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A New Year Means a New Look at Personal Finances, Say DCCCD Experts

Keith Baker

Professor Keith Baker has tips for homeowners and home buyers on maximizing tax deductions.

​Contact: Cesar Canizales

For immediate release — Jan. 27, 2017
(DALLAS) — With the new year well under way, consumers and investors would be wise to take a look at their financial situations and adjust them as necessary, according to financial experts from the Dallas County Community College District.
Keith Baker, faculty member and program coordinator of mortgage banking at North Lake College, said the increase in the federal standard deduction, $6,350 for single taxpayers and $12,700 for couples filing jointly, has implications for homeowners. 
“If the interest and real estate taxes they have paid exceeded this amount, they can itemize and take advantage of every dollar they paid as a deduction from the amount of their income that is subject to federal income taxes,” Baker said.
Homeowners would need to calculate their mortgage interest rate and real estate taxes to determine whether they qualify to itemize their deductions, according to Baker.
For example, Baker said, a couple who owns a $275,000 house with a 4 percent mortgage rate would pay about $11,000 in interest. That, plus real estate taxes of about $4,877, would total $15,877. 
“That would exceed the $12,700 standard deduction by $3,177,” Baker said. “The amount they would save in federal income taxes by itemizing their deductions on $3,177 would depend on their tax bracket, but if they were in the 24 percent marginal bracket, that married couple would save $794.25.”
For people who are considering buying a home, it might be a good idea to do it earlier in the year to gain the maximum tax advantage, added Baker. 
“If a person or a couple purchases a home earlier in the year, then it’s more likely that they would hit a point to be able to itemize.” Baker added. “Because many loans include something called an origination fee, which is also deductible in the year it was paid, that fee might be enough to put them over the standard deduction.”
In addition, according to the IRS, homeowners may be able to deduct mortgage insurance premiums and points, which are charges paid by borrowers at closing.
People who have retirement accounts also should look at their portfolios, said Baker. This year, contribution limits for 401(k) programs remained unchanged at $18,000, according to the IRS.
Baker said investors should ensure they’re paying the lowest fees and expenses on their mutual funds. He advised them to consult services such as Morningstar, which ranks mutual fund performance and fees.
Baker added that people should try to maximize their contributions to their workplace retirement plans.
“If a person is still more than 20 years from retirement, the most important thing is to make sure he or she is putting enough in to cause the employer to match it fully because this is a huge return on their investments each year,” said Baker.
A new president and tax proposals from a Republican Congress could also have an impact on personal finance, according to Carlos Martinez, professor of economics at Richland College. He added that while it is not clear what changes the new administration will bring, people should look at their tax and investment strategies. 
“It looks like corporations will benefit with a lower corporate tax and less regulations, and high-income earners will pay lower taxes,” Martinez said. 
Investors also might want to reconsider the 60/40 percent investment model that has been traditionally used by investors that dictates a 60 percent stock to 40 percent bond ratio in portfolios.
“The 60/40 weighted portfolio is not a relic. However, it may not be the best option in today’s interest environment,” Martinez added. “With interest rates still hovering around record-low levels and the Federal Reserve signaling that rates will move up, having 40 percent of your portfolio in bonds may not be the best place to be. I would consider using convertible bonds and cash to reduce the interest rate risk.”

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