My Wealth Journey

I received my estimated property taxes for a home I got in April 2006 where the value was about 18k over how much I purchased the home for.  I certainly was disappointed because last year the value was only 60k since it was a new home.

I decided to try to protest the value on my own without using any service since I figured the best outcome would only mean a savings of 400-600 bucks and if I used someone, I’d pay about half my savings away.

All I did was write a very short letter and explained that I purchased my home for 18k less than their appraisal and included the closing statement. Within a week, I got a notice back that they are adjusting the value to the original purchase price of the home! The end result is savings of about 480 bucks this year based on a 2.7% tax rate in about half a hours of work.

The moral of the story, if you built a new home and the appraisal was way over the purchase price, just write a short letter and send them your closing statement. Contesting the value of an older home may be tougher because then you need to send in comps and probably would have to show up in person.

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I just received the notice of appraisal value for my Austin property and am glad to see the taxes went down by a little.  I have a property in the Manor ISD that had a 2006 tax rate of 1.768% that looks like it has been cut to 1.535%. A savings of roughly $200-$250 a year which definitely helps cashflow a little. The other estimated tax rate are the same. The proposed appraisal value also went down by a thousand. I was expecting the value to go up while the tax rate go down a little, neglecting any tax decrease.

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While at lunch with coworkers, we were discussing how much should you contribute to a 401k plan? The answer is to contribute at least whatever amount the company will match. So if your company will match up to 4% of your annual salary that you put into your 401k, then you are throwing away money by not putting at least 4% into your 401k plan.

Everyone’s answers will be different as far as how much more to contribute. If you have a lot of disposable income and are in the higher tax bracket, sometimes putting the IRS max contribution will help save you on taxes. Even if you aren’t in the higher tax bracket, putting money into the 401k will reduce your taxable income. However, I don’t recommend people who live close to paycheck to paycheck or don’t have at least 6 month’s worth of living expenses, which includes mortgage payments in their bank account, to contribute anymore than what the company will match.

Any money that you put into the 401k is tax deferred, meaning you pay taxes when you withdrawl. Some people believe taxes will be higher than they are now in the future and choose to just the tax now or put the money into their roth 401k account which is not tax deferred. If you think your tax bracket will be lower when you retire/withdrawl, then put as much as you can into your 401k account.

401k 2007 Contribution Limits

• $15500 for those under 50 years of age
• $15500 plus $5000 additional catch up contribution for those over 50 years of age

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It is never too early to start planning for the 2007 taxes. The max 401k contribution for 2007 will be increased by $500 to $15,500 while 2008’s limit should be close to $16,000 and 2009’s limit be around $16,500. 2008 and 2009’s limit are not set in stone yet and are determined by the cost of living increase. I doubt the cost of living, according to the IRS will be more than the 3% figure they have been using.

401k contribution is all done pretax so take advantage of reducing your taxable income, especially if you are in the higher bracket and even more so if your employer matches part of your contribution.

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The tax implications for transferring a home in California from parent to children while the parent is still alive is something families should consider and consult with a CPA or tax attorney. From my research, you are entitled to a total of $1 million of non-exempt lifetime gift before you pass away. However, as the person giving up ownership of the home, you still need to file a gift tax return with the IRS even if you do not go over the $1 million. The value of the gift is subtracted from the max federal estate tax exemption of $2 million.

A drawback of receiving the home as a gift rather than inheriting the home is that you lose the stepped up basis of the home’s value.  For example, if the home was purchased by the parent at $100,000 and is now worth $400,000. The cost basis of the home would still be $100,000. We will exclude deprecation and other related activities that may affect the cost basis for this example. That means if the children sells the home at a later date for $500,000, taxes will need to be paid on $400,000 ($500,000 minus $100,000). Had the home been inherited, the stepped basis would be the value of the home at the time of death, which in this example is $400,000. So taxes would only have to be paid on $100,000. ($500,000 – $400,000)

Also, you straight out lose control of your home which could be troublesome if you and your children no longer get along. Once you deed the title over, your children or whomever the title was deeded legally owns the home.

Disclaimer: I am not a tax expert or professional. Please do your own research and consult with a professional.

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I got back my tax return for my personal and corporation from my CPA and I’m getting money back this year instead of owing money! To be fair, I made more money from my affiliate marketing in 2005 than 2006 but I also was able to take advantage of my rental properties’ depreciation and added money to my SEP IRA to reduce my taxes I would have to pay. The CPA charged $600 for the corporate return and $250 for my personal.

For those of you who don’t have real estate holdings, see if you can pick up something that cashflows to take advantage of depreciation and build up equity. Finding properties that cashflow will be tough unless you head to the midwest and put down 5-20% on a property. Again, don’t buy a property solely for tax depreciation but if the deal makes sense, and can get a good deal, a rental property is great come tax time. Obviously, be careful about buying homes in warzones and areas you wouldn’t feel comfortable living in unless you feel you can handle it. My holdings are all out of state so I try to avoid those area. There are people who make a ton of money buying in warzones but I don’t think I have the heart for it.

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I’m planning to meet with my CPA this afternoon to do my taxes for 2006. I’m hoping with a few investment properties and contribution I made to my own 401k Profit Sharing Plan will actually mean I get a refund back. This is a new CPA that I’m using from the past. The last few years I had to pay my share of taxes from my affiliate earnings and was hit hard with the self-employment taxes since I was doing business under a LLC so this year I had a S-Corp formed to help cut back on the self-employment taxes. This sold reduce my taxes by a decent amount.

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