Some Last-minute Tax Reminders for Investors

With April approaching, many investors find themselves racing to meet tax deadlines. If you’re one of them, there are some important details to remember.

Tax Deadline: While the Internal Revenue Service began accepting electronically filed tax returns on January 17, there’s plenty more to remember, as many people will be waiting for the April 17 deadline to file individual tax returns (using Form 1040, 1040A or 1040EZ).

Extensions: Individuals can request an automatic extension using Form 4868. An extension provides an extra six months to file a return, but payment of the tax is still due by April 17.

Retirement-plan Contributions: April 17 is the last day to make a retroactive contribution to a traditional individual retirement account (IRA), Roth IRA, Health savings account, SEP-IRA or 401(k) for the 2011 tax year.

2008 Reminders: April 17 of this year is also the final deadline to file an original tax return (using Form 1040) or amended tax return (using Form 1040X) for tax year 2008 and still claim a tax refund.

Estates and Trusts: April 17 is also the deadline to file estate income tax or trust income tax returns (using Form 1041) or to request a five-month filing extension (using Form 7004). It’s also the deadline for estates and trusts to file an amended tax return and still claim a tax refund for the year 2008.

The tax and legal information in this article is a summary of our understanding and interpretation of some of the current laws and regulations and is not exhaustive. Investors should consult their legal or tax advisor for advice and information concerning their particular circumstances.

Four Tips for Individuals Inheriting an IRA

So you’ve just inherited an individual retirement account (IRA). If you know how to manage it, you can stretch out the tax breaks for decades.

Following are some tips to help you:

Don’t Do Anything Until You Know What Rules Apply: Money must be transferred from one IRA custodian to another via what is called a ”trustee to trustee” transfer – and unless you’ve inherited from a spouse, you must re-title it, including the original owner’s name and indicating it is inherited.

Understand the Beneficiary Form: The IRA custodian will hold a beneficiary form that controls both who inherits the IRA and its ability to be stretched out. If there’s no beneficiary form on file, heirs are at the mercy of the IRA custodian’s default policy.

Know the Rules: If nonspouses are named as heirs, they must begin taking distributions from the account by December 31 of the year after inheriting it, although they can draw these out over their own expected lifespans, enjoying decades of income-tax-deferred growth in a traditional IRA or tax-free growth in a Roth IRA.

Plan for the Future: You may pass the IRA on someday, too, so plan for that. To give your heirs flexibility, you may want to name both primary and alternate beneficiaries. Your primary beneficiary (say, your spouse) will then have the option of turning down the account, enabling it to pass to the alternate (say, your children).

A great deal is at stake. Managing an inherited IRA correctly could help enlarge an inheritance.

Making a mistake could disqualify the account from its tax-deferred status and trigger a big tax bill.

A financial advisor can help you navigate the process of inheriting an IRA.

The tax and legal information in this article is merely a summary of our understanding and interpretation of some of the current laws and regulations and is not exhaustive. Investors should consult their legal or tax advisor for advice and information concerning their particular circumstances.

The Basics of Financing an Investment Property

If there’s one bright spot in the whole real estate market these days, it is the number of properties that are available at very low prices.

Many of these properties are priced such that they are suitable as investment properties, to be either bought and resold relatively quickly or bought and kept as rental properties to generate income over an extended period of time.

Following are the basics of what you need to know from a financing perspective if you’re thinking about purchasing an investment property.

Plan on putting down a minimum of 20%, and probably closer to 25%, when you purchase an investment property, as opposed to putting down between 3.5% and 10% on a property in which you intend to live.

Lenders are risk averse to lending money on properties where the monthly income may come, in part or in full, from a third party, such as a tenant. They offset this risk by raising the stakes for a potential borrower by causing the borrower to have enough financial interest in a property so as to make the person want to hang on to it come what may.

As far as asset reserves are concerned, plan on having six months of the entire payment, including taxes and property insurance, in some liquid form like certificates of deposit or checking or savings accounts. Lenders know that rental properties may sit vacant and flipped properties take time to sell.

Call your mortgage professional today to get more details on what you need to do to start financing an investment property.

Why Appraisals Are Important to Lenders

If you’re planning to finance a property, be it for a purchase or refinance, you will need an appraisal.

The appraisal is done to help your lender determine the value of the property compared to other similar properties in that area.

Knowing the value of a property will let the lender know if they are lending an appropriate amount of money for the property.

Similar homes are referred to as comparables. They’ll usually have been sold within the last 60 to 90 days.

As no two properties are completely identical, an appraiser, in his or her review, can make adjustments for differences such as square footage, number of bedrooms, number of bathrooms, lot size, etc.

An appraisal is ordered by the lender. The actual appraisal is done by an appraisal management company, or AMC.

AMCs were brought into existence several years ago with the purpose of separating lenders, particularly loan originators, from appraisers.

Much of the real estate meltdown was attributed to appraisers who were overly influenced by lenders, and the new process removes that influence.

As part of the appraisal process, the appraiser pulls comparable property information, usually before visiting the property. After arriving at the property, the appraiser will do both external and internal reviews.

While this review is much less thorough than, for example, what a home inspector would do, the job of the appraiser is to note and report obvious issues such as structural and safety concerns. These noteworthy items are important for the lender, both from a safety perspective and so the lender can address them with you before lending money.

Once the appraiser prepares a report, he or she will forward it to the lender. By law, the borrower must also receive a copy of the appraisal.