Happy New Year. I recently came across this paragraph written by James McNulty, Professor of Finance, Florida Atlantic University: When the Orlando, Florida housing market crashed in 1974-75 because of a massive wave of speculative overbuilding, one real estate consultant made the following coment, “We were running at close to 100 percent occupancy, so we continued to build more and more apartments. What we failed to realize was that most of the apartments were being rented to construction workers.”
The “easy money” has probably been made during this amazing 8 months’ rally. Nobody ever made a fortune anticipating a recovery that already arrived! Nevertheless, I intend to stay 100% invested during this quarter. Here’s why:
It’s not as though there’s not a lot to worry about…
It’s widely acknowledged that the Federal Reserve has flooded the economy with liquidity, some of which has found its way into the financial markets and reflated asset classes world-wide. The media depicts assorted members of Congress nipping at the heals of our Federal Reserve Chairman Ben Bernanke as he walks a tightrope with deflation, foreclosures and unemployment at one end and inflation, budget deficits and the volatile price of gold on the other. So how, in the midst of this depressing nightmare, can market averages reach new highs? You have to look abroad for the answer. The triumph of world-wide capitalism is finally delivering the goods! For all the chatter about China’s growing economy, they seldom mention that Chinese consumption has begun to outstrip their productive capacity. Here’s another statistic rarely mentioned: fully 40% of earnings of the companies making up the S&P index currently come from abroad. In short, the middle class societies located in the world’s emerging economies are a rapidly growing target for our country’s agricultural, manufacturing, and service industries. If you throw into this mix a depreciated U.S. currency keeping the price of our products competitive, you have a rational and likely ongoing cause for optimism with regard to corporate earnings, profits and dividends irregardless of the continued home foreclosures, commercial real estate losses, unemployment, state budgetary woes and the uncertain political environment here in the United States that we hear so much about.
If you have taken your house off the market it may be time to reconsider?
For over a year now I have been cautioning prospective clients that “if they could they should” wait for prices to start rising before they list their home for sale.
For those sellers wanting to “move up” the time may now have arrived! My guess is the new $6,500 home buyer’s credit will do more to stimulate home prices than the $8,000 credit has. That’s because the $8,000 credit has been limited to first-time buyers, while this new credit will stimulate sales by current home owners wanting to “trade up.” It’s no secret that as the market continues to rebound you will get more for you home the longer you wait to sell, but the longer you wait the more you will probably pay for the next home you purchase. If I’m right, a lot of home owners will jump at the opportunity to trade up now to take advantage of the credit to cover their transaction costs. Now here’s a formula but only if you have reserves and can afford the risk: list your existing home for rent and when you get your desired rental price from a secure renter, buy your dream home on the cheap and wait for the price of your existing home to recover before you sell. That’s what you call buying low and selling high! If that strategy sounds too risky for you, it probably is, but together we can find another. Establish your Tax Busters connection today! If you are curious how much your home is worth, or what foreclosures are selling for in your area click on the Century 21 Galaxy logo above and check out the cutting edge tools available on my web site.
Richton Park Public Library – (708) 481-5333 – JAN 28, 2009
Oak Lawn Public Library – (708) 422-4990 – FEB 9, 2009
Palos Heights Public Library – (708) 448-1473 – FEB 10, 2009
Here are five of the new tax laws that took effect last year and apply to your 2009 return:
- NEW EDUCATION CREDIT: Called the “American Opportunity Credit,” it provides a dollar for dollar reduction of taxes, up to $2,500 of the first $4,000 of qualifying expenses (including books, supplies and equipment as well as tuition.) Sixty percent of this credit is nonrefundable and forty percent is refundable. Unlike the Hope Scholarship credit it replaces, it can be used for all four years of undergraduate expenses.
- NEW CAR SALES TAX DEDUCTION: State and local sales taxes on the purchase of a new vehicle can be added as itemized deductions similar to prior years, but they can now be added to the standard deduction for taxpayers who do not itemize.
- INCREASE IN EARNED INCOME CREDIT: This year’s maximum earned income refundable credit has been increased to $5,657 for families filing jointly having three or more eligible children with at least some refundable credit applicable to incomes up to $48,279.
- MORE PARENTS WITH LOW INCOMES WILL BE ELIGIBLE FOR THE ADDITIONAL CHILD TAX CREDIT: This is a refundable credit up to $1,000 per child based on 15% of earned income over a $3,000 base. In other words, any refundable portion of the $1,000 credit not absorbed by any taxable liability is calculated by multiplying each dollar earned in excess of $3,000 by 15% up to $1,000. The $3,000 base was lowered from $8,500 to allow more low income parents to receive more tax relief.
- RESIDENTIAL ENERGY PROPERTY CREDIT: As you perhaps know, this non-refundable tax credit disappeared during 2008. It has reappeared bigger and better for 2009 and 2010. The non-refundable credit is now equal to 30% of energy improvements up to $1,500. It includes money spent during 2009 or 2010 for: insulation materials; skylights; central air conditioners; hot water boilers; exterior windows; exterior doors; and furnaces.
Call me with any questions you may have,
Gerald Knight, CPA, MBA, MSA
Cell Phone: 312-608-9001
Web Site: www.taxbustersonline.com
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