 The leap from renting to owning is an exciting one, which leaves many first-time homeowners wondering if (and when) they should buy a house. As we turn our calendars to 2021 — and with so much activity within the housing market — is this year to take the plunge? You’re not alone if you’re contemplating this question. As a CPA firm, we work closely with clients navigating the MCC tax credit (a first-time homeowner perk), so we’re here to help you make the right decision. The Difference Between Renting and BuyingLet’s start with the basics. There are advantages to both renting and owning, so it’s essential to consider the differences before becoming a first-time homeowner. Renting:As a renter, you sign a lease, pay your rent and utilities, and call it a month. Maybe you cringe every calendar turn knowing that your money isn’t going towards an investment of your own, but not having to worry about other expenses is an advantage. If appliances break or there are plumbing issues, the homeowner is who typically handles those expenses. Take the roof, for example. Roofs need replacement every 20-25 years and would probably cost around $5 per square foot. That’s a significant expense that renters don’t need to pay. And the roof is just one example of regular maintenance. Other routine maintenance includes chimney cleaning, exterior and interior painting, upgrading appliances, maintaining HVAC systems, yard maintenance, plumbing, and more. All of that adds up. Owning:As a homeowner, you have to worry about those extra maintenance expenses, plus taxes, fees, insurance, and more. The advantage here is that your money is investing in something that will most likely appreciate. On average, homes appreciate at an annual rate of 3-5% nationally. So, if you buy a home for $150,000 and maintain it well, in ten years, it could be worth about $225,000. Because you’re paying for upkeep and maintenance, as mentioned above, that appreciation helps fuel those costs. But specific neighborhoods, cities, regions, or even events can produce higher rates. Consider the tech boom, which caused lasting housing value effects on areas like the San Francisco Bay Area and Seattle. Over the past ten years, San Francisco’s average annual appreciation rate has been closer to 7%, whereas Seattle has been about 6.3%. Both are above the national average. What’s the Best Time to Buy a House?Although there isn’t any magic calculation on the exact time to buy a house as a first-time homeowner (or, really, any homeowner), there are some trends that can help you decide. To summarize a previous blog post of ours, late summer or early fall tend to be ideal times to buy a house. After the rush of the summer, housing inventory is still high, which keeps prices at bay. Once that inventory shrinks, though, prices go up. But, buying a house is less about the perfect price and more about when it’s right for you. So as you enter 2021 with dream homes on your mind, consider if it’s right for you financially. Do you have enough savings for a downpayment? Is your credit score high enough to get a reasonable interest rate? Is this your first home? All these questions are critical to consider before diving into homeownership. First-Time Homeowner PerksIf you're financially ready to buy a house, then any year is an excellent year to do so! And if you’re a first-time homeowner, you can save more money on your significant purchase. As mentioned above, we specialize in the MCC tax credit. Our CPA firm is eagerly anticipating tax day 2021, so we’re already helping our clients get their paperwork in order. If you’re a first-time homebuyer, perhaps some of these perks can help you, too. MCC Tax Credit Our website has all the information you need to know about the MCC tax credit, so we’ll sum it up here quickly. This tax credit is for those who fit the definition of a “first-time homeowner.” You either need to be purchasing your first home ever, buying your first home since at least three years ago, looking in designated neighborhoods that need a housing boost, or be retired or active in the military. If you fall into any of those categories, then you can benefit from the MCC tax credit. First-time homeowners can earn up to $2,000 annually throughout their entire home loan. For a 30-year loan, that’s saving $60,000. It all depends on where you live and what percentage you can claim on the interest you pay on your home loan. Every state is different, so those in Texas will receive their rate from the Texas Department of Housing and Community Affairs (TDHCA MCC). But when it comes time to file your taxes, you can use any CPA firm. Here in Pennsylvania, we serve clients across the nation and abroad. For our local first-time homeowners, they’ll use other forms like the PHFA 1098. This form tells you how much interest you paid that year on your mortgage. We use the PHFA 1098, yes, but those working with the TDHCA MCC in Texas will use their state’s form. Universally, everyone will also need to file Form 8396, which you can find on our website. Mortgage Interest DeductionUnlike the MCC Tax Credit, any home buyer can benefit from a deduction. The Mortgage Interest Deduction reduces the interest that homeowners pay on their loans from their taxable income. You can use this perk on either your home purchase or home upgrades, so it’s more versatile than some tax benefits. State ProgramsAll states have their programs to help homebuyers, whether it’s your first home or not. In Texas, for example, there’s the Texas State Affordable Housing Corporation, which allows buyers to deduct a large portion of their interest. You can combine this perk with other tax breaks related to down payments and closing costs. Another example is in the city of Oakland, CA, which provides a Mortgage Assistance Program. This program provides funds to reduce closing costs and down payments. Home Buying in 2021So, back to the question: Is 2021 the year to buy a house? If you’re financially and personally ready to take on the responsibilities and enjoyment of homeowning, then yes, of course, it’s a great year to buy a house. It doesn’t matter when as much as it matters if you are ready. However, because 2020 was such a unique year, keep your eye on the 2021 housing market. Last year, many people relocated due to the pandemic, which increased demand in an already large supply year. Housing prices grew, but mortgages fell to a record low. Many experts predict that housing sales will increase this year and prices will rise over 5% — some saying up to 10%. Further, due to the pandemic, construction companies face challenges in providing new builds. So, eventually, supply will go down, and prices may increase even more. This situation will make it hard for low-income earners to enter the market and essential for first-time homeowners to take advantage of those perks! If you plan to buy in 2021, consider looking around earlier in the year. Ignore the late-summer-early-fall trends, as this year will not follow the usual course. When you find the home that’s right for you financially and personally, then that’s the perfect time to buy a house.
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 As we enter January and start thinking about tax day 2021, our team would like to wish our readers a very Happy New Year! As you return to work this week and start putting away your holiday decor, we know that the last thing you want to think about is your taxes. We also know that our excitement for tax day is probably not that relatable! But here’s the thing: we do this for a living, and we love it. We want to use our enthusiasm and encourage you to get an early start on your taxes this year. If you’ve ever waited until the last minute on April 15th to start organizing your receipts, then you know that panicked feeling. Aside from the stress, procrastinating on your taxes can cost you money. You may forget about — or not have time to research — deductions or credits that could save you big bucks! So, is it too early to start thinking about tax day 2021? We think not, and here’s why. Tax Day 2021 is Only 98 Days Away!Is that all?! Ninety-eight days might seem like a long time, but that’s just over three months. At the rate time seems to fly by, April will be on our doorsteps before we know it. For most, three months to coordinate your taxes is plenty of time. But for those with a more complicated tax situation, you may need that time to get your paperwork in order. Complicated Tax Situations and Tax SystemIf you’re a single filer with one income and no dependents, no big purchases, and nothing out of the ordinary, then you’re tax filing is fairly simple. But add any of the following to that list, and you complicate things just enough to require more preparation:
This list is non-exhaustive, as there are plenty of other situations that can make your taxes complicated. But, sometimes, that isn’t a bad thing. If you have children or dependents, then that’s a tax break (i.e., money). Some of the above allow you to take advantage of tax credits or tax deductions. But, most importantly, it’s our tax system that makes filing complicated. In the United States, we conduct our social policy and tax expenditures through annual tax per household (not individual). This distinction alone makes our system more complicated than in some other countries. Further, individuals (families) must file the paperwork themselves, not their employers. If done incorrectly, you can either lose money or receive a fine. For these reasons, even lower-income earners opt for professional help come tax day. Finding the Best CPAAnother reason to anticipate tax day 2021 is to snag a good, trustworthy CPA. Whether you choose online or in-person, you want to start shopping around early. If you wait until April, most high-quality accountants will be too busy to squeeze you in. Luckily, it’s 2021, and finding a CPA is easier than it’s ever been! For example, our firm is in Pennsylvania, but we serve clients from across the country and even some foreign expats. Many other brick-and-mortar CPAs do the same. You don’t have to stick to your neighborhood — you can take your CPA search nationwide. If you rely on TurboTax and H&R Block programs, starting your taxes earlier allows you to shop around for competitive prices. A long time ago, we pledged to offer quality services that fit any budget. That’s why we match TurboTax’s Deluxe package price. So for the same cost, you can get real people attuned to your specific needs. Give us a shout if you have any questions! What Paperwork do You Need for Tax Day?When a client presents a stack of paperwork, we get excited about it. To us, the pile is a puzzle, and we’re eager to put it together and find the best credits and deductions for your situation. This takes time. There are many details to consider before getting started, and remember that your case is unique to you, so you need someone who can help you. Personal InformationTo start, gather all the paperwork you need for your personal information. This data includes:
This set of important information is easy to collect. You probably know most of it by heart, but it’s smart to have it handy as you prepare for your taxes. IncomeIncome is a huge category with a lot of moving parts because everyone’s situation is different. The earlier you can start gathering this information, the better. Remember, your employer likely provides this information, so you may not have it by now. You still have 98 days, so don’t worry if you’re waiting on any tax forms!
Credits & DeductionsTax deductions and tax credits are different, and it’s essential to understand that. At our firm, we work with clients filing with the MCC tax credit certificate program. Tax credits help you receive more money on your refund, while deductions reduce the overall amount of income on which the government can tax you. So a credit gives you money, and a deduction reduces what you owe. The MCC tax credit is for first-time homeowners and can issue up to $2,000 annually. The savings depends on a percentage of how much interest you pay on your mortgage, and it varies from state-to-state. On average, new homeowners earn anywhere from 10% to 50% of that interest. With most tax credits, you need to file additional paperwork. To benefit from deductions and credits, starting early and using a knowledgeable accountant is wise. Let’s look at some of the most common spending categories for credits and deductions.
If you spent money within any of the categories above, you could file for deductions that lower your income amount or receive credits. In turn, you save money. Deductions and credits are where that aforementioned social policy comes into play. You may have to pay for childcare upfront, but you can usually deduct those expenses on your annual taxes. In ConclusionSo, for all the reasons mentioned above, you should start thinking about tax day 2021! Yes, three months is a long time, but considering all the moving parts that can impact your filings, getting a handle on things now will help you before April 15th arrives. We live and breathe these next few months and love helping our clients save the most money on their taxes.
 Believe it or not, today is the last day of 2020, which means it’s time to start the search for a trustworthy online CPA firm. We already have our sights set on Tax Day 2021! One of the biggest mistakes we see our clients make is waiting until the last minute to start their taxes. We’re not suggesting that you put the champagne down — by all means, enjoy the holidays! But we are saying that thinking about your taxes early is a strategic step in saving money, plus it reduces your stress. Using a CPA online is extremely common, but it does come with some risk. When you use an online CPA, it’s harder to know if they’re the best. Of course, we’d love to help you through Tax Day 2021, but what’s more important to us is that everyone finds a CPA they can trust. We’re going to help you find the best online CPA for tax season. What’s an Online CPAFirst, let’s define an online CPA. When you hear the term ‘CPA,’ you might get a vision straight from Hollywood: think dusty, smokey old accountant offices. Or if you’ve used an accountant before, maybe you just think about offices and endless paperwork. In today’s modern world, we look and operate a little differently. Many people assume only programs like TurboTax and H&R Block are online CPAs, but any accountant can put their services online. That’s how we serve individuals and businesses from all over the country and expats abroad. We also serve first-time homebuyers who use programs like the MCC tax credit. This program can be complicated with paperwork like Form 8396 and PHFA 1098, but we can help anyone in any state navigate their taxes. Step #1 — Check PricesWe get it — TurboTax and H&R Block offer low prices. It’s tempting, for sure. But the problem is that these advertised prices aren’t always the final cost of their services. What if you have a question or need extra help? Usually, you must pay more or upgrade to talk to a human. And when it comes to filing your taxes, you want to be 100% sure it’s correct. As an online CPA, we want our prices to be affordable to the masses. That’s why we match the cost of TurboTax’s Deluxe version with state filing. But, we also throw in essential amenities like human voices, helpful phone calls, and constant support. Step #2 — Find an Online CPA That’s Familiar with Your SituationIf you have a complicated situation, you need to use an online CPA who knows what they’re doing. If you have multiple businesses, then look for an accountant who specializes in business taxes. If you have property or income overseas, don’t settle for the typical online programs. You need an expert. Here at our CPA firm, we specialize in numerous types of situations. But, what we’re most known for is the MCC tax credit program. So if you’re a first-time homebuyer and you need help understanding complicated paperwork like the PHFA 1098 (the mortgage interest statement you’ll receive in Pennsylvania), then you know we can help. Of course, we’re not the only ones who can assist first-time homeowners, so the point is to seek out experts and receive the best help. And if you're out of Pennsylvania, remember that we serve anyone across the country, as do many other online CPAs. Save MoneyIf you use an accountant who doesn’t understand your situation, you could miss out on saving money or receiving a larger tax return. Let’s look at the MCC tax credit as an example. With this program, you can save up to $2,000 per year, but it’s complicated. So if you’re using a CPA online who doesn’t understand how to receive the most tax credit possible, that’s lost money. If you’re a first-time homebuyer, then an expert accountant should be able to tell you that the MCC tax credit requires certification before you buy a house. And, they should tell you that you need to use paperwork from your state’s specific agency. In Texas, you’ll use TDHCA MCC (Texas Department of Housing and Community Affairs). In Pennsylvania, you’ll use the PHFA (Pennsylvania Housing Finance Agency). And when you receive the PHFA (or the one from the TDHCA MCC program if you’re in Texas), then you need to use the information on that form to submit Form 8396 with your annual taxes. If that all sounds confusing, it’s only because sometimes you need experts to navigate these programs and save you the most money possible. Step #3 — Feel Comfortable with Your Online CPAAbove all else, you need to feel comfortable with your accountant. Unfortunately, people use programs like TurboTax because they think CPAs are more expensive and not as trustworthy. We’re trying to break that stereotype, and we’re not the only ones out there. So use your gut. If you get a bad feeling about using a specific CPA online, then take your business elsewhere. Here are some other tips on how to find honest and trustworthy CPAs:
If You Need More Help, Let Us Know!Again, we’d love to help you with any of your needs this upcoming tax season. Not to scare you, but Tax Day 2021 is just (gulp) 105 days away! If you start thinking about your taxes within the next few weeks, you’ll be in good shape. We pride ourselves on being an honest and trustworthy online CPA; but, again, we just want you to get the help you need. If we’re not the right fit, we’re happy to recommend someone local to you or an accountant who better specializes in your particular situation.
Contact us — we’re here to help!  It’s hard to believe that 2021 is right around the corner, but with a new year approaching, many people wonder if there’s a perfect or best time to buy a house. Although there is an answer to this question, it’s one of those things that may not be the same for everyone. So if one of your New Year’s resolutions is to finally be a first-time homeowner (or upgrade your home), then read on to discover when to make a move. Money, Money, MarketIf you’re asking this question, then you’re probably trying to save money. By determining the best time to purchase a home, you’re searching for deals, discounts, and when the market is right. These factors are part of the reason why the answer can change for each person individually. Because the housing market can fluctuate, there is no exact day when you should send in that offer. But you can monitor the market to decide if the factors are in your favor. Here’s what to look for:
Late Summer, Early FallIf we had to pinpoint an exact date, it would be in that sweet spot mentioned above: January - MarchThe start of the year is not the ideal time to buy a house. Inventory is usually at its lowest point at the end of a calendar year and through the following spring. The end of the year is tax wrap-up season. This year, as people start to anticipate Tax Day 2021, they aren’t looking to add any complications to their financial situation. And with colder weather, it’s more challenging to attract the attention you want to your home. April - JulyLet’s pretend that we’re looking at next year. (Keep in mind that 2020 and subsequent years may show different trends.) As temperatures rise and Tax Day 2021 passes (phew!), people will start preparing to sell their homes. Buyers who receive tax returns are ready to invest, and open houses are a lot easier in drier, warmer weather. Hence, early summer tends to be the busiest season and when most people list their homes. May, June, and July tend to be the months with the most extensive inventory. Now is an excellent time to start browsing for homes. August - OctoberBut remember: Just because inventory is high doesn’t mean prices have started to drop yet. The stock needs to reach its peak, which tends to be late June or sometime in July. Once that peak passes, the supply is too high to warrant high prices, and costs will decrease. This is the sweet spot. So if you’re asking when is the best time to buy a house, this is it. November - DecemberSimilar to the start of the year, November and December are when inventory drops to the point where house prices increase again. If you’re in the market for a new home at this time, consider waiting until the following year to do so. However, because it’s the last couple of months of the year, it’s worth a look because some sellers may reduce prices before the tax year ends. And this year, many are anticipating Tax Day 2021 in just a few months. Is There a “Best” Time to Buy a House?As you watch the market trends, you’ll know when to pounce on that dream home. If next year follows a similar path, it’s best to wait until late summer or early fall or inquire about houses at the end of the calendar year. But no housing trend truly matters if you cannot afford to be a first-time homeowner or upgrade your home. Your Financial SituationBefore you mark August 1st on your calendar, take a moment to consider your financial situation. The real best time to buy a house will be when you can afford it. There are a few steps that can help you determine when you’re ready:
First-Time Homebuyer ProgramsAt our CPA firm, we help first-time homeowners through a program called the MCC tax credit. This is a federal program monitored by each state individually. When it comes to first-time homebuyer programs, this is one of the best. And although it mostly serves those purchasing their first house, other groups can still qualify for the benefits. For the MCC tax credit, you’ll need to file all paperwork before you purchase your home. More importantly, you’ll need to work under the regulations of your state. For example, if you reside in Texas, you’ll file paperwork under the TDHCA MCC program (Texas Department of Housing and Community Affairs). But the TDHCA MCC is only for those in Texas. If you live here in Pennsylvania, you’ll work with the PHFA (Pennsylvania Housing Finance Agency) and need to request a PHFA 1098 form (more on that below). Although our CPA firm is in Pennsylvania, we work with individuals across the country and even abroad. If you have any questions about this program or any of the necessary forms, please ask! Some of the paperwork you’ll need to file Form 8396 with your taxes. To obtain the required information, make sure you receive your Mortgage Interest Statement. In Pennsylvania, you’ll receive the PHFA 1098, which gives you the amount of interest you paid on your mortgage loan. (This information is how the state determines how much you’ll receive with the MCC tax credit.) Don’t Forget to Enjoy the ProcessBuying a new house can be stressful. Especially when you read all about these TDHCA MCC and PHFA 1098 and 8396… There’s a reason why there are professionals out there to help you. Find an excellent lender, a supportive real estate agent, and a helpful CPA firm. They’ll assist you through the entire process that you can also enjoy this time in your life.
To help save money, research first-time homebuyer programs and other state programs for anyone looking to purchase a new house. Allow this time to be exciting. And if you need any help from us, don’t hesitate to reach out!  When buying your first home, it helps to think about it as one large project with several moving parts. To have success throughout the process, you must plan, organize, and strategize your goals. If saving money is one of them, that intention should drive your strategy. You can accomplish this by focusing on helpful first-time homebuyer programs, as an example. But if speed is more critical, then organizing and filing any necessary paperwork is crucial. Although buying a house as a first-time homeowner is an individual experience, everyone can follow a few essential steps. Regardless of your goals or priorities, the following five actions will help you start the process, prepare for paperwork, and save money. #1 Start Saving Early When Buying Your First HomeAt our online CPA firm, we stress the importance of starting early when buying a house, especially as a first-time homeowner. Purchasing a second home while selling your first can make a big purchase more manageable. But when starting from scratch, the earlier you begin saving, the better. There are a few different strategies for saving money when buying your first home. Again, think of this step as a project and look at the smaller parts. There are three main expenses: down payment, closing costs, move-in expenses. Down Payment (DP)Your down payment cost will depend on the type of loan and mortgage you determine with your lender. Luckily, several first-time homebuyer programs can help you lower the percentage of your down payment. A past blog article explores these programs in each state. Some can bring your DP to as low as 3-5%. To determine the final figure, use a down payment calculator or use the following formula: DP% x Cost of Home = Down Payment So if your DP is 5% and your home’s cost is $250,000, then your savings goal is $12,500. Many find it helpful to open up a savings account specifically for buying a house and establish automatic transfers. If you can save $1,000 per month, then you’ll afford your down payment in a little over one year. Other First-Time Homebuyer ProgramsSaving money when buying a house is often a big goal. While each state has several first-time homebuyer programs to support you (if you are, indeed, a first-time homeowner), others can help reduce costs. One is called the MCC tax credit program. Here at our CPA firm, we specialize in this program and help you save up to $2,000 per year. The MCC tax credit is a federal program, but you’ll work with your state to determine how much you can save. For example, the MCC mortgage credit certificate in Texas is specific to those buying a house in that state. Here in Pennsylvania, you’ll adhere to the rules for our particular state. If you want to benefit from these types of first-time homebuyer programs, then it’s essential to get started early. You must submit all paperwork before purchasing your new home. To learn more, you can read about the MCC tax credit on our website, and we can help you navigate the process. But if you want to know the terms for your state right now, try a little search. In Texas, just search ‘MCC mortgage credit certificate Texas.’ Change the search terms for your state. 'MCC mortgage credit certificate New York,' 'MCC mortgage credit certificate Hawaii,' etc. Closing CostsClosing costs are small fees or other expenses that you must pay when finalizing your home purchase. Most first-time homeowners should plan on 5% of their loan for closing costs. So, again, if the price of your future home is $250,000, you’ll need to save an additional $12,500. But there are some ways to lower this expense, the most common being negotiations with the seller or assistance programs. Move-in ExpensesDon’t forget this expense! After you purchase your home and pay closing costs, you’ll still need some money to physically move into your new home or address any issues such as home repairs or essential upgrades. Many first-time homeowners also need furnishings for their new house, such as beds, sofas, tables, chairs, etc. Factor these purchases and expenses into your savings goal. #2 — Increase Your Credit ScoreAnother significant factor in determining your home’s cost (especially your down payment) is your credit score. You can quickly look at your credit online to see where your score falls. It’s best to search all three main credit bureaus: Experian, Equifax, and TransUnion. Although your score with each will be similar, check for errors and dispute anything that harms your credit score. This is standard practice — don’t be scared to pick up the phone and ask questions. Staying on top of your credit is one of the best ways to increase your score. Other things that can help you bolster your credit score when buying your first home:
#3 — Be Choosy and Shop AroundIt’s tempting to react when you find your dream home, but if the market allows, be choosy and take your time. (Note: sometimes the housing market is competitive, and you must act swiftly once you find the home you want to buy.) If you have your heart set on a specific neighborhood, expand your parameters, and shop around. The MCC tax credit program, as mentioned above, is an excellent example of why looking at other neighborhoods is helpful. Sometimes, governmental programs offer perks when buying your first home (or second) in specific areas. Maybe it’s an up-and-coming district that needs a housing boost. Perhaps it’s a neighborhood that the city wants to turn more residential, so it’s offering discounts to families willing to move. There are many reasons why a specific area may offer more affordable housing. Ask yourself the following questions:
#4 — Open Houses are Your Best FriendA lot of first-time homebuyers feel intimidated by open houses. When you’re in a room filled with others who might want the same place, all of a sudden, the process turns competitive. If you use these open houses to your advantage, then you’ll start to see the value in them. Here are a few perks of open houses:
#5 — Secure Pre-ApprovalAlthough pre-approval letters aren’t required, they show the right people that you are a serious first-time homebuyer. Mortgage pre-approvals are a lender’s offer of your future home loan. A letter like this shows real estate agents or private home sellers that you’re worth their time and investment because they know you have the funding.
Obtaining pre-approval can also give you an edge over your competitors. Not only do they know they can trust your finances, but they also label you as a responsible and trustworthy person. This reputation can also give you a little pull when it comes to negotiating. Yes, governmental programs like the MCC tax credit are helpful, but sometimes you can shave the most off an asking price by merely negotiating. Here are some things you can ask the seller to reduce:
As always, when the going gets tough… Give us a call or schedule a consultation online! You don’t have to navigate this process alone. We can help you maneuver the MCC tax credit process and find other resources as a first-time homeowner. |
AuthorRandy Tarpey CPA Archives
January 2021
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