TAX CREDIT 101 FOR COUPLES

As I mentioned last week, there are several tax credits that can be split between spouses and some that can be transferred from parent to child / dependents and grandparents. Here are some of the most common tax credits that we need to look at during our tax planning:

• DONATIONS can be transferred between spouses.  Donations should be combined or allocated to maximize impact between spouses.  Donations are one of the most powerful Tax Credits.  In Alberta, we save 50% in tax on every dollar donated over $200.
• MEDICAL EXPENSES are not worth a lot of tax savings unless they are put through a Private Health Service Plan (PHSP).  However, if you have a lot of medical expenses, or low taxable income, you can still use medical expenses to save tax.  Medical expenses can be transferred between spouses and should be combined or allocated to maximize impact between spouses. 
•  TUTION, EDUCATION & TEXTBOOK AMOUNTS can be transferred between spouses and can be transferred to parents or grandparents. The maximum amount for this tax credit is $5,000 per person.
• PERSONAL EXEMPTIONS (BASIC PERSONAL AMOUNTS) can also be transferred between spouses.  Whatever portion is not used by one spouse, can be used by the other spouse.
• Other tax credits that can be split include Disability amounts, Age/Pension amounts, Transit amounts and Fitness amounts.

Have any questions on tax credits? Send me an email today! My email is info@kustomdesign.ca.

Weekly Market Update – April 28, 2009

Over the past week we have seen the number of sales and showings increase across the board.  Single Family home sales rose over the last week while Condo sales dipped.  Another great point, is that over the past couple months, since January 2009 to be exact, we have seen the Median price of Single Family homes stay very constant around $380,000.  The Condo Median prices however have had a bigger ride ranging from $249,000 up to $260,000 since January 2009.

We should expect to see the listing count stay constant with the sales per week rising into the mid 500s as Spring season is now upon us.  As well, we should see the number of showings starting to rise per week as more buyers are starting to look more seriously.

BUYERS:

There are some great purchases out there right now.  With interests rate at amazing low’s, and home prices back to decent levels, this is your time to get into the market.

SELLERS:

In order to be successful in this market, you need to have a home that shows well and is priced well.  Don’t try to test the market in terms of price, as it could hurt you in the end.

Sellers Can’t Move… Period!

We have been noticing a trend happening lately with the sellers that we have been dealing with.  The number of listing presentations that we have done recently is very high… Many sellers, those who have purchased in the last 2-3 years, are having a difficult time versus those who purchased 3-4+ years back.

Of the sellers that have purchased 2-3 years back, some of them are wanting to upgrade their home, and some are even wanting do downsize…  But here’s the thing… Majority of them can’t do either!  With the market swinging the way it has over the last year, prices have gone back to the values of early 2007.  The sellers don’t have enough equity in their homes to make either move.  It’s hard to see the ones who are wanting to downsize, as their payments are a bit high for them currently, but they simply can’t.  Those who are venturing to sell, they are selling $30,000 – $50,000 below what they paid for the home, and in some cases even more.

What will this mean?  I think we will see condo prices and sales increase over the coming months, as their are many and I mean MANY new buyers now buying.  But the upper end single family homes, we will probably not see as great of an increase for some of the reasons above…

What are your thoughts?

When Your House Doesn’t Sell

Some houses sell as quickly as they are placed on the market. Others sit there languishing for months becoming not only harder to sell, but also, becoming harder to show. After all, the longer a house sits on the market, the harder it is to get rid of it. Houses pick up reputations like it or not.

Not only do the neighbors begin to realize that your home has been on the market for quite a while, but certainly so do the real estate agents. Even some of the potential home buyers might realize that your property has been for sale for quite some time now. Surely, something must be wrong with it. What is it about your home that is keeping it from being sold?

The Overpriced House

A house that is overpriced is not going to sell as quickly as other properties simply because a quick comparison of prices will show that it is overpriced. Real estate agents won’t even want to show it after a while, leaning toward properties that are more likely to sell. After all, they want to earn a living and trying to unload a property that is simply marked up too high is next to impossible.

If you price your home reasonably when you first put it up for sale, you are more likely to sell it quickly than if you wait. Once a home is visibly marked down with a “price reduced” label, every potential buyer is instantly aware that your house has been on the market for a while. They are going to know that you are not a person who is up to any more compromises. After all, you priced your home much higher than the market would bear.

The Dump or Poorly Maintained House

A house that is a real dump is not going to sell because it is a dump. The word “dump” can be used to describe a house that has a wide range of problems from dirty, in need of repairs, and unkempt to falling apart at the seams. Homeowners who do not take care of their houses while they are living in it risk the possibility of not being able to unload it when they want to do so.

A dump typically has more wrong with it though than a few “sadly in need of paint” walls and carpets that look like the entire world came tramping through after a walk through a swamp. A dump has structural problems that are real eyesores and that a few cosmetic strategies are not going to solve.

What good is a coat of paint on the front porch when the floor slats are clearly rotting out on the perimeters? What good is a new bush or two on the side of the house when clearly every tree in the back yard is dying from some type of disease? What good is allowing the buyers to keep the washer and dryer when the home is clearly infested with mice, cockroaches, and other vermin? And what good are a few dirty, but pretty, curtains when every window refuses to open and the screens are all missing?

Plus, a dump is simply one of those homes that you know you do not want to enter even when your real estate agent insists. It is one of those homes that clearly smells like animal urine as you approach it from the sidewalk. It not only has a fine coat of dust covering the window ledges or fireplace mantle, but it also has a fine layer of grime covering the walls, ceiling, and steps to the basement. It simply doesn’t matter how much potential it has. Would you want to live there?

However, if the homeowners clean it up, then it is no longer a dump and it might eventually sell. Then again, a dump in your eyes might not be the same as a dump in someone else’s eyes. After all, it is all a matter of perspective. Nonetheless, a house that was once a dump is always a dump in the eyes of the people who have already seen it, including the real estate agents.

Who Did You Say Is Selling Your House?

If you pick the wrong person to sell your home for you, you could be in even bigger trouble than you think. After all, if your brother-in-law is a real estate agent and you list your home with him, he is going to be sharing a bit more than the specs in the paperwork. Let’s face it, people like to share what they know without even realizing they are doing it. It is simply human nature to talk to those around us.

Before you know it, a conversation about the new roof leads to the fact that the house had some structural inconsistencies leading to the roof’s collapse. Gosh, would you want to live in a house like that? What else could be wrong with it? Or perhaps he will share the fact that the neighbors are real party hounds during the summer and your kids cannot get any sleep before 10 pm when the law reinforces the “peace and quiet” guidelines of the area.

How much harder is it to sell a home when every tiny negative aspect is laid out on the table for the potential buyers? Yes, the homeowners do have the responsibility to disclose certain things, but do they really have to tell the potential owners that the teenager down the block revs his car at 7 am in the morning every day or the neighbor’s cat likes to spray in your garden?

A real estate agent who knows these things is going to share these things without even realizing that he is doing it. It is simply normal conversation to share when someone else shares. In fact, he might even think he is being helpful to point out certain things. Let’s face it though, some things are better left unsaid.

TAX PLANNING FOR COUPLES

Because spouses’ tax returns are related, couples, whether married or common law, must plan together.  Couples who do not plan together and/or file their taxes together miss out on a lot of tax savings.   Splitting income, deductions and credits between spouses are some of the best ways to save taxes for individuals. 

INCOME SPLITTING

It is possible to split may types of income, including income from the company, investment income, pension income (up to 50%), RRIF income (considered Pension Income), CPP income and RRSP income.  The main type of income that can be split is employment income. 

Income splitting allows both spouses to stay in lower tax brackets.  If one spouse is in a very high tax bracket and the other spouse in a low tax bracket, we need to look for ways to transfer a portion of the income from the spouse in the higher tax bracket to the spouse in the lower tax bracket. 

TAX CREDIT & TAX DEDUCTION SPLITTING:

There are many Tax Credits that can be split between spouses.  There are even some that can be given from parent to child, dependents and grandparents.  Some of the best known tax credits are donations, medical expenses and disability amounts.  Tax deductions, on the one hand, include RRSPs, Child Care Expenses and Moving Expenses. 

We’ll get into more detail on tax credits and deductions next week! Please email me at info@kustomdesign.ca if you have any questions. 

THE REALITY OF TRANSACTIONS & TAXES

When purchasing a business, an investment or other asset, there are always possible tax consequences.  If we do not plan properly for our purchases then they could end up costing us thousands, tens of thousands or hundreds of thousands more than if we planned for them.

For example, if we set up your business without your spouse as a shareholder, then you have less ways to split your income.  Income splitting is always a powerful tool in tax planning.  Also, if you purchased an investment under the higher income earner, you would pay more tax on investment income earned than if you purchased an investment under the lower income earner. 

The list goes on.  The important point here is to ensure that you get into the habit of planning before making any major asset purchases, do any investing or start any business.

Seeking the Best Sale Price for Your Fixer Upper Home

Buying a home that you can fix up and resell at a much higher price can certainly yield you worthwhile profits if you are aware of the market value of similar homes in the same area.

This can be difficult when you do not know what to look for. Below are a few tips you should follow when trying to determine your target price for your fixer upper home.

Initial Considerations Before Buying

It is important for any fixer upper that you purchase a home which needs only cosmetic repairs. Unless such work is your specialty, you do not want to deal with a house requiring major repairs that will cost in supplies and labor as much to fix up as buying a new home.

Small repairs can add a lot to the value and eye appeal, thus helping you to realize a profit much more quickly than if you need to replace roofs and plumbing damage.

A house that only needs cosmetic repairs – such as paint, fixtures, and new kitchen cabinets, for example – will take less time to fix up and often look much better to both the buyer and seller.

Maximizing Your Returns

By renovating the home, you have already taken the first step toward earning a profit. However pricing the home for resale can be the greater challenge.

You need to have a home that is almost ideal after renovations as well as having an attractive price to go along with it. Setting a target price for your home can be something of a gamble.

First, by the time you renovate the house, the real estate market may be changing for the worse. And second, the buyers who are willing to pay your price may not be looking to purchase a renovated home at the time you are selling.

However, by setting a price that is beneficial for both you and the buyer, you will most likely be able to sell quickly and make a tidy profit at the same time.

A Little Investigative Work

Simply by doing some basic research, you can determine your target price more easily than you might think. This investigation includes assessing not only the home, but the general location as well.

You want to know what types of people will be interested in your home, and whether you prefer to cater to families, young professionals, or singles. That will provide you a good indication about the price at which you need to sell the home.

Location is the number one factor that draws interested visitors and eventually sells a home. So the more appealing the location, the more you can ask for the house once it is remodeled.

Setting a price that will earn you maximum profits while simultaneously selling quickly can be a challenge, for sure. However if you follow these tips, you will find it easier to determine a terrific price that brings a smile to both you and the buyer.

When all is said and done, if you are wanting to buy a fixer upper to live in vs. a flip, it may be better to live in it for a while as a possible exit strategy as the markets are still a bit unsettled… Food for thought!

How your Credit Affects your Mortgage Application…

Client’s often get caught up in the excitement of searching for a new home before ensuring that their finances are in order. Occasionally it can go so far as to putting in an offer and not realizing until quite late on in the game that something that occurred recently or even a few years back is still showing up on their credit bureau and impeding their chance at securing a mortgage.

Credit scores are broken down as follows:

1. Previous Credit Performance: 35%

• Pay your bills on time. If you pay your bill 3 days early, they receive it 3 days early and this can increase your credit score by 3 points.
  

2. Current Level of Indebtedness: 30%

• Keep your credit card at 75% of the maximum by making minimum payments. (ie: 10K limit keep at or below 7,500). This shows that you are managing your credit.

3. Length of Time Credit Has Been in Use: 15%

• Most lenders want to see “2 active trade lines for 2 years or more” when applying for a mortgage as they are reviewing your past history and willingness to repay when deciding to fund your mortgage or not.
• A credit card from a major bank has much more merit than a Capital One card that anyone can get.

4. Pursuit of New Credit: 10%

• A major advantage to using a Mortgage Broker is that when we access your credit bureau report we have options to bring your application to many different lenders. If you were to negotiate your own mortgage rate by visiting each local bank branch yourself, each bank would then in turn access your credit bureau. Over time, multiple “hits” on your credit lower your score.
  

5. Types of Credit Available: 10%

• Revolving credit (credit cards & lines of credit) affect your score more on a bureau than an Installment credit (monthly car payment) which has a fixed monthly amount. The “danger” in revolving credit is that when we determine your “debt service ratio” to determine your mortgage pre-approval amount we are only looking at outstanding credit balances and not the limit. A lender sees this access to unused credit as a possible risk factor.
  
• A variety of credit is desirable, ie: a credit card (revolving credit) and a car payment (installment credit) display a good combination of credit.

How your Credit Affects your Ability to Qualify for a Mortgage

Client's often get caught up in the excitement of searching for a new home before ensuring that their finances are in order. Occasionally it can go so far as to putting in an offer and not realizing until quite late on in the game that something that occurred recently or even a few years back is still showing up on their credit bureau and impeding their chance at securing a mortgage.

Credit scores are broken down as follows:

1. Previous Credit Performance: 35%

• Pay your bills on time. If you pay your bill 3 days early, they receive it 3 days early and this can increase your credit score by 3 points.
  

2. Current Level of Indebtedness: 30%

• Keep your credit card at 75% of the maximum by making minimum payments. (ie: 10K limit keep at or below 7,500). This shows that you are managing your credit.

3. Length of Time Credit Has Been in Use: 15%

• Most lenders want to see "2 active trade lines for 2 years or more" when applying for a mortgage as they are reviewing your past history and willingness to repay when deciding to fund your mortgage or not.
• A credit card from a major bank has much more merit than a Capital One card that anyone can get.

4. Pursuit of New Credit: 10%

• A major advantage to using a Mortgage Broker is that when we access your credit bureau report we have options to bring your application to many different lenders. If you were to negotiate your own mortgage rate by visiting each local bank branch yourself, each bank would then in turn access your credit bureau. Over time, multiple "hits" on your credit lower your score.
  

5. Types of Credit Available: 10%

• Revolving credit (credit cards & lines of credit) affect your score more on a bureau than an Installment credit (monthly car payment) which has a fixed monthly amount. The "danger" in revolving credit is that when we determine your "debt service ratio" to determine your mortgage pre-approval amount we are only looking at outstanding credit balances and not the limit. A lender sees this access to unused credit as a possible risk factor.
  
• A variety of credit is desirable, ie: a credit card (revolving credit) and a car payment (installment credit) display a good combination of credit.

TIMING YOUR TAX PLANNING

I cannot stress enough the importance of having a good tax plan.  Aside from helping you map out all your finances, a good tax plan will help you maximize all the deductions and credits that you can legally claim to minimize your taxes. 

Most people think that Tax Planning is done in December, and some even go as far as planning in the following February after the tax year.  Always remember that you should not wait  until the end of the year to start your tax plan.  The key to successful planning  is to start early in the year as possible and to always have your tax plan in place first before committing to any large transactions, investment or business.  Most importantly, tax planning is not a one time deal.  Tax planning is a continuous and on-going process. 

If you need any assistance in your tax planning, please send me an email at info@kustomdesign.ca. Till next time!

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