI to exceed $150,500, you'll need to whip out the calculator to figure your actual home-ownership tax savings. (For 2007, the $150,500 amount will be adjusted for inflation.)
The Home-Equity-Loan Factor
Once you're ensconced in your new home, you may decide to take out a home-equity loan. As mentioned above, you can generally claim an itemized deduction for interest on up to $100,000 worth of home-equity debt. The key word here is generally. The fact is, you can't deduct interest to the extent the home-equity-loan principal plus your first mortgage principal exceeds the value of your home. For example, say your first mortgage is $200,000 and your home-equity loan is $75,000. If your home is worth $250,000, you can deduct interest only on $50,000 worth of home-equity-loan principal. Interest on the remaining $25,000 falls into the nondeductible personal-interest category.
A more likely cause for concern is another rule that disallows any alternative minimum tax, or AMT, deduction for home-equity-loan interest unless the loan proceeds were used to improve your property. For example, say you take out a $50,000 home-equity loan and use the money to pay off a car loan and some credit-card balances. For regular tax purposes, that's fine. You can deduct the home-equity-loan interest on Schedule A, along with the interest on your first mortgage. However, if you're in the AMT mode, you can't deduct any of the home-equity-loan interest in calculating your AMT bill.
On the other hand, if you spend your $50,000 home-equity-loan proceeds on a new pool and covered patio, you're good to go for both regular tax and AMT purposes. And one more thing: The high-income deduction-phaseout rule explained earlier can also whittle down your otherwise allowable home-equity-loan interest deduction.
Home Sweet Home
Now you know all the home-ownership tax angles your realtor was afraid to reveal. Still, buying a home usually works out to be at least a decent proposition taxwise. And it will be much better than decent if you eventually sell for a big tax-free gain down the road. If you're married, you can potentially rake in a federal income-tax free profit of up to $500,000, or $250,000 if you're unhitched. Now that's a sweet deal!
by Bill Bischoff
June 9, 2006
THINKING ABOUT PURCHASING your first home? Then you're probably well aware of the potential tax breaks coming your way.
In case you're not, let's review. While the cost of renting is generally a nondeductible expense (except for when part of the home is used for business purposes), homeowners can claim an itemized deduction for interest on up to $1 million worth of mortgage debt used to acquire or improve their principal residence. Ditto for interest on up to $100,000 of home-equity debt secured by their principal residence. Real-estate property taxes can be claimed as an itemized deduction, too. You also can generally deduct any points you paid (or the seller paid on your behalf) to take out the mortgage.
But you probably knew all that, right? Now for the tax-law catches your realtor probably never told you about. Don't worry: What's detailed below probably won't have you running back into the arms of your landlord. But it just might give you a more realistic expectation of how homeownership will affect your future tax bills.
The Standard-Deduction Factor
The first thing to understand is that your actual tax breaks from home ownership may be less than expected if you were claiming the standard deduction before you bought. Why? Because the standard deduction is a tax-law freebie. You don't need to have any personal deductions whatsoever to claim it. For 2006, the standard deduction amounts are $10,300 for joint filers, $5,150 for singles, and $7,550 for heads of households.
When your itemized deductions are less than the standard deduction, you simply forgo itemizing and claim the standard allowance instead. Many folks are in this situation until home ownership triggers deductions for mortgage interest and property taxes. Those write-offs — when added to other itemized deductions for state and local income taxes, personal property taxes, and charitable donations — are usually enough to exceed the standard-deduction amount.
The question is: How much of a tax break did you really reap from your home ownership write-offs? For example, say you're married and would have claimed the joint standard deduction of $10,300. Then you buy a house and pay $12,000 a year for mortgage interest and $2,500 for property taxes. On first blush, you might think you've just lowered your taxable income by a whopping $14,500 ($12,000 + $2,500). Not so fast! Assume you also pay state income taxes of $2,000 and contribute $450 to charities. So your total itemized deductions add up to $16,950 ($12,000 + $2,500 + $2,000 + 450). That's only $6,650 above the standard deduction you would have claimed in the absence of buying a home. So you really netted only $6,650 in additional write-offs vs. the $14,500 you might have expected.
Now, if you were already itemizing before you bought or were very close to doing so, your additional deductions from mortgage interest and property taxes will reduce your taxable income dollar for dollar (or nearly so). The point is: Be sure to consider the standard-deduction factor when calculating your anticipated tax savings. That way, you won't be shocked by an unforeseen tax bill next April.
The High-Income Phaseout Factor
If you're a high earner, you're less likely to be affected by the standard-deduction factor. Why? Because you probably have enough itemized deductions (from state and local taxes and charitable contributions) to exceed the standard-deduction amount even without any write-offs for home-mortgage interest and real-estate property taxes. Instead, you may have to worry about the dreaded deduction-phaseout rule that afflicts high-income types.
Once your 2006 adjusted gross income (AGI) exceeds $150,500 (regardless of whether you file joint or single taxes), the phaseout rule reduces your itemized deductions by 2% of the excess. For instance, say your AGI is $300,000. Your otherwise allowable itemized deductions are reduced by $2,990 [($300,000 - $150,500) x .02]. If your AGI is $500,000, your otherwise allowable itemized deductions are reduced by $6,990 [($500,000 - $150,500) x .02]. You get the idea. Not all itemized deductions are affected by this nasty rule, but mortgage interest and real-estate property taxes are. The law provides that taxpayers can't lose more than 53.33% of their deductions under this rule, but that's small comfort to its victims. In fact, itemized deductions for some high earners are curtailed to the extent they wind up back in the standard-deduction mode. When that happens, they don't receive any actual tax benefit from their mortgage interest and property-tax expenses.
Bottom line: If you expect your AGI to exceed $150,500, you'll need to whip out the calculator to figure your actual home-ownership tax savings. (For 2007, the $150,500 amount will be adjusted for inflation.)
The Home-Equity-Loan Factor
Once you're ensconced in your new home, you may decide to take out a home-equity loan. As mentioned above, you can generally claim an itemized deduction for interest on up to $100,000 worth of home-equity debt. The key word here is generally. The fact is, you can't deduct interest to the extent the home-equity-loan principal plus your first mortgage principal exceeds the value of your home. For example, say your first mortgage is $200,000 and your home-equity loan is $75,000. If your home is worth $250,000, you can deduct interest only on $50,000 worth of home-equity-loan principal. Interest on the remaining $25,000 falls into the nondeductible personal-interest category.
A more likely cause for concern is another rule that disallows any alternative minimum tax, or AMT, deduction for home-equity-loan interest unless the loan proceeds were used to improve your property. For example, say you take out a $50,000 home-equity loan and use the money to pay off a car loan and some credit-card balances. For regular tax purposes, that's fine. You can deduct the home-equity-loan interest on Schedule A, along with the interest on your first mortgage. However, if you're in the AMT mode, you can't deduct any of the home-equity-loan interest in calculating your AMT bill.
On the other hand, if you spend your $50,000 home-equity-loan proceeds on a new pool and covered patio, you're good to go for both regular tax and AMT purposes. And one more thing: The high-income deduction-phaseout rule explained earlier can also whittle down your otherwise allowable home-equity-loan interest deduction.
Home Sweet Home
Now you know all the home-ownership tax angles your realtor was afraid to reveal. Still, buying a home usually works out to be at least a decent proposition taxwise. And it will be much better than decent if you eventually sell for a big tax-free gain down the road. If you're married, you can potentially rake in a federal income-tax free profit of up to $500,000, or $250,000 if you're unhitched. Now that's a sweet deal!
Monday, February 4, 2008
2008 Taxpayer Traps
NEW YORK (CNNMoney.com) -- Delayed tax returns and late tax code changes are among the most serious problems facing taxpayers today, according to taxpayer advocate Nina Olson in an annual report to Congress Wednesday.
The National Taxpayer Advocate is appointed by the Treasury Secretary and is charged with representing taxpayer interests before the IRS and Congress.
Among 29 of the most serious taxpayer problems outlined in the report, here are five that Olson detailed:
Missed deductions
Late-year tax law changes, and delays in processing those changes, mean some payers could miss out on tax deductions.
The IRS finalizes its Form 1040 and form 1040A in November. If law changes are made later in the year, taxpayers might not receive updated forms and could file inaccurate returns, Olson said. Taxpayers using tax preparation software face the same problem.
While middle-class taxpayers welcome last month's approved alternative minimum tax patch, which shields them from an old tax law for the wealthy not adjusted for inflation, the late tax law change could affect taxpayers claiming the Child and Dependent Care Credit or other credits, Olson said. This also means tax refund delays for millions.
Refund delays
About 80 percent of taxpayers receive a refund when they file their returns, Olson said, citing the IRS, and for low-income families, refunds are particularly important.
Taxpayers who take the Earned Income Tax Credit, for example, could be significantly impacted by refund delays.
"For some taxpayers, a delay of two to four weeks in receiving the refund could mean eviction, inability to pay the high heating bills that arise during winter, or defaulting on credit card bills from the holiday season," Olson wrote in her report to Congress.
Among families receiving EITC benefits for the 2005 tax year, the average refund amount was $3,093.46, or about 20 percent of the average adjusted gross income, $15,484.52, of those taking the credit, Olson noted.
Refund anticipation loans
Refund anticipation loans sold by tax preparers are "disproportionately targeted toward low-income taxpayers and may exploit those taxpayers' trust in their preparers as well as their lack of financial sophistication," according to Olson.
In addition, some tax preparers have a financial incentive to inappropriately inflate refund amounts, and taxpayers might not completely understand that the refund anticipation loan is separate from filing a tax return, she wrote.
The IRS says it is proposing steps to restrict these practices among tax preparers.
Identity theft
Too often, victims of identity theft receive more scrutiny from the IRS than the perpetrators of identity theft, Olson wrote, noting that identity theft could lead to the delay or denial of refunds, the assessment of tax debts reflecting a fraudulent filer's return, and victims being required to prove their identity to the IRS every year.
If a thief uses another's social security number to report false wages, the IRS system doesn't interpret the duplicate filing as identity theft situation, she said. Instead, the innocent taxpayer's refund is reduced, frozen or the system creates a balance due, according to the advocate's report.
If there is a balance due as a result of two returns filed under the same social security number, the IRS will begin collection actions against the innocent taxpayer, her report notes.
While it has made some improvements, "The IRS has not done enough to improve identity theft procedures for victims of identity theft or to secure its filing system from fraudulent filers," Olson said.
Taxpayer assistance troubles
Shortcomings at IRS-sponsored taxpayer assistance centers are making it difficult for taxpayers requiring face-to-face assistance to get help with their tax returns, the report said.
Taxpayers seeking assistance face inconvenient locations, lack of services, payment problems, and questions deemed by the center to be "out-of-scope," or too complex for IRS employees or volunteers to answer, according to Olson.
While the IRS now acknowledges that there will always taxpayers that require face-to-face assistance in order to comply with tax laws, "the next step is to ensure that Taxpayer Assistance Centers are adequately staffed to meet the needs of that population and adequately trained to answer the questions most likely to be asked by that population," Olson wrote.
Additionally, Olson said a taxpayer bill of rights, outlining what taxpayers have a right to expect from their government's tax system and what the government has a right to expect from its taxpayers, will benefit both taxpayers and tax administration.
The National Taxpayer Advocate is appointed by the Treasury Secretary and is charged with representing taxpayer interests before the IRS and Congress.
Among 29 of the most serious taxpayer problems outlined in the report, here are five that Olson detailed:
Missed deductions
Late-year tax law changes, and delays in processing those changes, mean some payers could miss out on tax deductions.
The IRS finalizes its Form 1040 and form 1040A in November. If law changes are made later in the year, taxpayers might not receive updated forms and could file inaccurate returns, Olson said. Taxpayers using tax preparation software face the same problem.
While middle-class taxpayers welcome last month's approved alternative minimum tax patch, which shields them from an old tax law for the wealthy not adjusted for inflation, the late tax law change could affect taxpayers claiming the Child and Dependent Care Credit or other credits, Olson said. This also means tax refund delays for millions.
Refund delays
About 80 percent of taxpayers receive a refund when they file their returns, Olson said, citing the IRS, and for low-income families, refunds are particularly important.
Taxpayers who take the Earned Income Tax Credit, for example, could be significantly impacted by refund delays.
"For some taxpayers, a delay of two to four weeks in receiving the refund could mean eviction, inability to pay the high heating bills that arise during winter, or defaulting on credit card bills from the holiday season," Olson wrote in her report to Congress.
Among families receiving EITC benefits for the 2005 tax year, the average refund amount was $3,093.46, or about 20 percent of the average adjusted gross income, $15,484.52, of those taking the credit, Olson noted.
Refund anticipation loans
Refund anticipation loans sold by tax preparers are "disproportionately targeted toward low-income taxpayers and may exploit those taxpayers' trust in their preparers as well as their lack of financial sophistication," according to Olson.
In addition, some tax preparers have a financial incentive to inappropriately inflate refund amounts, and taxpayers might not completely understand that the refund anticipation loan is separate from filing a tax return, she wrote.
The IRS says it is proposing steps to restrict these practices among tax preparers.
Identity theft
Too often, victims of identity theft receive more scrutiny from the IRS than the perpetrators of identity theft, Olson wrote, noting that identity theft could lead to the delay or denial of refunds, the assessment of tax debts reflecting a fraudulent filer's return, and victims being required to prove their identity to the IRS every year.
If a thief uses another's social security number to report false wages, the IRS system doesn't interpret the duplicate filing as identity theft situation, she said. Instead, the innocent taxpayer's refund is reduced, frozen or the system creates a balance due, according to the advocate's report.
If there is a balance due as a result of two returns filed under the same social security number, the IRS will begin collection actions against the innocent taxpayer, her report notes.
While it has made some improvements, "The IRS has not done enough to improve identity theft procedures for victims of identity theft or to secure its filing system from fraudulent filers," Olson said.
Taxpayer assistance troubles
Shortcomings at IRS-sponsored taxpayer assistance centers are making it difficult for taxpayers requiring face-to-face assistance to get help with their tax returns, the report said.
Taxpayers seeking assistance face inconvenient locations, lack of services, payment problems, and questions deemed by the center to be "out-of-scope," or too complex for IRS employees or volunteers to answer, according to Olson.
While the IRS now acknowledges that there will always taxpayers that require face-to-face assistance in order to comply with tax laws, "the next step is to ensure that Taxpayer Assistance Centers are adequately staffed to meet the needs of that population and adequately trained to answer the questions most likely to be asked by that population," Olson wrote.
Additionally, Olson said a taxpayer bill of rights, outlining what taxpayers have a right to expect from their government's tax system and what the government has a right to expect from its taxpayers, will benefit both taxpayers and tax administration.
Friday, February 1, 2008
Your Money - by Sandra Block
If you're in your 50s, it's time to plan how you'll pay for long-term care
Updated 3/2/2007 2:40 PM ET E-mail | Save | Print |
Getting old is such a drag that most of us don't like to think about it. And we sure don't like to think about who will take care of us if we stumble and break a hip while strutting to our favorite Rolling Stones CD. But even if you're a lot younger than Mick Jagger — and many of us are — you should be thinking about how you'll pay for long-term care.
A study released last month by AARP found that most Americans don't have a clue about the cost of long-term care. Even more worrisome, many Americans believe that if they do need long-term care, the government will pay for it.
That's a dangerous misconception, says Elizabeth Clemmer, director of policy research and development for AARP. Medicare typically covers only three months of nursing home care, and only if you spend time in a hospital first.
Medicaid's coverage of long-term care, meanwhile, doesn't kick in until you've exhausted nearly all your savings, Clemmer says. In addition, while Medicaid covers nursing home care for people who qualify, coverage of in-home health services is limited. And it doesn't cover assisted living at all.
Moreover, qualifying for Medicaid is more difficult than ever, says Donna Bashaw, president of the National Academy of Elder Law Attorneys. A provision in the Deficit Reduction Act enacted last year makes it harder for seniors to qualify for Medicaid if they've given away assets in the previous five years.
That provision was designed to prevent wealthy seniors from hiding assets. Elder law attorneys argue, though, that it will also penalize middle-income seniors who provide financial assistance to children or grandchildren and later need nursing home care. Under the new rules, Bashaw says, such seniors may have to wait months before they'll become eligible for Medicaid.
How to plan
Good long-term-care planning could help you avoid ending up in a nursing home, or at least give you more options if you require institutional care. Steps to consider:
•Long-term-care insurance. These policies are still relatively new, but they're becoming more flexible. Along with nursing home care, some policies cover in-home care and the cost of an assisted living facility.
Long-term-care insurance is relatively expensive. The cost varies, depending on your age when you buy the policy and the types of services covered.
The younger you are, the lower your premiums, which is why many experts suggest buying a policy when you're in your 50s.
But before you buy a policy, make sure you can afford to pay the premiums for many years, because it could be a long time before you need long-term care. Many people never need nursing home care. And even those who do often stay only a few months.
If you buy a policy while you're in your 50s or 60s and still working, Bashaw says, you need to think about whether you can afford the premiums once you retire.
The U.S. Department of Health and Human Services has created a website with information about long-term care and long-term care insurance. You can find it at www.longtermcare.gov.
•Family care. For all the talk about the breakup of the traditional family, most long-term care in this country is provided by family members. But if you're relying on relatives to care for you, there are some key issues to consider. Do children or other family members live nearby? Will you pay them?
Likewise, if your goal is to live in your house forever, with help from family, make sure your home will be accessible. Will you be able to navigate the staircase to the second floor when your joints start to stiffen? Are your doorways wide enough for a wheelchair?
Updated 3/2/2007 2:40 PM ET E-mail | Save | Print |
Getting old is such a drag that most of us don't like to think about it. And we sure don't like to think about who will take care of us if we stumble and break a hip while strutting to our favorite Rolling Stones CD. But even if you're a lot younger than Mick Jagger — and many of us are — you should be thinking about how you'll pay for long-term care.
A study released last month by AARP found that most Americans don't have a clue about the cost of long-term care. Even more worrisome, many Americans believe that if they do need long-term care, the government will pay for it.
That's a dangerous misconception, says Elizabeth Clemmer, director of policy research and development for AARP. Medicare typically covers only three months of nursing home care, and only if you spend time in a hospital first.
Medicaid's coverage of long-term care, meanwhile, doesn't kick in until you've exhausted nearly all your savings, Clemmer says. In addition, while Medicaid covers nursing home care for people who qualify, coverage of in-home health services is limited. And it doesn't cover assisted living at all.
Moreover, qualifying for Medicaid is more difficult than ever, says Donna Bashaw, president of the National Academy of Elder Law Attorneys. A provision in the Deficit Reduction Act enacted last year makes it harder for seniors to qualify for Medicaid if they've given away assets in the previous five years.
That provision was designed to prevent wealthy seniors from hiding assets. Elder law attorneys argue, though, that it will also penalize middle-income seniors who provide financial assistance to children or grandchildren and later need nursing home care. Under the new rules, Bashaw says, such seniors may have to wait months before they'll become eligible for Medicaid.
How to plan
Good long-term-care planning could help you avoid ending up in a nursing home, or at least give you more options if you require institutional care. Steps to consider:
•Long-term-care insurance. These policies are still relatively new, but they're becoming more flexible. Along with nursing home care, some policies cover in-home care and the cost of an assisted living facility.
Long-term-care insurance is relatively expensive. The cost varies, depending on your age when you buy the policy and the types of services covered.
The younger you are, the lower your premiums, which is why many experts suggest buying a policy when you're in your 50s.
But before you buy a policy, make sure you can afford to pay the premiums for many years, because it could be a long time before you need long-term care. Many people never need nursing home care. And even those who do often stay only a few months.
If you buy a policy while you're in your 50s or 60s and still working, Bashaw says, you need to think about whether you can afford the premiums once you retire.
The U.S. Department of Health and Human Services has created a website with information about long-term care and long-term care insurance. You can find it at www.longtermcare.gov.
•Family care. For all the talk about the breakup of the traditional family, most long-term care in this country is provided by family members. But if you're relying on relatives to care for you, there are some key issues to consider. Do children or other family members live nearby? Will you pay them?
Likewise, if your goal is to live in your house forever, with help from family, make sure your home will be accessible. Will you be able to navigate the staircase to the second floor when your joints start to stiffen? Are your doorways wide enough for a wheelchair?
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