Frankly Speaking Blog

Joe the Plumber - Advice on Lowering Your Taxes

October 20th, 2008 6:21 PM by Frank Ferrell

Obama told Joe the Plumber that he wants to give him the tax break now that he should have gotten five years ago when he was in a position to buy his business. McCain told Joe that he’ll not only help him buy that business that he worked his whole life for, but would keep his taxes low and provide affordable health care for him and his employees.

Joe, if you’re out there, I want to tell you that two of the best ways to reduce your tax bill comes from home ownership. But don’t take it just from me—consult your tax advisor on available tax breaks on home sale proceeds and/or on points paid on a new mortgage loan.

The mortgage interest you pay can be deducted to reduce your annual taxable income. For example: If you get a $250,000 mortgage loan at 6% rate, you pay $15,000/yr in interest and your taxable income for the year is reduced by that amount. If you’re in the 25% tax bracket, then you get a 1-year tax savings of $3,750 (25% of $15,000).

Your property taxes may also be deducted from your gross income, reducing your yearly tax bill. And property taxes are fully deductible on your primary residence, second home or on vacant land.

So, if you’re considering buying a home, Joe, there’s no better time than the present. If you try timing the market, you may miss out on your opportunity to build home equity by waiting too long to buy until prices have risen again. Why? The market cycles tend to only become clear in retrospect. In the middle of a market slowdown, it’s tricky to predict when housing prices will reach their lowest. The general market indicators and reported figures may trail actual market conditions by months.

Joe, another reason to buy sooner than later: you can now ask for price concessions, and in today’s market you have a better chance of getting them. Additionally, you have a good shot at getting help with closing costs. As an agent who understands the nature of seller concessions I can help you get a better deal above and beyond reductions in sale price.

I realize you may be concerned about buying a home that may decrease in value in the months ahead—and rightfully so. But remember, purchasing a home is a long-term investment, and there are other things to consider than just the purchase price.

For instance, interest rates went up in the earlier part of this year, but compared to historical rates, mortgage financing is still a great bargain. Since 1980 the 30-year fixed rate has gone as high as 18% and as low as 6%. So, when you’re looking for a bargain, don’t lose sight of the big picture. If you attempt to time the market to save a few thousand on the price, you could end up with a higher monthly payment.

Of course, your particular circumstances will determine when it’s the right time to buy a home.  I recommend doing some research to establish what you can afford using my online calculators.  At the same time, I'm always accessible to help you research and understand the Orlando market and types of homes available for you.

That's right, I said "Orlando" market.  I'm also addressing my good friend Joe who is a plumber in Orlando.  By the way, I recommend Joe's services for plumbing emergencies and/or any kitchen and bath renovations involving plumbing.  If you would like Joe's contact information, please email me and I will send it to you. 




Posted in:General
Posted by Frank Ferrell on October 20th, 2008 6:21 PM


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