Real Estate Investing

So arson is not really your thing and you don’t feel like reading over hundreds of essay entries. How else are you going to unload that house? One option is joining the thousands of people looking into house swaps. We’ve discussed temporary house swaps for vacation purposes, but a growing number of people are choosing to make those swaps permanent.

The Wall Street Journal recently published an article outlining just how popular this has become. We’re talking 16,000 listings as a combined total between house swap sites like GoSwap.org, OnlineHouseTrading.com, DaytonaHomeTrader.com and DomuSwap.com. Popular free online classified ads site Craigslist saw a 56-percent increase in “home swap” ads during 2007 with 7,392 such ads listed, according to WSJ.

These house swaps are working over short or long distances, usually with realtors or some type of transaction manager involved. It is recommended that a clause be included in the terms and agreements of each contract that final sale is pending on the same-day closing of both houses. This prevents either homeowner from getting snowed and coming up short-handed.

GoSwap.org has a fairly comprehensive Frequently Asked Questions section that briefly outlines some of the tax implications of swapping houses. If ineligible for a tax-deferred 1031 exchange, the homeowners may want to reasonably adjust the home’s asking price - say, by relying on the lowest of several home appraisers’ reports - and thus reducing their capital gains tax obligation. Obviously, the “asking price” of the home can be tweaked (within reason) because it is of little consequence in a housing swap.

The benefits of swapping houses are many. In addition to tax benefits, it can allow homeowners to skirt around broker’s fees - typically 4% to 7%. Still, roughly 13% of the listings on DomuSwap.com were listed and handled by brokers. Housing swaps also make it more possible for people to move up to bigger living quarters, provided they can find someone with a bigger house who is wanting to downsize. Under current market conditions, it may not be terribly difficult to find someone who meets that criteria but has been unable to find a buyer. House swapping is an innovative new trend that seems to provide a win-win scenario for all involved.

The topic of global warming is hot right now, and eco-friendly everything is en vogue. Clean energy is a hot topic in current political debates and there’s even a new cultural phrase emerging - “E.C.” (environmentally correct).

Helping the earth is a worthy goal, but what if you could help yourself in the process? Obviously, we’ve discussed how eco-friendly building can reduce utilities costs. However, you may not know about the multitude of related tax benefits.

Tax Credits are available at the federal level for home improvements including: the installation of energy efficient windows; doors; roofing; insulation; HVAC; solar panels and fuel cells. More specifically, tax credits can tally up to $500 for general eco-friendly home improvements, but up to 30 percent of the cost of solar energy systems (up to a $2,000 limit) and up to 30 percent of the cost of fuel cell installation (up to a $1,000 limit).

Click here for info on which states offer incentives for energy efficiency, and also check out the Green Daily Tax Guide. There, you will find much more detailed information on eco-friendly tax benefits.

Owning a vacation home packs extra perks besides just a good time. When not in use, vacation homes can add up to major tax savings. The first task is to distinguish between personal use and rental use. Personal use includes a visit by yourself or any family members — even if those relatives are paying money to stay there. Personal use also includes renting the property to a friend at a discounted rate. Rental use is self-explanatory, but also includes any time the property owners spend at the property for the purpose of renovating or improving the property.

Income from property rented for 14 days or fewer within a year is tax-free. Income from property rented 15 days or more within a year is taxable. Calculate 10 percent of the number of days the vacation property was rented out and determine if that number is greater or less than 14. Whichever number is greater should be used to determine how many tax deductions will be granted. For instance, say the property could be categorized as rental use for 40 days of the year. Ten percent of that would be four days, so the number 14 would apply in this case. If the property was rental use for 200 days, ten percent of that — 20 days — would apply because it is a number larger than 14.

Whatever the figure winds up being, the property owner should keep their number of personal use days under that figure if they wish to receive more tax deductions. This is particularly true if the property is technically categorized as rental property, and double bonus if the property owner is actually the property manager. In that case, expense write-offs can tally up to $25,000 in excess of rental income!

For more information, visit the LataRealty blog. And of course, don’t forget that property taxes and mortgage interest on vacation property is tax-deductible, regardless of whether it is ever used for rental purposes. Furthermore, even a boat or RV can be considered a “second home,” provided it has a permanent kitchen, bath and bedroom. Vacation home tax deductions are a relatively complex procedure that will probably require an accountant, but could be well worthwhile in the end.