How Much is Home Ownership Costing Us?

financial calculator

Depending on your circumstances, home ownership can be a great deal or it can be a money pit. I wanted to give some of the expenses we’re experiencing with having a mortgage; hopefully it’ll be helpful for those on the fence about buying property.

Housing Expenses

Right now here’s what we have to pay each month to own the house.

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Run the numbers before buying a house!
  • Mortgage: $660
  • Escrow: $180*
  • HOA: $110**
  • Pool Dues: $20

Total: $970

*Our escrow account takes care of home insurance, private mortgage insurance, and property taxes.

**Our home association dues include landscaping and our water & sewer bill.

In addition to our mortgage payments, we send in an additional $175/month to pay down the mortgage balance faster. Our utilities (electric/gas) average around $100/month in the summer.

Why Pay Off Our Mortgage Early?

I mentioned before that keeping a mortgage just for the interest deduction is crazy. You’re just sending over more money to your mortgage company instead of paying a fraction of the amount in taxes. The numbers don’t add up. By paying our mortgage earlier than the 30 years scheduled, we’re going to save tens of thousands of dollars in interest.

Following the mortgage amoritization schedule, most of the money goes towards paying interest in the beginning of your loan. As the mortgages draw to a close, the payments increasingly goes towards the principle owed.

Paying down the mortgage quickly is also about own own peace of mind. We also don’t want to limit our cash flow for the full 30 years by carrying our mortgage the full length.

Thoughts on Home Ownership

for those that own a house, what are your monthly expenses? Are you paying extra on your mortgage ? Why or why not? How do you arrange it- do you add it on to your regular mortgage bill or do you send it in separate? For those who’ve done the calculations, how much money and time will you save on your plan?

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Can I Claim My Home Office As A Deduction on My Taxes?

home office tax deductions

It has been said that the IRS’ job is to get as deep into your pockets as possible. Your job on the other hand is to do all that you can within the guidelines of U.S. tax laws in order to keep the IRS out of your pockets as much as possible. One way to reduce your tax liability is to claim a home office deduction. home office tax deductions

Home Office Deduction Breakdown

First of all, before you get super excited about the idea of savings hundreds, or even thousands of dollars, off your IRS tax bill, it is very important to understand that the home office deduction acts as a sort of red flag with the IRS. If you work from home in the total merchant services industry, for example, and claim a home office, your chance of being flagged by the IRS and audited rises. Therefore, only claim your home office as a deduction if it meets IRS requirements. If you are unsure whether your use of your home office does qualify, then contact a local tax attorney for clarification.

Regular and Exclusive Use

Your home office must be exactly that—your office. You wouldn’t entertain friends and family members at your office if you worked in corporate America, would you? The same needs to be true for your home office. If your home office acts as an office during the day, and the family game room at night, the IRS does not allow you to deduct the space as a home office. The IRS requires your home office to be a part of your home that you use regularly and exclusively for your small business operations.

Principal Place of Business

Your home office also must be your principal place of business. In other words, if you have a corporate day job, and your workload requires you to work on more paperwork at night when you get home, you cannot claim your home workspace as a home office because it is not your principal place of business.

For a full explanation of tax laws and deductions for your home office, refer to Publication 587, “Business Use of Your Home,” on the IRS website. This publication goes into great detail concerning all of the requirements of home office space and how you can claim those deductions on your IRS tax return in order to lower your tax liability and save money.

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Make Retirement Easier – Automate Contributions

retirement invest

Planning and investing for your retirement doesn’t have complicated or difficult. While you should definitely have some overall plan with your money, getting paralyzed by all the options and choices you have can make unproductive and leave you financially vulnerable.

Start Contributing to Your 401(k) retirement invest

When you’re just starting to look around for which account to invest in, start with your job. My husband’s job offers a 401(k) with a match and we try to take advantage of it. Try to at least set aside enough money to receive the company match as it’s basically free money in your pocket.

Depending on your employer, you’ll have different funds to invest in. If available consider putting your contributions towards low cost index funds. My husband doesn’t have this option, but he has found funds that have lower expenses and track different sectors to diversify his portfolio.

My advice is to increase the amount as you receive raises and promotions through work. It doesn’t have to be significant, just take it up a notch every increase. Besides allowing you to invest more, you’re also lowering your taxable income, a double bonus.

By the way, if your company an Employee Stock Purchase Program, you may want to consider participating.  ESSP allows you to have some of your paycheck deducted to buy your company’s shares at a discount from its market price. Just remember to be diversified with your retirement fund and not too heavily invested in your company.

Open Up an IRA and Take Advantage of the Benefits

Once you’ve set yourself up to get teh full company match, you may want to look at contributing to your IRA (traditional or Roth). The main difference between the two IRAs has to do with when you’ll be taxed:

  • Roth IRA – contributions are made with after-tax assets, all transactions within the IRA have no tax impact, and withdrawals are usually tax-free.
  • Traditional IRA – contributions are often tax-deductible (often simplified as “money is deposited before tax” or “contributions are made with pre-tax assets”), all transactions and earnings within the IRA have no tax impact, and withdrawals at retirement are taxed as income.

Banks, brokerages, and credit unions offer IRAs. Some charge a flat fee for the year, some take a fee for each transaction made, others can take a percentage, and some do all of this. Compare your options to see if you’re getting a good deal.

Thoughts on Automating Retirement Contributions

For those who are investing automatically, what percentage of your income to do set aside every month? Where do you do invest (employer’s 401(k), brokerage, local bank) your money?

Note: This post was included in the Carnival of Personal Finance

Checking the Status of Your Tax Refund

1040 tax form

Many people who are expecting refunds have filed their taxes already and they are waiting to see when the money will be in. If you e-filed your tax return, please keep in mind  your refund should be sent to you within 10 – 21 days.

If you haven’t received your tax return or you’re curious to see if it’s coming, just go to the IRS’ site and enter your information. If you prefer to speak to someone on the phone, the number is 1-(800) 829-1040. I was also surprised to find out they have a Twitter account at @IRSnews1040 tax form

Tax Refund Ideas

Are you looking for ideas for using your tax refund to help your finances in 2011? Here are some great ones you can do, no matter how big or small your refund is.

  • Start or build your emergency fund. Base the amount on your family’s personal savings needs. Even if it’s a starter emergency fund, it’s a cushion for you in case something happens like a car breaking down. For your emergency funds please keep it in a high interest savings account where it’s possible to access it in emergencies without being tempted to spend it.
  • Pay down your debt. If you have an emergency fund ready to go, then look at putting your tax refund towards paying down your debt. Paying down your debt can improve your monthly cash flow.
  • Open or contribute to your IRA. If you have $1,000 or less you can open an IRA. The advantage of starting now rather than later is the benefit of compound interest.
  • Donate to a worthy cause. If you’re looking to find a cause that’s dear to your heart, try Charity Navigator. It can help you find a charity that reflects your values and you can evaluate their administration. It’s free and easy to use.

Don’t forget to set aside some money to just have a little bit of fun.

Thoughts on Tax Refunds

Did you e-file or paper file? What are you using your tax refund for this year?