Thursday, August 12, 2010

Drawbacks of Home Equity Loans

Taking out a home equity loan against the value of your property can backfire if you fail to avoid these common pitfalls in the borrowing process.
When you need a quick source of funds, a home equity loan can be tempting. Done wisely, you can use the lower-interest debt secured by your house to pay off debts with high interest rates, like credit cards. It’s also a good choice if you know exactly how much you need to borrow for a big expenditure like a vacation home or a new kitchen.

Often you can even write off the interest you pay on the loan. Consult a tax adviser. But home equity loans aren’t always the best choice for accessing cash. The fact that you’re staking your home against your ability to pay off the debt is just the beginning of the potential drawbacks.

Money doesn’t come cheap
A home equity loan is a second mortgage on your house. Interest rates are usually much lower for a home equity loan than for unsecured debt like personal loans and credit cards. But transaction and closing costs, similar to those for primary mortgages, make home equity loans a pricey way to finance something you may want but don’t absolutely need, like a fur coat, exotic vacation, or Ferrari. The average closing costs on a $200,000 mortgage are $2,732.

To compare offers on competing home equity loans, look at the annual percentage rates. These take into account closing costs and fees. On a $30,000 second mortgage, you’ll save $210 a year with a 5.5% APR vs. a 6.2% rate. Keep in mind that lenders might be willing to waive some upfront costs and fees, especially if you already have your first mortgage with them, which will reduce the APR.

Early payoff can be costly
Home equity loans almost always have fixed interest rates. Although that can bring peace of mind, if you borrow when rates are high, you may find it’s expensive to try to refinance to a better rate later on. That’s because lenders make money when you pay back the interest on a loan. And since some lenders are absorbing the upfront costs, they make it up on the back end by charging a prepayment penalty if you refinance or sell your home.

Such early-termination fees are typically a percentage of the outstanding balance, such as 2%, or a certain number of months’ worth of interest, such as six months. They’re triggered if you pay off part or all of a loan within a certain time frame, typically three years. Despite the penalty, it may be worthwhile to refinance if you can lower interest rates sufficiently.

By refinancing a $30,000 loan you took out two years ago at 9% down to 8%, you’ll break even in six years and nine months. This assumes both loans have 15-year terms, and you’ll pay $3,000 in closing and early-termination costs. Refinance at 7% and you’ll recover those costs in four years and nine months.

If you need money during a period of high interest rates, but expect rates to fall soon, it may make sense to go for a home equity line of credit instead of a lump-sum second mortgage. Although more lenders are charging stiff prepayment penalties for HELOCs too, these are triggered when the line is closed within a certain period, such as three years, not when the balance is paid off. Bear in mind that interest rates on most HELOCs are variable.

Beware predatory lenders
Some lenders don’t act in your best interest. Theoretically, lenders are supposed to follow underwriting guidelines on appropriate debt and income levels to keep you from spending more than you can afford on a loan. But in practice, some unscrupulous lenders bend or ignore these rules.

Others urge you to take out up to 125% of your home’s value, a practice that puts you at risk of foreclosure should you lose your job or your home fall in value. Still others work with shady home-improvement contractors who pressure you into taking their loans at above-market rates—and jack up the price if you don’t. According to the U.S. Department of Housing and Urban Development, you should avoid anyone who insists on only working with one lender or who encourages you to do things like overstate your income.

Your house is at stake
A home equity loan is a lien on your house that usually takes second place to the primary mortgage. As such, home equity lenders can be left with nothing if a house sells for less than what’s owed on the first mortgage. To recoup losses, secondary lenders will sometimes refuse to sign off on short sales unless they’re paid all or part of what they’re owed.

Moreover, even though they lose their secured interest in the house should it go to foreclosure, they can send debt collectors after you for the balance, and report the loss to credit agencies. This black mark on your credit score can hurt your ability to borrow for years to come.

June Fletcher is a real-estate columnist for, the online version of the Wall Street Journal, and author of “House Poor: How to Buy and Sell Your Home Come Bubble or Bust.” A graduate of Princeton and Oxford universities, sheĆ­s written about housing for more than three decades.

Avoid Home Equity Loan and Refinancing Scams

Home equity loan and refinancing scams can cost you more than money—these scams can cost you your house.
Progress K
Effort Low 1-2 days (research loans)
Investment Low $37 (avg credit report fee)
Scammers will often try to charge you for services they'll never actually perform. They may even use your personal information to commit identity theft. Image: Plattform/Getty Images

Refinancing a mortgage to a lower interest rate can make sense for some homeowners. So too can taking out a home equity loan against the value you’ve built up, perhaps to finance a kitchen remodel or pay Junior’s college tuition. What doesn’t make sense is losing your home because you fall for home equity loan and refinancing scams such as loan flipping and equity stripping. Although scam artists can be very convincing, homeowners who know what to look out for are less likely to become victims.

Loan flipping
Loan flipping is a scam targeted at homeowners looking to get money back when they refinance a mortgage. This is often referred to as a cash-out refi. Scammers take advantage of this desire to tap the equity in a home to pay for things the homeowner couldn’t otherwise afford.

A cash-out refi in itself isn’t a scam. For some, it’s a smart way to borrow. What is a scam is when a lender, after receiving a few payments, comes back to you with an offer of another refinance, this time to fund a vacation or a new car. The easy money is difficult for some homeowners to turn down.

Many borrowers don’t realize how much they’re paying in fees to refinance. The U.S. Federal Reserve estimates the settlement costs on a typical refi to be 3% to 6% of the loan amount. Loan flippers often charge much more, plus they may quietly roll the settlement costs into the loan to disguise the total charges. Take a day or two to get quotes from several lenders and compare terms.

Loan flipping ultimately leaves you with more debt and more years that you’ll owe on that debt. When the equity finally dries up, you might not be able to afford your higher monthly payments and another refinancing will be impossible. You could be forced to sell your home.

Equity stripping
Equity stripping can occur in several ways, but at its heart is a scam artist who gains ownership of your home, borrows against it or sells it, pockets the proceeds, and disappears. You’re often left with a hefty mortgage balance and no place to live.

A telling sign of equity stripping is a lender that offers more loan than you can afford or that encourages you to pad your income on a loan application. Homeowners with low incomes but a good amount of equity built up are prime targets because they otherwise would have a hard time borrowing. According to the U.S. Federal Trade Commission, a lender that’s pushing a home loan with too-high monthly payments is likely counting of foreclosing on the property when you fall behind.

A variation on equity stripping has a scam artist talking you into selling your home at a discount or signing over the deed, perhaps with a promise of securing better loan terms if your name isn’t on it. The scammer promises to let you stay in the home as a renter until the refinancing is finalized, then you can buy back the home. In reality, the scam artist drains equity by borrowing against the house or selling the house, perhaps after evicting you.

According to Consumers Union, don’t agree to a home equity loan if you can’t afford it. A good rule of thumb: Your combined home loan payments shouldn’t exceed 28% of your gross income. The nonprofit publisher of Consumer Reports magazine also warns against signing any documents unless you understand them and turning over you property to anyone without first consulting a trusted adviser.

Phantom help
Watch out for unsolicited offers to refinance from companies claiming government affiliations. In particular, don’t be fooled by the use of official-sounding acronyms like “TARP” or official-looking website addresses. Scammers use these to gain your trust. Once they do, they’ll likely try to charge you for access to government assistance. Worse, they might extract enough personal information to commit identity theft.

You never need to pay to find out about legitimate government programs. A housing counselor approved by the U.S. Department of Housing and Urban Development can point you in the right direction. For federal refinancing and loan modification help, check out the Making Home Affordable program.

New disclosure rules make spotting scams easier
Many unscrupulous lenders have relied on confusing paperwork to dupe borrowers into paying excessive upfront fees on loans. Others would pull last-minute rate switches at closing. Still others would disguise prepayment penalties, which can prove costly if you ever try to refinance again or retire a loan early.

Balloon payments, which come due at the end of a loan term, can also catch borrowers off-guard. A lender may offer a low monthly payment on an equity loan, but only because the payment is interest-only. The principal is due in one lump sum. Surprised homeowners must scramble to refinance again, tap other assets, or sell.

Disclosure rules that went into effect Jan. 1, 2010, make spotting these types of deceptions easier. All lenders are required to use redesigned Good Faith Estimate and HUD-1 Settlement Statement forms that clearly disclose key loan terms—including interest rates, prepayment penalties, and balloon payments—and closing costs.

The GFE is an estimate of loan terms and closing costs, while the HUD-1 is a final accounting of terms and costs. The redesigned forms, cross-referenced by line number, must be used for mortgage refinancing and home equity loans (with the exception of home equity lines of credit, or HELOCs). The only fee a lender is allowed to collect to issue a GFE is a charge for a credit report, which averages $37.

If you don’t receive the new forms, don’t do business with the lender. If the estimates on the GFE don’t match the final figures on the HUD-1, ask why. Some, but not all, fees are allowed to increase within a fixed range.

Monday, August 9, 2010

Who's Responsible

We all know what is going on in Real Estate across this great country of our. But who is ultimately blamed for for a deal falling apart. The listing Agent, that's who. No matter how and phone call are made, no matter how many hours Realtors put it, it comes down to the Listing agent being held responsible by the seller to get to a closing. Yes, the same 6 major things have to be done buy most of the are the buyers Realtors responsibility to set up and attend. So you get through attorney review, do you home inspection, you insect inspection, and your back inspection. Then 2 days before the closing the buyer losses their job, decides to co-sign for a car loan for their sister. Better yet the closing took so long the bank does another appraisal and the value of the home has gone down $10,000 or $20,000 in some cases and the mortgage company pulls the loan. Both seller and buyer are packed and ready to move. Some sellers are even buying and now that deal falls apart as well. The answerer's from our Government have been to raise the fees that and FHA buyer must pay by 1.75 %, to make it even harder to purchase in NJ. I don't know if these thing are going on in other states, but in NJ it sure seems like the Government is working against us not with us to help this housing crisis.

The listing agents need to take more responsibility and be in touch with not just the sellers people, but also the buyers people as well. No more can you trust that a buyers realtor is going to do their part for their client. The listing agent is ultimately responsible to get to the closing table. Does a seller want to hear their agent point the finger at all the other people involved or do they want and agent that takes the bull by the horns and makes sure everything is done the right way. If you were a seller interviewing agents and one told you this, this, and this are the buyers agents responsibility, would you chose that agent? Then a good agent comes in a says the same things but tells the seller I will be on top of every step no matter who I have to call and how many times I have to call they I will get it done. Also, listing agents should have the power to continue to show the property until all contingency's are met, especially the mortgage contingency. Well there are to many poorly trained agents out their that do not do what they are supposed to do. I believe the listings agents have to do or follow up on everything, no matter who represents who. And buyers have to stop lying about their income and debts.

I might not know much, I was only a top sales man for CENTURY 21 for 10 years, but I know this. Agents are getting worse, buyers are not honest, are the Government is not helping to fix the problem AT ALL.

Today's Mortgage Rates at an All Time Low

Wary of a volatile stock market and concerned about by European debt woes investors moved to bonds last week pushing bond prices up and mortgage rates down. Mortgage rates, which move the opposite direction of mortgage-backed securities prices, had wavered just below 5% for much of the year until last weeks big decline. Mortgage rates today are even lower than levels December of last year, what's now the previous all time low.

Today's official conventional 30 year fixed mortgage rate, available to well-qualified borrowers paying about a point origination, is 4.5%. Today's conventional 15 year fixed rate is 4%, with some lenders reported "squeezing" out 3.875%.

Today's FHA 30 year fixed rate is 4.375%. APR (closing cost) on an FHA loan is typically much higher than that of a conventional mortgage because of MI and other FHA fees.

Today's jumbo 30 year fixed rate, for jumbo mortgages exceeding jumbo conforming loan limits, is 5.5%. It's reported 5.375% is available to borrowers with an extremely low loan to value ratio.

Wells Fargo, the nations largest volume mortgage originator, is currently offering a conventional 30 year fixed rate of 4.875%, with an APR of 5.065. Wells Fargo mortgage rates are available on their website. researches over 2 dozen wholesale lenders' rate sheets for brokers on a daily basis to determine the most accurate mortgage rates for well-qualified borrowers paying a standard origination fee of about 1 point.

Today's Mortgage Rates - currently available to well-qualified consumers at a standard .07 to 1 point origination.

•30-yr fixed-rate - 4.500%

•15-yr fixed-rate - 4.000%

•5/1 ARM rate - 3.500%

•FHA 30-yr fixed-rate - 4.375%

•FHA 15-yr fixed-rate - 4.00%

•FHA 5/1 ARM rate - 3.500%

•VA 30-yr fixed-rate - 4.625%

•Jumbo 30-yr fixed-rate - 5.500%

•Jumbo Conforming 30-yr fixed-rate - 4.750%

Monday, August 2, 2010

Tax Deductions When You Work from Home

Working from home can offer many advantages including tax deductions, just take care what you try to write off for your home office on your return

If you work from home, even on a part-time basis, you can probably save a few dollars come tax time. That's because if you itemize your deductions on your federal tax return, you can write off as a business expense part of the cost of owning and operating your home. Everything from electric bills to property taxes may be fair game.

Those tax deductions can add up, thus lowering your taxable income and reducing the amount you owe Uncle Sam. Before you start spending that refund, however, there are a few rules you need to understand and heed. It's a good idea to consult a tax adviser to be sure that you're filing the right schedules and maximizing your deductions.

Passing the IRS litmus test

To meet IRS guidelines, your home office must be your principal place of business, or the place you see clients in the normal course of business. Parts of your home you use to store products or equipment for your business also count. That doesn't mean that all your work has to be done from home. If you're an outside salesperson, you probably spend most of your work time elsewhere. But if you do you billing and return customer calls primarily from your home, your home office should qualify.

You can also qualify for the deduction if your employer requires you to work from home, as long as you don't charge your employer rent. One big catch is that you can't deduct expenses for your home office if you choose to work at home even though your employer provides you with an office. IRS Form 8829 can be used by self-employed workers to calculate the home office deduction, which should be reported on Schedule C.

Measuring your home office

The amount you can deduct for your home office depends on the percentage of your home used for business. Your work space doesn't need to be a separate room-a table in a corner qualifies. But it has to be an area that's used solely for business. The tax break also covers separate structures on your property, like a detached garage you've converted to an office. Unlike an office inside your home, a separate structure doesn't have to be your main place of business to qualify for a deduction. That's because the IRS believes your family is less likely to use a separate structure as a part-time play area or den, says Mark Luscombe, principal analyst for tax and consulting at CCH.

To calculate what percentage of your house the home office occupies, divide your home office's square footage by the total square footage of your home. If your home is 3,000 square feet and your office is 150 square feet, for example, you'd use 5% to calculate your deductions. Not sure how big your house is? Check the documents you received when you bought your home-there's probably a detailed rendering-or measure the outside of your home and multiply length times width.

What can you deduct?

Once you've figured out what percentage of your home you use for business, you can apply that percentage to different home expenses. These include:

•Mortgage interest
•Real estate taxes
•Utilities (heating, cooling, lights)
•Home repairs and maintenance (painting, cleaning service)
•Homeowners insurance premiums
Just take each expense and multiply it by your home office percentage (the 5% mentioned above). That's the amount you can deduct as a business expense. So if you spend $150 a month on electricity, you can deduct $7.50 as a business expense. That adds up to a $90 deduction per tax year. If your annual business expenses total $10,000, your deduction is $500. In 2009, lowering your taxable income by $500 to $99,500 would've cut your tax bill by $113.

Save bills or cancelled checks to prove what you spent in case of an IRS audit. Take an hour a week to file them away. Also, only repairs can be expensed; improvements must be depreciated. One catch: You can only deduct expenses if your business generates income. Expense deductions are limited if they exceed your gross business income, says Mark Steber, chief tax officer at Jackson Hewitt Tax Service.

Don't forget depreciation

Depreciation is based on the idea that everything-even something like a home-wears out eventually. To figure home office depreciation, start by calculating the tax basis of your home: generally the purchase price plus the cost of improvements, minus the value of the land it sits on. Next, multiply the tax basis by the percentage of your home used for work. This gives you the tax basis for you home office. Finally, multiply that by a depreciation percentage that's set periodically by the IRS. There are caveats. For a crash course, read IRS Publication 946 or talk to a tax professional.

One reason to think twice before taking depreciation on your home office is that it reduces the capital gains deduction you can get when you sell a home. If you've deducted depreciation, you have reduced your capital gains exemption ($250,000 of profit if you're a single filer, $500,000 for joint filers) by the depreciated amount. That could mean you'll owe taxes when you sell, especially if you've lived in your home for a while.

This article provides general information about tax laws and consequences, but is not intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Readers should consult a tax professional for such advice, and are reminded that tax laws may vary by jurisdiction.

Homebuyer Tax Credit: What You Need To Know

Long-time homeowners and first-time homebuyers may benefit from a new federal tax credit when purchasing a home.

Do You Qualify? You qualify for the Extended Homebuyer Tax Credit if:
You meet IRS income and homeownership rules. .
You signed a binding contract by April 30, 2010. .
You close on a home purchase by Sept. 30, 2010. .

There’s happy news for current homeowners: If you intend to sell your home and buy another in 2009 or 2010, you may be eligible for a federal tax credit of up to $6,500. The Extended Homebuyer Tax Credit legislation, passed in November 2009, also shares the wealth with first-time homebuyers—up to $8,000.

Are you eligible?
You’re considered a current homeowner under IRS rules if you’ve used the home being sold or vacated as a principal residence for five consecutive years within the last eight. You’re a first-time homebuyer if you or your spouse haven’t owned a home for the three years before your purchase.

In both cases, keep in mind that the credit amount you’re eligible for begins to decrease for joint filers if your modified adjusted gross income is $225,000 ($125,000 for individuals); it disappears at $245,000 ($145,000 for individuals).

The ultimate amount of your credit depends on the price of the home and your income.

To claim your benefit:
Close on a new principal residence between Nov. 7, 2009, and April 30, 2010. You can settle as late as Sept. 30, 2010, as long as you have a binding contract by April 30.

Don’t spend more than $800,000 on your new home.

When you submit your tax return, attach a copy of the settlement statement you received at closing. Check with the IRS or your tax adviser to confirm what additional documentation may be needed.

Decide whether to:

Apply the credit to your 2009 tax return, filed on or before April 15, 2010,
File an amended 2009 return; or
Apply the credit on your 2010 return, filed on or before April 15, 2011.
First-timers who purchased a home between Jan. 1, 2009, and Nov. 6, 2009, may also be eligible for the $8,000. Keep in mind that the income limits in this case are tighter than for those who purchased after Nov. 6.

Apply the credit to your 2009 taxes
To claim the credit on your 2009 tax return:

Complete IRS Form 5405 to determine the amount of your available credit.
Apply the credit when you file your 2009 tax return or file an amended return.
Attach documentation of purchase to your return or amended return.
Which properties are eligible?
You can apply the credit to primary residences, including single-family homes, condos, townhomes, and co-ops.

Do I need to repay the tax credit?
No, not if you occupy the purchased home for three years or more. However, if the property is sold during this three-year period, the full amount of the credit will be recouped on the sale.

States Offer Cash Rebates for Clunker Appliances

Buying a new Energy Star appliance can lower your utility bills and perhaps even earn a cash rebate from your state.

There’s another reason besides saving on utility bills to replace your clunker appliances with energy-efficient models: a cash rebate. States, using up to $300 million in federal funds, are offering rebates on Energy Star-qualified washers, refrigerators, air conditioners, furnaces, and more. A handful of state programs got underway in December 2009; the rest are expected to debut in early 2010.

Typical appliance rebates will range from $50 to $250, though each state sets the specifics of its own program including rebate amounts, claim procedures, who’s eligible, and which appliances qualify. Don’t delay. States have until February 2012 to use up the funds, but most are expected to burn through the cash long before the deadline.

Rebates plus energy efficiency equal savings
Funding for the appliance rebates comes from federal efforts to encourage energy efficiency and stimulate consumer spending. States applied to the U.S. Department of Energy to get a share of the money. Check with your state for specifics, including when the rebate program officially begins. Purchases made before the start date generally won’t qualify for rebates.

Swapping out old appliances for new ones is a smart approach to reducing household energy bills. According to the DOE, 70% of a home’s energy consumption goes toward appliances, refrigeration, heating, cooling, and hot water. The latest Energy Star-qualified appliances typically use one-third less energy than outdated models.

The savings can be felt immediately. Trading in a refrigerator manufactured before 1993 will net an annual energy savings of $65, the DOE estimates. Replacing a washing machine made before 2000 with a new Energy Star model can save up to $135 a year. Throw in a rebate, and payback on an investment in a new appliance can come in just a few years.

Let’s say you buy an Energy Star-qualified washing machine for $750, the average price in 2009. Your state offers a $100 rebate on the purchase. Thanks to the $135 you could save annually on utility bills, the payback period could be less than five years. Not bad for an appliance that should last at least a decade.

Appliance rebates vary by state
Before you rush out to your nearest appliance retailer, brush up on the exact terms of your state’s rebate program. Although appliances must be Energy Star-qualified, some states might only give cash back for dishwashers and refrigerators, while others might include high-efficiency furnaces and tankless water heaters as well. Some states require that you trade in an old appliance to get the rebate, while other states make recycling mandatory. Some states even limit rebates to economically disadvantaged households.

If you live in Alabama, for instance, you’ll get a rebate worth between $25 and $150 on qualifying clothes washers, dishwashers, refrigerators, and room air conditioners. The Alabama program is scheduled to begin in April 2010 and expire less than a month later. You’ll need to replace an old appliance to get the rebate.

Starting in March, residents of California can get a $100 rebate on a new clothes washer, a $75 rebate on refrigerators, and a $50 rebate on ACs. Recycling is mandatory. Delaware’s program is underway, and some rebates worth up to $200 are even retroactive. Check the state’s appliance-specific rebate forms for details.

How to claim rebates will vary depending on where you live. Some states like Delaware require use of a mail-in rebate form. Other states are working with appliance retailers to issue rebates at the point of purchase. It’s a good idea to save receipts and the Energy Star product labels that came on your appliances. It shouldn’t take more than an hour or two to research and claim rebates.

Other ways to save on appliances
Although the new rebates are welcome, don’t overlook other existing ways to lower the cost of energy-efficient appliances. Some local utility companies offer rebates to encourage their customers to consume less energy. Call the telephone number or visit the website listed on your monthly bill. Manufacturers and retailers also offer rebates from time to time to entice appliance owners to upgrade. In most cases, you can combine rebates.

In addition to rebates, some states give tax incentives for qualifying energy upgrades. Virginia, for example, lets some taxpayers recover a portion of the sales tax paid on Energy Star appliances.

The IRS offers federal energy tax credits to homeowners for major appliances and equipment ranging from solar water heaters to geothermal heat pumps. A good source of information on rebates and tax incentives is Energy Star’s rebate locator tool.

This article provides general information about tax laws and consequences, but is not intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Readers should consult a tax professional for such advice, and are reminded that tax laws may vary by jurisdiction.

Tax Tips for Homeowners Looking Ahead to 2010 Returns

From energy tax credits to vacation home deductions, check out these tax tips for homeowners looking ahead to 2010 returns.
Tax planning for homeowners should start well in advance of the April 15 filing deadline each year. If you delay until the last minute, it might be too late to maximize tax credits and tax deductions. These tax tips for homeowners looking ahead to 2010 returns explain some of the things you can do now that’ll pay off later on your 1040.

Take a day to formulate a tax plan for the year. Depending on your circumstances, you might want to take advantage of energy tax credits or max out your vacation home deductions. The “What’s New in 2010” section of IRS Publication 17 offers a sneak peek at tax changes that might affect homeowners.

Claim remaining energy tax credits
It’s time to get cracking if you didn’t exhaust your full allotment of residential energy tax credits during 2009. Although tax credits for big projects like residential wind turbines and solar energy systems have no upper limit and are good through 2016, energy tax credits capped at $1,500 expire at the end of 2010. Eligible capped projects include new windows and doors, insulation, roofing, water heaters, HVAC, and biomass stoves.

Here’s how it works with capped federal credits: You can earn energy tax credits worth 30% of the cost of qualifying improvements, but the total tax credits can’t exceed $1,500 combined for 2009 and 2010. So if you only took, say, $700 worth of capped energy credits on your 2009 tax return, you’re still due for another $800 in credits in 2010. Some projects include the cost of installation—a furnace, for example—while others, such as insulation, are limited to the cost of materials.

Max out tax benefits of a vacation home
Use a vacation home wisely, and it’ll provide a break from taxes as well as the hustle and bustle of everyday life. The rules on tax deductions for vacation homes can get a bit tricky, but understanding and adhering to them can yield many happy tax returns.

If your vacation home is truly a vacation home meant for your personal enjoyment, as opposed to a rental-only income property, you can usually deduct mortgage interest and real estate taxes, just as you would on your main home. You can even rent out the home for up to 14 days during the year without getting taxed on the rental income. Not bad.

Now, let’s say you want to rent out your vacation home for more than 14 days in 2010, but also use it yourself from time to time. To maximize the tax benefits, you need to keep tabs on how many days you use your vacation home. By restricting your annual personal use to fewer than 15 days (or 10% of total rental days, whichever is greater), you can treat your vacation home as a rental-only income property for tax purposes.

Why is that a big deal? In addition to mortgage interest and real estate taxes, rental-only income properties are eligible for a slew of other tax deductions for everything from utilities and condo fees to housecleaning and repairs. Deductions are limited once personal use exceeds 14 days (or 10% of total rental days), so get out your calendar now to strategically plot your vacations.

Take advantage of tax breaks for the military
In salute to members of the armed forces serving overseas who want to purchase a home, the IRS is extending a lucrative tax perk for military personnel. If you spent at least 90 days abroad performing qualified duty between Jan. 1, 2009, and April 30, 2010, you have an extra year to earn a homebuyer tax credit. In addition to uniformed service members, workers in the Foreign Service and in the intelligence community are eligible.

Thanks to this extension of the homebuyer tax credit, qualifying military personnel have until April 30, 2011, to sign a contract on a new home. The deal must close before July 1, 2011. Just like non-military buyers, first-time homebuyers can earn a tax credit worth up to $8,000, and longtime homeowners can earn a credit of up to $6,500. The same income restrictions and $800,000 cap on home prices apply.

Military personnel can also get a break if official duty calls and they’re forced to move for an extended period. Normally, the homebuyer tax credit needs to be repaid if you sell your home within three years, but this requirement is waived for uniformed service members, Foreign Service workers, and intelligence community personnel. The new extended duty posting doesn’t need to be overseas, but it must be at least 50 miles from your principal residence.

Challenge your real estate assessment
You can’t do much about the rate at which your home is taxed, but you can try to do something about how your home is valued for taxation purposes in 2010. The process varies depending where you live, but in general local governments conduct a periodic real estate assessment to determine how much your home is worth. That real estate assessment figure is used to calculate your property tax bill.

You can usually appeal your real estate assessment if you think it’s too high. Contact your local assessor’s office to find out the procedure, and be prepared to do some research. There’s often no charge to request a review of your assessment.

Look for errors. You probably received an assessment letter in the mail, and many local governments provide the information online as well. Make sure the number of bedrooms and bathrooms is accurate, and the lot size is correct. Also check the assessed value of comparable homes in your area. If they’re being assessed for less than your home, you might have a case for relief.

Even if your assessment is accurate and comparable homes are being taxed at the same rate, there might be another route to tax savings. Ask your assessor’s office about available property tax exemptions. Local governments often give breaks to seniors, veterans, and the disabled, among others.

This article provides general information about tax laws and consequences, but is not intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice; tax laws may vary by jurisdiction.