Finances – Page 3 – Homeowner Savings

Tax Benefits for Homeowners

We asked ourselves: What tax benefits do you exactly have by owning a house? That’s why we put together a little overview for every houseowner who wants to save tax money!

The main tax benefit of owning a house is that the imputed rental income homeowners receive is not taxed. Although that income is not taxed, homeowners still may deduct mortgage interest and property tax payments, as well as certain other expenses from their federal taxable income. Additionally, homeowners may exclude, up to a limit, the capital gain they realize from the sale of a home.

OVERVIEW

The tax code provides several benefits for people who own their homes. The main benefit is that the owners do not pay taxes on the imputed rental income from their own homes. They do not have to count the rental value of their homes as taxable income, even though that value is just as much a return on investment as are stock dividends or interest on a savings account. It is a form of income that is not taxed.

Homeowners may deduct both mortgage interest and property tax payments as well as certain other expenses from their federal income tax. In a well-functioning income tax, all income would be taxable and all costs of earning that income would be deductible. Thus, in a well-functioning income tax, there should be deductions for mortgage interest and property taxes. However, our current system does not tax the imputed rental income that homeowners receive, so the justification for giving a deduction for the costs of earning that income is not clear.

Finally, homeowners may exclude, up to a limit, the capital gain they realize from the sale of a home. All of these benefits are worth more to taxpayers in higher-income tax brackets than to those in lower brackets.

MORTGAGE INTEREST DEDUCTION

Homeowners who itemize deductions may reduce their taxable income by deducting interest paid on a home mortgage. Taxpayers who do not own their homes have no comparable ability to deduct interest paid on debt incurred to purchase goods and services.

The Tax Cuts and Jobs Act (TCJA) trimmed this important tax break for homeowners. Prior to TCJA, the deduction was limited to interest paid on up to $1 million of debt incurred to purchase or substantially rehabilitate a home. Homeowners also could deduct interest paid on up to $100,000 of home equity debt, regardless of how they used the borrowed funds. TCJA limited the deduction to interest on up to $750,000 of mortgage debt incurred after December 14, 2017, to buy or improve a first or second home. It also generally eliminated the deduction for home equity debt.

The congressional Joint Committee on Taxation (JCT) estimated that the cost of the mortgage interest deduction will shrink from $72 billion to $41 billion in fiscal year 2018, because of the lower cap on deductible mortgage interest and because other provisions of TCJA will result in many fewer taxpayers itemizing their deductions. The Urban-Brookings Tax Policy Center estimates that the share of tax units that benefit from the deduction in 2018 will shrink from 21 percent to 9 percent because of TCJA.

PROPERTY TAX DEDUCTION

Homeowners who itemize deductions may also reduce their taxable income by deducting property taxes they pay on their homes. That deduction is effectively a transfer of federal funds to jurisdictions that impose a property tax (mostly local but also some state governments), allowing them to raise property tax revenue at a lower cost to their constituents. The JCT estimated that the deduction saved millions of homeowners a total of $33 billion in income tax in fiscal year 2017. The cost of that deduction will also go down because of TCJA, as many fewer homeowners will itemize and because TCJA puts an overall cap of $10,000 on the state and local taxes that taxpayers can deduct.

EFFECT OF DEDUCTIONS AND EXCLUSIONS

The deductions and exclusions available to homeowners are worth more to taxpayers in higher tax brackets than to those in lower brackets. For example, deducting $2,000 for property taxes paid saves a taxpayer in the 37 percent top tax bracket $740, but saves a taxpayer in the 22 percent bracket only $440. Additionally, even though they only represent about 20 percent of all tax units, those with more than $100,000 in income received over 85 percent of the mortgage interest deduction tax benefits in 2017. That difference results largely from three factors: compared with lower-income homeowners, those with higher incomes face higher marginal tax rates, typically pay more mortgage interest and property tax, and are more likely to itemize deductions on their tax returns.

PROFITS FROM HOME SALES

Taxpayers who sell assets must generally pay capital gains tax on any profits made on the sale. But homeowners may exclude from taxable income up to $250,000 ($500,000 for joint filers) of capital gains on the sale of their homes if they satisfy certain criteria: they must have maintained the home as their principal residence in two out of the preceding five years, and they generally may not have claimed the capital gains exclusion for the sale of another home during the previous two years. The JCT estimated that the exclusion provision saved homeowners $32 billion in income tax in fiscal 2017.

IMPUTED RENT

Buying a home is an investment, part of the returns being the opportunity to live in the home rent free. Unlike returns from other investments, the return on homeownership—what economists call “imputed rent”—is excluded from taxable income. In contrast, landlords must count as income the rent they receive, and renters may not deduct the rent they pay. A homeowner is effectively both landlord and renter, but the tax code treats homeowners the same as renters while ignoring their simultaneous role as their own landlords. The Office of Management and Budget estimates that the exclusion of imputed rent reduced federal revenue by nearly $110 billion in fiscal year 2017.

Home Value: How to Improve Your Home’s Worth

With prices for housing surging to new highs this year in many parts of the United States, you may be toying around with the idea of selling your home. After all, you could sell for top dollar and pocket the difference, then move somewhere cheaper with a lower cost of living.

Or maybe you plan to stay exactly where you are, in the home you know and love. Regardless of how much your home is worth, sometimes it’s easier to just stay put — even if your home isn’t exactly what you want.

Some improvements can make your house easier on the eyes. Others can increase your home’s utility, make it bigger or make it more comfortable for your growing family.

Whether you want to build equity or sell for top dollar, plenty of home improvement projects are worth considering. The real estate experts we spoke to said the following projects may provide the most bang for your buck.

1. Upgrade exterior doors

When it comes to adding value to your home, replacing an old front door can also work wonders, Wiedman says. He says in the late ’90s, he and his wife replaced an old, ugly door with a solid mahogany door with a frosted, oval piece of lead glass. He stained the door himself to save money, and the result was “simply stunning,” he says.

Randy Oliver, president of Hollywood-Crawford Garage Door Co., also says to remember your garage door when it comes to curb appeal.

“The front of the home is the first thing you, your neighbors and prospective buyers will see,” he says. “Garage doors often take up the most amount of space on the front of your home, so installing a modern glass panel door or a rustic wood door will dramatically improve your home’s appearance.”

2. Spruce it up with fresh paint and flooring

Paint is magic, and that’s true whether you’re upgrading the paint inside or outside your home. A fresh coat of paint can make even dated exteriors and interiors look fresh and new, and it’s not that expensive, either.

Timothy Wiedman, a former college professor and personal finance expert who has flipped homes over his career, says you should start by painting any rooms with an “odd” color scheme.

For example, did you let your then-11-year-old daughter paint her bedroom “hot pink” 16 years ago? If so, that’s a good place to start.

Rob Fountain, a real estate agent with Keller Williams Partners in Colorado Springs, Colorado, says that “everyone loves newer carpet and fresh paint.”

Very few homebuyers, he says, are looking for a fixer-upper. Instead, they hope to move right in.

“Moving and buying a house is stressful enough,” Fountain says. “They don’t want to have to touch up paint and rip out carpet before they move in.”

3. Clean and declutter

According to a 2019 survey from HomeLight, deep cleaning and decluttering can add more than $4,000 to a home’s resale value, on average. If you don’t plan to move, you can also benefit from making better use of your space, getting more organized, and having less clutter to stress over.

Cleaning and decluttering is inexpensive, but it still requires a lot of work. Go through cabinets and closets so you can make a donation pile. Clean out drawers and other storage areas of your home as well, making sure you’re not keeping anything you don’t need or want.

A deep clean and subsequent cleanings for upkeep can also make your home more attractive and more livable. And when you go to sell, buyers prefer a clean, pristine home with almost no exceptions.

4. Make your home more efficient

There are many ways to improve your home’s efficiency, and they don’t all involve tens of thousands of dollars in upgrades. Scott Ewald of Trane, an HVAC company, says installing a smart thermostat is a great way to improve efficiency and save money, for example.

“The right smart thermostat will allow a homeowner to control their home’s climate from anywhere, giving them the power to manage energy costs regardless of whether they are sitting on the couch or away on vacation,” he says. “Such investments in home tech – particularly when connected to the HVAC which is the largest mechanical system in the home – provides a strong selling point and highlights the home’s overall comfort, functionality, energy efficiency and convenience.”

Other ways to improve your home’s efficiency and value include replacing old, leaky windows, buying energy-efficient home appliances and adding insulation to your home.

5. Add usable square footage

Adding more usable space to an existing home can make a lot of financial sense, and that’s especially true in areas with limited available real estate where land and space may be finite.

Benjamin Ross, a Realtor in Corpus Christi, Texas, says that homes are valued and priced by the livable square feet they contain, and the more livable square feet, the better. As a result, adding a bathroom, a great room or another needed space to a home can increase function and add value.

Adding a separate mother-in-law suite is also a great idea, Ross says. “Most homes do not have this feature, so adding one sets you apart from the competition when it is time to sell.”

6. Work on your curb appeal

HomeLight’s second-quarter 2019 survey of real estate agents found that the exterior of your home may play a bigger role in your home’s value than you think. The survey showed that 76 percent of top real estate agents nationwide agreed that improving curb appeal is the No. 1 step a homeowner can take to boost their home’s marketability.

According to their figures, basic lawn care like cutting the grass, fertilization treatments and weed control can add $1,000 on its own. If you’re wondering how to increase the value of your home, these low-cost measures can be a good starting point.

Joe Raboine, director of residential hardscapes with Belgard, says there are plenty of other ways to boost your curb appeal. An overall landscape upgrade can go a long way, for example.

“Installing a front walkway of pavers along with stone planters, shrubs and mulching will cost an estimated $6,000, and the NAR (National Association of Realtors) estimates you’ll recover $5,000,” he says.

A new paver patio or outdoor kitchen can also add to your home’s value and make your property a lot more enjoyable when the weather is nice.

A Guide to Owner Financing

Asking a seller to help you buy their home is not something most homeowners, or even their listing agents, usually consider. However, for a seller whose home isn’t selling or for a buyer having trouble with traditional lender guidelines, owner financing is definitely a viable option. Also known as seller financing, it’s especially popular if the local real estate scene is a buyer’s market.

What Is Owner Financing?

Owner or seller financing means that the current homeowner puts up part or all of the money required to buy a property. In other words, instead of taking out a mortgage with a commercial lender, the buyer is borrowing the money from the seller. Buyers can completely finance a purchase in this way, or combine a loan from the seller with one from the bank.

For the financed portion, the buyer and seller agree upon an interest rate, monthly payment amount and schedule, and other details of the loan, and the buyer gives the seller a promissory note agreeing to these terms. The promissory note is generally entered in the public records, thus protecting both parties.

It doesn’t matter if the property has an existing mortgage on it, although the homeowner’s lender might accelerate the loan upon sale due to an alienation clause. Generally, the seller retains the title to the home until the buyer has repaid the loan in full.

Sellers and buyers are free to negotiate the terms of owner financing, subject to state-specific usury laws and other local regulations; some state laws, for example, prohibit balloon payments.

While not required, many sellers do expect the buyer to provide some sort of downpayment on the property. Their rationale is similar to any mortgage lender’s: They assume that buyers who have some equity in a home are less likely to default on the payments and let it go into foreclosure.

Owner financing can take several forms. Some variations include the following.

Land Contracts

Land contracts do not pass the full legal title of the property to the buyer but give them an equitable title. The buyer makes payments to the seller for a certain period. Upon final payment or a refinance, the buyer receives the deed.

Sellers can carry the mortgage for the entire balance of the purchase price⁠—less the down payment, which may include an underlying loan. This type of financing is called an all-inclusive mortgage or all-inclusive trust deed (AITD), also known as a wrap-around mortgage. The seller receives an override of interest on the underlying loan. A seller may also carry a junior mortgage, in which case the buyer would take title subject to the existing loan or obtain a new first mortgage. The buyer receives a deed and gives the seller a second mortgage for the balance of the purchase price, less the down payment and the first mortgage amount.

A lease-purchase agreement, also known as rent to own, means the seller is leasing the property to the buyer, giving them an equitable title to it. Upon fulfillment of the lease-purchase agreement, the buyer receives the full title and typically obtains a loan to pay the seller, after receiving credit for all or part of the rental payments toward the purchase price.

Owner-Financing Benefits for Buyers

Buyers who opt for seller financing can enjoy several advantages.

Quicker Sale

Offering owner financing is one way to stand out from the sea of inventory, attracting a different set of buyers and moving an otherwise hard-to-sell property.

Little or No Qualifying

The seller’s interpretation of buyer qualifications is typically less stringent and more flexible than those imposed by conventional lenders.

Down Payment Flexibility

Down payments are negotiable. If a seller wants a larger down payment than the buyer possesses, sometimes sellers will let a buyer make periodic lump-sum payments toward a down payment.

Higher Interest Rate

The owner-financed loan can carry a higher rate of interest than a seller might receive in a money market account or other low-risk types of investments.

Faster Possession

Because buyers and sellers aren’t waiting for a lender to process the financing, buyers can close faster and get possession of the property sooner than with a conventional loan transaction.

Lower Closing Costs

Without an institutional lender, there are no loan or discount points, and no origination fees, processing fees, administration fees, or any of the other assorted miscellaneous fees that lenders routinely charge, which automatically saves money on buyer closing costs.

Owner-Financing Benefits for Sellers

A variety of advantages for sellers arise in owner-financing situations as well.

Higher Sales Price

Because the seller is offering the financing, they may be in a position to command full list price or higher.

Tax Breaks

The seller might pay less in taxes on an installment sale, reporting only the income received in each calendar year.

Monthly Income

Payments from a buyer increase the seller’s monthly cash flow, resulting in a spendable income.

Tailored Financing

Unlike conventional loans, sellers and buyers can choose from a variety of loan repayment options, such as interest-only, fixed-rate amortization, less-than-interest, or a balloon payment⁠—if the state allows it—or even a combination of these. Interest rates can adjust periodically or remain at one rate for the term of the loan.

Advantageous as it can be, owner financing is a complex process. Neither buyer nor seller should rely just on their respective real estate agents but instead should engage real estate lawyers to help them negotiate the transaction, ensuring that their agreement conforms to all state laws, covers every contingency, and protects both parties equally.

How to Get the Best Homeowners Insurance

Owning a home has long been a cornerstone of the American dream. Even frequently relocating military members can appreciate the satisfaction of building equity while painting the walls any color they choose. But buying a home – whether it’s your first or your fifteenth – also means you’ll need to purchase homeowners insurance, so it’s wise to consider your insurance options as you search for the perfect place to call your own.

Homeowners insurance premiums are determined by a number of factors, many of which are under your control. Making a few smart decisions will give you the coverage you need and could save you hundreds of dollars each year. Consider the following tips, which can go a long way toward protecting your home and your peace of mind.

Pick a good partner. Doing business with an insurance company you trust is important. Before purchasing insurance, review the company’s complaints record and rankings on customer satisfaction and financial security. Your state’s department of insurance Web site, and industry analyst companies such as J.D. Power or A.M. Best Company, are unbiased sources of information.

Know how much is enough. Studies from construction-cost estimator Marshall & Swift/Boeckh suggest that more than 60 percent of homeowners in the United States are underinsured, primarily because they don’t insure their homes to “replacement value.” Replacement value is what it would cost today to rebuild a home from the foundation up. Replacement value can differ substantially from market value, which represents what a willing buyer would pay for a home.

Since the cost of building materials has risen in recent years, it may cost more than market value to rebuild an older home. And if you’ve remodeled or renovated your house, your insurance coverage should be updated to reflect the home’s likely increase in replacement cost. Of course, increasing your insurance coverage will raise your monthly premiums, but it could save thousands of dollars in the long run if a major claim is necessary.

Float your way to complete coverage. While a standard homeowners policy will cover the structure of your home and some of your personal belongings, it may not provide full coverage for high-value possessions, such as coin collections and jewelry.

If you have specific items for which the value exceeds your policy limits, you may elect to add a “personal articles floater” to your coverage. Though rates will vary by state and for the actual item insured, you may be able to purchase a personal articles floater for as little as $30 a year to insure your most valuable possessions for their current purchase price or recent appraised value. Often used to fully insure engagement rings or electronics, “floaters” have no deductible and usually cover a broader range of claims, such as theft or loss away from the home.

Protect your financial assets. Repairing or replacing your property is only part of the homeowners insurance equation. Your policy can go much farther to protect your financial well-being through liability coverage.

As an example, if a visitor to your home falls down the stairs and is seriously injured, the visitor’s insurance company could hold you responsible for thousands of dollars in medical bills. In this type of situation, your homeowners policy would likely cover the costs up to a specified limit, and in certain cases it may even cover legal fees that arise.

But while standard policies typically offer $100,000 in liability protection, most insurance experts recommend $300,000 of coverage or more. Increased liability coverage is especially important for homeowners with potential safety hazards, such as a swimming pool.

Consider your comfort level. As you establish your homeowners insurance coverage, you’re able to choose your deductible level, which is the amount you will pay out of your pocket when you have a claim. Opting for a higher deductible, such as $1,000 instead of $500, can lower your monthly premiums significantly. Conversely, you may be more comfortable paying a higher premium each month for greater peace of mind should disaster strike. The choice is yours to make. Your insurance company can provide a variety of premium/deductible scenarios that will best suit your needs.

Save money through safety. You may be able to save on insurance premiums by looking into safety and prevention features that often merit a discount. Consider purchasing monitored security alarms, and take precautions such as installing deadbolt locks, both of which can ward away thieves and prevent a costly (not to mention frightening) break-in. Easily accessible fire extinguishers are another good addition to the home, reducing the risk of severe flame and smoke damage.

Keep your records current.If the unthinkable should occur and you have to file a major insurance claim, having up-to-date records of your home’s contents and structural condition can be invaluable during the claims process. First, if you’ve made any significant renovations to the home itself after moving in, be sure to inform your insurance company, since it may affect the replacement cost of the home.

Next, take an inventory of your belongings, including how much you paid for each item and its current value. Make a record of your possessions, with pictures or a video camera, and store the records outside of your home so they are less likely to be destroyed in a disaster. The record can help you determine your coverage needs, and it also can serve as your proof of ownership if a loss occurs, helping the insurance company to estimate your payment.

Be aware of geography. Regardless of the homebuilding materials used, where you live can have a significant effect on your insurance premiums and coverage availability. Homeowners likely will pay more for insurance in areas prone to severe weather and natural disasters, such as tornadoes, hurricanes, earthquakes or wildfires. According to the Insurance Information Institute, the states paying the most for homeowners insurance in recent years have been Texas, Louisiana and Florida, all coastal states with above-average claims for water and wind damage.

Your rates also may be affected by the neighborhood you choose. For example, homes in close proximity to a fire department may cost less to insure. And while seclusion can have its advantages, it won’t lower your insurance rates if emergency vehicles may have difficulty reaching your home.

Get the facts. When you find a house, gather as much information as you can to determine its potential insurance costs. The age of electrical, plumbing and other systems within the home, as well as construction materials used to build the house, can affect your premiums. For example, masonry homes or less flammable roofing material can provide an insurance price break, especially in dry areas of the country that are most susceptible to fire damage. On the other hand, masonry homes could be much more expensive to insure against earthquake damage. Homeowners and potential buyers can review current building codes and materials recommendations at www.disastersafety.org/, the Web site for the Institute for Business and Home Safety.

Embrace preventive maintenance. Remember that a homeowners insurance policy is designed to repair or replace your property in the event of an unexpected major loss, and individuals who repeatedly file claims for minor problems may face higher premiums and could jeopardize their insurability. Conducting preventive maintenance on your home and repairing small problems quickly can help avert more substantial losses down the road. A number of providers offer home warranty coverages more suitable for maintenance needs involving appliances, plumbing or the like.

Amazing Money-Saving Tips For Every Homeowner

Owning a home doesn’t need to be as costly as it does. We all know that if you own a home, all of the costs from the mortgage, utilities, maintenance, and upkeep add up and are expensive.

Just to make your life easier, I’ve made one fascinating collection of amazing and useful energy saving tips that will save you money.

Besides that all of these tips are free or cheap. They won’t cost you a lot, but they will make a big difference. Most of them don’t take a lot of time, and you don’t have to be a home-improvement expert.

Here are 15 of the best energy saving tips that will make your energy bills shrink.

1. Repair leaky ductwork

Over time the joints and seals in ductwork can dry out and deteriorate due to temperature fluctuations in crawl spaces, basements, and attics.

Hire a HVAC service tech to check out the ductwork.

If you are a do-it-yourselfer, use a flashlight and shine the beam on the ducts where they connect to other ducts or registers. What you are looking for are areas where there isn’t any dust – a sure sign there is a leak in the area.

You can also do the incense test while the system is running too. Move the incense around each duct joint looking for air movement.

To repair the system yourself check out youtube by searching for ‘how to patch ductwork’.

Savings: 3%–10% on heating and cooling bills per year
Cost: $30 and up, depending on if you do it yourself or have your system serviced
Time: 60 minutes

2. Replace air filters

Replace your HVAC filters at least every 6 months, preferably every 3. Clogged, dirty filters block airflow and reduce your system’s efficiency. In the worst case scenario, a wrongly sized filter or dirty filter can cause your system to burn out, requiring replacement.

Savings: 5% – 15% / year on energy
Cost: $5-$30
Time: 10 minutes

3. Give your air conditioner some fresh air

Have you ever tried running really fast with a rag over your mouth? I haven’t either, but that’s what most people are expecting their AC units to do.

Many AC units are surrounded by shrubbery that can restrict the airflow needed to make the systems run optimally. Take a few minutes today or this weekend and look around your AC’s outdoor unit:

Provide at least 1’ of clearance all around the units.
Trim any bushes that are touching the units
Remove any leaves and dirt around the unit
Remove any other obstructions like that rotting pingpong table leaning up against it
If there is significant mud or dirt inside the unit have it professionally serviced

Savings: $20 / year
Cost: FREE
Time: 20 minutes

4. Block out the sun

All of those windows in your home are the largest source of heat flowing inside during hot summer days.

Closing the blinds and/or curtains blocks the sun from coming inside in the first place and will help prevent it from heating up, reducing the need for the AC to cool it down. Blocking the sun is especially important on the western and southern facing windows that receive the most direct sunlight.

Savings: $15-$35 / year
Cost: FREE
Time: none

5. Shower power

Do you take a hot shower in the summer steaming up the bathroom mirrors? If so you’re adding heat back into your home that needs to cool.

Take a quicker shower. And take a warm shower instead of a burning hot one. Using less hot water will also save energy.

Savings: $50 / year
Cost: FREE
Time: 10 minutes

6. Automate your thermostat or use a post-it note

In my first home, I would manually turn up the thermostat as I walked out the door to work, and I would manually adjust it down when I came home in the evening.

Last year I replaced all of the thermostats in my house with the Nest learning thermostat. It learns your schedule to keep your home comfortable when you are home. Nests’ are pricey, but according to the Nest website:

I wish I had known about this before buying mine. Oh well, my mistake for you to learn. Check with your utility provider to see what might be available in your area.

If you can’t get a free or discounted smart thermostat from your utility provider, you can go the manual route like I used to. Go get a sticky note, and put it on the door you take to leave your home. Write a reminder to change the thermostat as you walk out the door. Simple and free.

Savings: $173 year (average for a programmed thermostat)
Cost: $0 – $250 per thermostat
Time: Varies

7. Hang out your laundry

Yeah, I don’t do this either. It takes too long. In the summer, it’s too hot out.

For a long time, I used a clothes rack but now I have an even more ingenious way to dry my clothes.

I bought a bunch of plastic hangers to hang up ALL of my shirts, shorts, and pants. Now that I have to hang my clothes up anyway, I just pull them out of the washing machine and put them up on the hangers to dry. Boom! I’m just skipping the drying part because they dry in my closet – for free.

For the things I don’t hang up (socks) I’ve got a drying rack. It takes up very little space.

Savings: $80 – $250 / year depending on household size
Cost: $30 for hangers or racks
Time: Varies by method

8. Grilled to perfection

In the summer consider cooking primarily using the microwave, crockpot, or grilling outside to avoid heating up your home with the oven and stove.

Savings: At least a few bucks and your kitchen won’t be as hot.
Cost: FREE
Time: None

9. Fix leaky windows

If you have a 1/64 inch gap around a single window – which is REALLY TINY – it is the equivalent of a 3.27 square inch hole in your wall – which is REALLY BIG.

If you have a 1/32 inch gap around a single window, it is the equivalent of a 6.5 square inch hole in your wall. That’s big enough to put your fist through!

If you have ten windows in your house, that’s a lot of big holes that are draining your wallet year after year.

To determine if your windows are leaky close all your windows, doors, and the flue damper in your chimney if you have a fireplace. Use a stick of incense and move it around each window to see if there is air flow. If there is, you’ve got a leak!

Weatherstripping is an easy and cost-effective way to save money on energy costs and improve comfort by reducing drafts. It’s something any homeowner can do. Peel-and-stick weatherstripping is easy and useful for sealing drafts:

Remove any dirt and grease from the window jambs or sash.
Dry the areas with a rag.
Cut the weatherstrip to the right length
Peel off the back
Press the sticky part to the surface.

Now check your windows from the outside

Inspect for any cracked or damaged caulking around the windows where the casing meets the house, and around the window frame.
Scrape and clean away any damaged caulking
Apply a fresh bead of paintable acrylic latex to reseal the window.

Savings: 10%–20% of your heating and cooling costs per year
Cost: $30-$50
Time: 2–3 hours

10. Child proof your outlets – even if you don’t have kids

My first home which was built in 1999 had this next problem. The inside outlets located on the exterior walls were like mini vacuums when it came to transferring air from the inside to the outside.

If you have an older home or a poorly constructed home you’ve probably got the same problem.

Electrical outlet boxes typically don’t have any insulation behind them, creating what is basically a hole in your wall. On a windy day take some incense or a match and put it in front of an outlet (one without a plug in it of course) and see if you can see air movement. In my situation I noticed this during the winter when I felt a cold breeze coming through the outlets.

The simple solution? Install socket sealers to improve energy efficiency. All you have to do is remove your outlet cover with a screwdriver, put on the outlet sealer, and put the cover back on. Easy!

The second step is to put in those plastic child-proof outlet plugs.

Savings: 2% of heating and cooling costs per year
Cost: $8.51 for outlet sealers, $2.49 for outlet plugs
Time: 20 minutes

11. Get a heating and cooling service contract

My neighbors A/C unit ran him $8,000 to replace. I had to replace one after getting married for $3,000. Hire a professional HVAC maintenance company to ready your AC unit for the summer and your furnace for the winter. There is no better way to insure this investment, and you they usually give you discounts on parts if anything breaks. This is one of the very few maintenance contracts I recommend people to buy.

Savings A lot if your HVAC unit crashes and burns
Cost: $250-$400 per year
Time: Just a phone call

12. Use fans

A ceiling fan can make your room feel up to 7 degrees cooler. Fans will allow you to turn your AC up a couple extra degrees, saving even more money.

Savings: $35-$53 / year
Cost: FREE (assuming you have ceiling fans)
Time: none

13. Insulate leaky kitchen and bathroom sinks

If you have a sink, toilet, cable or phone line in an external wall, chances are they are uninsulated around behind the wall. Warm and cool air is escaping from these exterior openings.

This one is a bit trickier to determine if you have an air leak. You can use a thermal leak detector to determine if there is a temperature difference by comparing the area near the hole and then the hole itself. If there is a big difference you might want to fix that leak.

Or if you don’t want to spend the money on a thermal imager you can do what I do as soon as I move into a new house. Buy some expanding foam insulation and spray it into every crevice I can find in my exterior walls.

I use Great Stuff. Around the bathroom sinks in your house spray where the sink drain goes into the wall. Also where the water lines came out.

I used about 2 cans for my house that was built in 2009.

Savings: Up to 17% of your energy bills per year
Cost: $10.13 and up depending on how many cans you use
Time: 30 minutes

14. A bright idea?

LED lighting runs cooler than incandescent bulbs. Only about 10% to 15% of the electricity that incandescent lights consume results in light. The rest is turned into heat, and that heat needs to be cooled by your AC system.

Last year I made the switch to LED lights – but not all of the lights in my house, and that’s key for saving money. Check out ‘Are LEDs worth it?’

I use Cree LED light bulbs in my house. I found them to have the most natural lighting (I tried four different brands).

Don’t forget to factor in the cost of the bulbs!

Savings: Varies on usage
Cost: $9 – $20 / bulb
Time: 2 minutes / bulb

15. Remove gaps under your doors

There is probably a hole under your door and you don’t even know it.

Most homeowners don’t even think about the bottom of their doors, and instead focus on the sides and top. But the bottom of the door sees just as much action each day as the sides and top, and it’s got that rubber gasket which is prone to deteriorating faster because it has more exposure to dirt and moisture.

You can use the incense test on this area of your home too. Run it near the bottom of any exterior doors on a windy day to see if there is air movement.

To fix you’ll need to replace your door sweep. Take pictures and measurements of your existing door sweep before heading to the home improvement store.

If it’s a nice day just take your existing one off and bring it with you so you can match up the size perfectly. They are pretty easy to replace. I’m not Mr. Fix-It and even I managed to do it.

Savings: Up to 11% of outside air is blocked
Cost: $10-$20
Time: 30 minutes per door

16. Insulate the hole in your attic

You have insulation between your exterior walls. Yet what separates from your conditioned home and the attic is usually a ½” piece of plywood – otherwise known as the attic stairs (or hatch).

Plywood isn’t a good insulator.

If you have a hatch:

Add a gasket around the opening.
Attach some rigid foam insulation to the top of the hatch

If you have a pull down attic staircase:

Get an attic tent that has a zipper to seal it up.

Savings: Up to 30% on your energy bills per year
Cost: $20 (hatch) – $158 (stairs)
Time: Beats me, I had someone install mine as part of an energy audit

Financial Tips for Homeowners

Few things are more exciting than making the leap from being a renter to being a first-time homeowner. Getting swept up in all the excitement is a wonderful feeling, but some first-time homeowners lose their heads and make mistakes that can jeopardize everything they’ve worked so hard to earn. Following a series of practical steps early in the homeowning experience can save new owners time, money, and effort later down the road.

Get Properly Insured

Your mortgage lender requires you not only to purchase homeowners insurance but also to purchase enough to fully replace the property in the event of a total loss. But that’s not the only insurance coverage you need as a homeowner. If you share your home with anyone who relies on your income to pay the mortgage, you’ll need life insurance with that person named as a beneficiary so that they won’t lose the house if you die unexpectedly. Similarly, you’ll want to have disability-income insurance to replace your income if you become so disabled that you can’t work.

Also, once you own a home, you have more to lose in the event of a lawsuit, so you’ll want to make sure you have excellent car insurance coverage. If you are self-employed as a sole proprietor, you may want to consider forming a corporation for the greater legal protection of your assets.

You may also want to purchase an umbrella policy that picks up where your other policies leave off. If you are found at fault in a car accident with a judgment of $1 million against you and your car insurance only covers the first $250,000, an umbrella policy can pick up the rest of the slack. These policies are usually issued in units of one million.

Hire Qualified Contractors

Don’t try to save money by making improvements and repairs yourself that you aren’t qualified to make. This may seem to contradict the first point slightly, but it really doesn’t. Your home is both the place where you live and an investment. It deserves the same level of care and attention you would give to anything else you value highly.

There’s nothing wrong with painting the walls yourself, but if there’s no wiring for an electric opener in your garage, don’t cut a hole in the wall and start playing with copper wiring. Hiring professionals to do work you don’t know how to do is the best way to keep your home in top condition and avoid injuring—or even killing—yourself. Also, be sure to check with the local building authority and pull any necessary permits to complete the work.

Don’t Overspend to Personalize

You’ve just handed over a large portion of your life savings for a down payment, closing costs and moving expenses. Money is tight for most first-time homeowners. Not only are their savings depleted, but their monthly expenses are also often higher as well, thanks to the new expenses that come with home ownership, such as water and trash bills, and extra insurance.

Everyone wants to personalize a new home and upgrade what may have been temporary apartment furniture for something nicer, but don’t go on a massive spending spree to improve everything all at once. Just as important as getting your first home is staying in it, and as nice as solid maple kitchen cabinets might be, they aren’t worth jeopardizing your new status as a homeowner. Give yourself time to adjust to the expenses of home ownership and rebuild your savings – the cabinets will still be waiting for you when you can more comfortably afford them.

Get Help With Your Tax Return

Even if you hate the thought of spending money on an accountant when you normally do your tax returns yourself, and even if you’re already feeling broke from buying that house, hiring an accountant to make sure you complete your return correctly and maximize your refund is a good idea. Homeownership significantly changes most people’s tax situations and the deductions they are eligible to claim.

Just getting your taxes professionally done for one year can give you a template to use in future years if you want to continue doing your taxes yourself.

Repairs vs. Improvements

Unfortunately, not all home expenses are treated equally for the purpose of determining your home’s basis. The IRS considers repairs to be part and parcel of home ownership—something that preserves the home’s original value but does not enhance its value.

This may not always seem true. For example, if you bought a foreclosure and had to fix a lot of broken stuff, the home is obviously worth more after you fix those items, but the IRS doesn’t care—you did get a discount on the purchase price because of those unmade repairs, after all. It’s only improvements, like replacing the roof or adding central air conditioning, which will help decrease your future tax bill when you sell your home.

For gray areas (like remodeling your bathroom because you had to bust open the wall to repair some old, failed plumbing), consult IRS Publication 530 and/or your accountant. And on a non-tax-related note, don’t trick yourself into thinking it’s OK to spend money on something because it’s a necessary “repair” when in truth it’s really a fun improvement. That isn’t good for your finances.

Keep Receipts for Improvements

When you sell your home, you can use these costs to increase your home’s basis, which can help you to maximize your tax-free earnings on the sale of your home. In 2008, you could have earned up to $250,000 tax-free from the sale of your home if it was your primary residence and you had lived there for at least two of five years before you sold it.

This deduction assumes that you owned the home alone—if you owned it jointly with a spouse, you could each have gotten the $250,000 exemption.

Let’s say you purchased your home for $150,000 and were able to sell it for $450,000. You’ve also made $20,000 in home improvements over the years you’ve lived in the home. If you haven’t saved your receipts, your basis in the home, or the amount you originally paid for your investment, is $150,000. You take your $250,000 exemption on the proceeds and are left with $50,000 of taxable income on the sale of your home. However, if you saved all $20,000 of your receipts, your basis would be $170,000 and you would only pay taxes on $30,000. That’s a huge saving. In this case, it would be $5,000 if your marginal tax rate is 25%.

Don’t Ignore Important Maintenance

One of the new expenses that accompany home ownership is making repairs. There’s no landlord to call if your roof is leaking or your toilet is clogged. To look at the positive side, there’s also no rent increase notice taped to your door on a random Friday afternoon. While you should exercise restraint in purchasing the nonessentials, you shouldn’t neglect any problem that puts you in danger or could get worse over time. Delay can turn a relatively small problem into a much larger and costlier one.

The Bottom Line

With the great freedom of owning your own home comes great responsibilities. You must manage your finances well enough to keep the home and maintain the home’s condition well enough to protect your investment and keep your family safe. Don’t let the excitement of being a new homeowner lead you to bad decisions or oversights that jeopardize your financial or physical security.