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Beyonce and Jay Z Rent Los Angeles Mansion After Dream Home Becomes Hard to Find

Even millionaires have trouble finding the right house to buy. Jay Z and Beyonce's dream home in Los Angeles is harder to lock down than they thought. Continue reading…
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A$AP Rocky Drops 'Indie' Featuring Rich Homie Quan and Sway Burr

Even though A$AP Rocky's next album, A.L.L.A., has no release date yet, he's doing a good job of keeping his buzz going strong by delivering new songs. After dropping the video for "Lord Pretty Flacko Jodye 2," he's back with a muddy-sounding banger, "Indie," featuring Rich Homie Quan and Sway Burr. Continue reading…
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Don C x Air Jordan 1

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Important Tax Consequences for First-Time Homebuyers

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By Hal Bundrick

Low interest rates and tax breaks are rational reasons for people to move from renting an apartment to owning a home. Of course, having a place to call your own is often the overriding emotional reason that trumps all. MainStreet asked tax experts to strip away the jargon and give us the plain facts -- and some tax hacks -- for first-time homeowners.

First the bad news: one tax incentive for buying a home is no longer in play. "As a new homeowner, you might know someone who bought a house a few years ago that received the first-time homebuyer tax credit," said Jayson Mullins, CEO of Top Tax Defenders in Houston. "As of July 1, 2010 this credit is no longer available."

Mortgage Interest Deduction

But of course, there are still tax breaks -- with some fine print. The most commonly cited is the mortgage interest deduction. "There are definite advantages and deductions to owning a home -- or a second vacation home for that matter -- but mortgage interest and property tax deductions are not a 100 percent sure deduction," said Vincenzo Villamena, CPA and managing partner of the Online Taxman in New York. "They need to be large enough to be above the standard deduction, which with kids, etc., can be well over $10,000 to $15,000. Bottom line: don't buy a house just to get a deduction. It should be viewed as a long-term investment in one's future, not a tax planning tool."

Gabe Lumby, a CPA in Springfield, Missouri, agrees that "people get all worked up" about the mortgage interest deduction but reminds us that the Internal Revenue Service allows taxpayers to take the higher of the standard deduction or itemized deductions. The standard deduction for 2014 for single taxpayers is $6,200 and for married joint filers $12,400. For some, that can be a high hurdle to clear.

"We own our own home but the mortgage interest, plus our real estate, personal property, and sales taxes, plus our medical expenses never exceed the standard deduction," he said. He also said that itemized deductions are not tax credits -- they reduce your taxable income.

"If you are in the 28 percent tax bracket, a dollar spent on mortgage interest will only save you 28 cents in taxes, not a dollar -- most people don't get this," Lumby said. "Also, if you still end up taking the standard deduction, the mortgage interest paid does not help you at all on your taxes."

The Long Form

If total mortgage interest payments do clear that standard deduction hurdle, a taxpayer may be facing a "long form" tax filing for the first time. Tax expert and enrolled agent Steven J. Weil in Fort Lauderdale, Florida, says that can lead to some additional often-forgotten deductions.

"New homeowners are often itemizing their taxes for the first time," he said. "While they may know that they can deduct mortgage interest and real-estate taxes, they may not realize that they can also deduct the items they donated to charity, such as the appliances they replaced or the furniture they donated. A common mistake is forgetting to get receipts for these items so that they can prove the donation."

A Temporary Break

And recent action by Congress is allowing another tax break for first time homeowners, according Lisa Greene-Lewis, a certified public accountant and TurboTax tax expert. "There is an additional deduction for you thanks to the recent vote by Congress extending temporary tax provisions called tax extenders," she said. "The Mortgage Insurance Premium Deduction is a tax benefit available if your lender required you to buy mortgage insurance in order to secure your loan."

The tax pros also noted that new homeowners can often get tax credits for energy-saving improvements made to a house, such as a new boiler, insulated windows and other energy-efficient upgrades.

And When You Sell

But not all the breaks apply to just income tax. "New homeowners often spend a lot of time and money in furniture and home improvement stores so they should keep track of their sales tax as the actual amount may exceed the amount on the chart," Weil added. "Since homeowners get to deduct sales tax or state income tax, this strategy works best for those in states with low or no income tax."

And, there is also the matter of capital gains taxes; meaning, if you make money on the eventual sale of your home, you may not owe taxes on that profit - a tax break unique to homeownership.

"If you own your own home and stay in it for longer than two years, you do not have to pay any taxes on the potential gain from the sale as long as it does not exceed $250,000 for single taxpayers and $500,000 for married tax payers," Lumby said. "If you live in a part of the country with rapidly fluctuating housing costs, you can make some really good money and never pay tax on it."

And if your new home is the result of a career move, you may be entitled to yet one more tax break. "If the purchase of your new home was related to a new job, you may be able to deduct your moving expenses if your new job is 50 miles farther from your old house than the distance between your old house and old job," Greene-Lewis explained. "You may be able to deduct the cost of packing and shipping your possessions, traveling to your new home, storage of up to 30 days, and even the cost to move your pet."

 

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Americans Flunk on Their Knowledge of Tax Basics

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Americans are failing -- and failing badly -- in a test released today of their knowledge of how federal income taxes work. On NerdWallet's 10-question survey of tax basics, respondents scored an average of just 51 percent, a definite "F," even on a generous sliding scale.

"I don't think we were totally surprised by what we found," said Alex McAdams, a personal finance analyst at NerdWallet. "The tax code is pretty complicated, so you can't blame people for not understanding the details." Still, many respondents did not know many basic aspects of the tax code, such as if you're married, can you file separately or do you have to file a joint tax return with your spouse? The answer: yes, you can both file separately.

The survey questions focused on personal finance issues, such as Roth individual retirement account contributions, 529 college savings plans and flexible spending accounts. "The U.S. tax code confuses the average American," according to Shiyan Koh, general manager of NerdWallet's Ask an Adviser service, "and that confusion can be costly."

See How You Do

McAdams says one of the most striking examples of how people are overwhelmed by the complexity of dealing with taxes has to do with withholdings on your paycheck. NerdWallet asked: If your exemptions and withholdings are correct, your tax refund should be:

A) $2,500 or more
B) $1,500 to $2,500
C) $500 to $1,500
D) As close to $0 as possible

Most of the 1,015 adults responding Feb. 4-5 got it correct (you know it's D, right?) -- but most Americans fail to act on that knowledge. According to the Treasury Department, about 75 percent of tax filers received a refund last year and the average refund totaled $2,700. "That's basically money you are giving to the government as a free loan, money you could be investing," said McAdams.

He notes that you can change the withholding on your paycheck at any time. For example, if you have a child, you should adjust your withholding to take advantage of that extra deduction. "Getting to exactly zero can be tough, but when you look at the average refund size, there are adjustments that you can make to come closer to zero," said McAdams. He says the payroll or human resources department at your employer can often help you figure this out. "If you had either a really big refund or a big tax bill, you might need to change your withholding."

And Then What?

The apparent lack of financial education can be costly to taxpayers, but McAdams acknowledges that "taxes are a big beast of a thing" and the average person is not going to learn every nook and cranny of the tax code. However he says it is important to learn the implications of certain basics, such as the different treatment of contributions to Roth IRAs vs. contributions to traditional IRAs or 401(k) plans. The basic answer is that contributions to a Roth IRA are not deducted from taxable salary, while contributions to a traditional IRA or 401(k) are deductible. However, the Roth IRA has a big tax advantage down the road in that when it comes time to withdraw money from your account, that is done tax free, while withdrawals from the other accounts are taxable.

NerdWallet's survey is intended to help raise people's awareness and motivate them to learn more about tax issues, according to McAdams. He says taxes need to be a consideration throughout the year. "Any time I'm making a really big financial decision, it's going to have tax implications," he said, "so seek out advice." Ready to take the NerdWallet quiz?

 

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Money-Saving Make-Ahead Meals -- Savings Experiment

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After a long day at work, spending more time in the kitchen is the last thing many of us want to do. This is why batch cooking can be a great way to keep your household fed, without the daily stress on you and your budget. Here are a few tips that can help you make the most of your meals.

First, set aside one day over the weekend to cook. The food you make should yield enough dishes for about a week. Some foods that store well and are easy to make in bulk are: meats, soups and sauces, casseroles, veggies, grains and pasta.

Next, freezing is usually the best way to store and extend the life of your meals. Whenever possible, use freezer bags to save space. Just remember to label the date on there so you can keep track of things.

Now all you have to do is pick out your meal the evening before, put it in the fridge to defrost, and then simply reheat it when you get home. Even if you're not crazy about freezing entire meals, you can still store some key ingredients to your dinners to save money and prep-time.

One last way to maximize your batch cooking is to double your recipe. This is exactly what it sounds like. When you're making things like soups and casseroles, make twice as much and save yourself some work down the line.

Now while the concept is simple, watch out when it comes to spices and seasoning. These don't always react as well when doubling and you can ruin a good meal if you're not careful. For the best results, add your seasoning moderately, or better yet add them in once your meal is thawed and reheated.

So, if you're looking to slash your grocery bill and save hours of prep-time in the kitchen, give these tips a try. You'll see that while cooking in batch only takes a little effort, it can still yield big rewards.

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