5 Tips to Cut Costs on Your Home

Don't pay more than you have to when it comes to taxes, remodeling and your mortgage

Kiplinger

Fight an unfair property assessment

About 30% of U.S. properties are assessed at higher values than their actual worth, according to the National Taxpayers Union. If you suspect that your tax assessment is too high, you can file an appeal.

Before you can determine if the assessed value of your home is accurate, you need to know how your local government assesses properties. Commonly, an appraiser will compare a home with similar recently sold properties to settle on a market value. That figure may be multiplied by a set fraction, known as an assessment ratio, to determine the taxable value.

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Next, get your property’s record card from your local tax assessor’s office and check for errors, such as incorrect figures for square footage or number of rooms. If you can prove that any of the information is incorrect, you may be able to get a reduction in your assessment on the spot, bypassing the appeal process.

You can search Zillow.com to see estimated values and sale prices of similar homes to get an idea of whether your assessment is accurate. Then pull the record cards of those homes at the assessor’s office or on its site, if it has an online database. The homes should be of about the same age and style, have the same number of bedrooms and bathrooms, and preferably be in your neighborhood. If you can find five or more properties at considerably lower values, you may have a good case.

Get more for your remodeling dollars


These four projects won’t break the bank, and they’ll make your home more enjoyable and enhance its appeal when you sell. (Costs are national averages, according to www.diyornot.com.)

Paint a room. Lighten, brighten and make the old look new again. Cost to cover 900 square feet with one coat of latex paint: $150 (DIY, including paint and equipment) or $800 (pro, including labor).

Update flooring. If a carpet is worn or outdated and a hardwood floor lies beneath, ditch the rug and hire a pro to sand and refinish the floor. Cost: $560 for 300 square feet. In the kitchen or bathroom, replace ugly vinyl flooring with easy-to-install, 12-inch square tiles. Cost: $240 for 180 square feet. Or hire a pro to install new sheet vinyl. Cost: $418 for 120 square feet.

Give cabinets a makeover. Proper preparation -- cleaning, sanding, priming and painting with an oil-based or 100% acrylic paint -- is key to a good-looking, long-lasting result. Cost for one coat of paint on 150 square feet of base plus wall-hung wood cabinets: $110 (DIY) or $547 (pro).

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Know how much home you can afford

Lenders use two crucial benchmarks to figure out how much house you can buy. Do a quick calculation before you house-hunt.

MAXIMUM MONTHLY HOUSING EXPENSE: YOUR GROSS INCOME X 28%

That includes monthly payments for loan principal and interest, private mortgage insurance (if you’ll make a down payment of less than 20%), property taxes, homeowners insurance, homeowners association dues, and payments for a home-equity loan or line of credit. Prorate any annual costs over 12 months. To play it safe, also budget for 1/12 of 1% of the home’s value for monthly upkeep.

MAXIMUM MONTHLY DEBT REPAYMENT: YOUR GROSS INCOME X 36%

That includes your mortgage, as well as any other payments on home-equity borrowing; installment debt (say, for credit cards, car loans or student loans) with more than ten months of payments remaining; alimony, child support or maintenance payments with more than ten months remaining; and car-lease payments. In some areas with high housing costs, lenders may allow debt payments to go as high as 45% of gross income for strong borrowers.

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Score the cheapest mortgage

Start by calling your current mortgage lender and your bank or credit union. To shop anonymously, try www.mortgagemarvel.com, which provides real-time quotes offered by participating lenders who do business in your area. If you don’t mind lenders contacting you directly, try www.lendingtree.com, www.quickenloans.com or www.ingdirect.com (click on “Banking”).

Ask for the best rate for which you qualify without any discount points (interest you pay upfront to reduce the rate). Each lender with whom you apply must give you a good-faith estimate (GFE), which provides guaranteed rates and costs. (You might have to pay about $50 for the lender to pull your credit report.)

If the lender offering the best rate has higher fees than other lenders, try to negotiate the fees down (excluding escrowed amounts for taxes and insurance). You may also cut your closing costs by shopping for settlement services (a closing or escrow agent) and title insurance. At EntitleDirect.com, available in 40 states, you can typically save at least one-third of the cost of title insurance.

Take home-office tax breaks

Karen Baca Ostrom has been running a business from her Los Angeles–area home for years, but she never claimed home-office deductions because they appeared to be more trouble than they were worth.

Now that Ostrom, a court reporter, is living in a rental following her 2011 divorce, she is having second thoughts. Home-office write-offs are simpler and far more compelling for renters than for homeowners. “It seems like it’s at least worth considering,” says Ostrom.

People who operate a business from home have access to a number of potentially lucrative tax breaks, but the home-office deduction can be a mixed bag. That’s because homeowners who itemize deductions can already write off their biggest expenses: home mortgage interest and property taxes. Home-office deductions simply allow you to claim a portion of your utility and repair bills, as well as depreciation on the presumably small portion of the house that’s used exclusively as an office.

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That can add up to a relatively small tax break -- and it comes with strings. The depreciation may need to be “recaptured” when the home is sold -- meaning Uncle Sam wants you to give back some of the depreciation benefits you claimed. Taking a home-office deduction is widely believed to be a red flag that triggers an IRS audit.

But for a renter, a home-office deduction is far simpler, says Philip J. Holthouse, partner at the Los Angeles tax-accounting firm Holthouse, Carlin & Van Trigt. You simply figure out what portion of the apartment or house is used solely as office space and multiply that by the rent.

Establishing your home as your office can also allow for higher mileage deductions, says Jennifer MacMillan, a Santa Barbara–based tax specialist. For Ostrom, it would mean that every time she drives to court or meets a client, her round-trip from home is deductible at 55.5 cents per mile. “Log your mileage,” MacMillan advises, because small-business owners are more likely to be audited than wage earners. But honest taxpayers who are organized should not have a problem supporting their deductions.

Other tax breaks for business owners:

  • 100% of health insurance premiums for the business owner and his or her family
  • Expenses for office equipment and supplies
  • Business meals and travel
  • Small-business retirement plan contributions up to 25% of income, or $50,000 in 2012

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