All Things Financial Planning Blog

Every year I see stories at the end of the year touting the latest tax strategies that consumers should take advantage of before the end of the year.  Due to the volume and complexity of the tax code and the constant changes, it’s important to be aware of the new wrinkles.  I think it’s important for consumers to be tax-aware, but being tax-driven can often lead to shortsighted decisions that may cost you in the long run. 

This year, the tax credit program designed to encourage first-time homebuyers seems to be the one getting the most press.  This is a great program for those homebuyers who were already in the market but I would have great concerns about those who are new to the homebuying process trying to close prior to the November 30, 2009, deadline.  If you’re going to try to beat the deadline, seek the advice of a tax professional and keep these thoughts in mind. (Of note, a deal struck in the Senate this week would continue the $8,000 credit for first-time buyers into April and add a $6,500 credit for repeat buyers who have lived in their current home for at least five years, according to published reports. In addition, members of the Obama administration, including Treasury Secretary Timothy Geithner, came out in support of an extension for the first-time home-buyer tax credit.) That said,

Don’t rush big decisions:  For many families the largest single purchase they will ever make is buying their home.  Rushing big decisions can lead to bad decisions, and to regret.  Your home can provide you with years of joy if you make a great decision, or a feeling of regret every day you walk through the front door.

Think about how long you plan to be in the home:  Homes are difficult to buy and sell, and transaction costs are high when you add up commissions, taxes, and filing fees.  If you rush a purchase and finding yourself needing to sell within a few months or years, it could cost a pretty penny. 

Owning a home costs more than your mortgage payment.  If you find a rent vs. buy calculator on the Internet, often you’ll make some assumptions about the purchase price of your home, the interest rate, and what you’d pay for rent over time.  These calculators can do a good job of weighing the financial costs of owning a home but they may overlook things such as

• Maintenance:  When the hot water heater goes out, it’s no longer the landlord’s responsibility to replace
• Insurance:  Homeowners and flood insurance cost substantially more for homeowners than renters
• Property Taxes
• Time & upkeep:  Cutting the grass, clearing out the gutters, and putting a fresh coat of paint on the exterior can eat away at your leisure time or at your pocketbook if you must pay somebody else to perform these tasks.

For many homeowners, they view their purchase decision as one of the best financial decision they’ve ever made.  Be sure to take your time and make the right decision for you and your family so that you can look back and say the same thing. 

References:  IRS FAQ

Jude Boudreaux, CFP®
Director of Financial Planning
Bellingrath Wealth Management
New Orleans, LA