Vacation Properties and Income – Part 2

Another way for retirees to generate income from a vacation home is to sell it. By using the federal capital gains exclusion in conjunction with the sale of your primary residence, you can potentially realize tax-free income. Here’s how it works. The basic capital gains exclusion rules state that you must have owned and used the home as your primary residence for at least two years out of the five-year period ending on the date of the sale. If you are married, the full $500,000 exclusion ($250,000 for single homeowners) is available as long as one or both of you satisfies the ownership test (two years) and you both satisfy the use test (primary residence).

Vacation Properties and Income – Part 1

If you have a vacation home, you’re already aware of the enjoyment it provides and the benefits it can offer at tax time. But you may not be aware of how vacation property can be used to generate income in retirement or how it can play into an estate plan. In fact, vacation properties offer retirees a number of different options in managing their finances and estate.
Vacation property may be used to generate income in several different ways. The first, and most obvious, is renting it. The IRS allows you to deduct mortgage interest on your primary residence and one additional property up to a limit of $1 million in combined mortgage debt for mortgages taken out after 1987. Current tax rules also allow you to rent out a second home for up to 14 days per year without having to report the rent as income. If you rent for more than 14 days, the home is considered investment property, and rent must be reported as income. Converting the property to an investment property, however, allows you to deduct rental expenses, such as insurance and utilities, if you have a net profit on the property (deductions are limited if you report a loss). You can still use an income-producing property for personal use while maintaining your tax advantages — but only for the greater of 14 days or 10 percent of the total days it is rented. Maintenance days do not count as personal-use days, but use by in-laws or other part-owners does, even if rent is charged.

Simple Truths

As a financial advising firm, one of the simple truths we have learned is that relationships are the single greatest influence on how people use their money and plan for the future. When people talk about their hopes and dreams, they talk about the people they love. Their future, the life they wish to live, is always full of the people most important to them. They don’t talk first about dollars and cents, Dow averages, or bond yields. They talk about a spouse, a parent, a child. When imagining their financial futures, even those without family often focus on others, such as employees, friends, faith communities, and charities.

Keeping Your Emotions in Check…

In times like these, with the economy in a tailspin, and the stock market in the tank, investing requires an extra dose of patience, perseverance and perspective.
It takes patience to ride out the bear market, perseverance to continue to invest even through a difficult economy, and perspective to see the long-term picture and realize that recessions and bear markets are just part of the natural economic cycle. Slumping economies and bear markets of the past have always turned around — and there is no reason to believe that this time will be any different.

Saving for College

Saving for College
Another school year is around the corner and your children or grandchildren are that much closer to college. If you haven’t already started to save for their college costs, this may be a good time to talk to your adviser about setting up a tax-sheltered college savings plan.
By planning ahead, you can use a 529 college savings plan to give your children a head start on their college costs. There are two types of 529 plans: college savings plans and prepaid tuition plans.
College savings plans are state sponsored investment accounts that allow participants to contribute regularly. A 529 plan account grows tax-deferred and withdrawals from the plan for qualified educational expenses are exempt from federal income tax. There are no income limits.

How Are Your Spending Habits?

The Propensity to Consume

Most People and most societies consume what they can. Americans are notoriously short-sighted, as demonstrated by a low personal savings rate by international standards. There could be many explanations, from a standard of affluence that has distanced us from the struggle for mere survival, to our propensity to invent and create that places a premium on spending whatever money we have in order to create more. We are the consumer society. Just look at the ads in magazines or newspapers and calculate the percentage of them that sell what for most people are luxuries.
You may be surprised to find that you are guilty of a habit that dooms you to never having money. Some people who constantly feel money pressure buy themselves little treats or rewards, in part because they never have the money to buy themselves what they really want. But it’s precisely that accumulation of “little” expenses that prevents them from getting ahead. Many don’t even realize they do this. The only way to find out is to keep track of what you spend. Do it for a week or a month. Try to remember each expenditure, no matter how small. Record everything in a little notebook each day. Add them up in different categories at the end of your test period: food and drink, entertainment, utilities, gifts and so forth. Pay particular attention to the small expenditures on unnecessary items and see how they accumulate over time.

Restoring Confidence in Today’s Economy with Wealth Enhancement

Despite uncertainty, at Wealth Enhancement Group, we feel confident that in the long run, the financial markets offer the best opportunity to achieve important financial goals. The question is how can you best take advantage of these opportunities? First thing, don’t panic. There are ways to help you get through these irrational times. Consider working with a trusted financial advisor, who can offer the insight and experience needed to help you through difficult times.

Working with you, a financial advisor can:
• Help you identify and continually reconfirm your short-term and long-term goals.
• Help you maintain a customized investment strategy that supports your individual, financial objectives.
• Guide you through fluctuating markets and help you avoid making emotion-driven mistakes in turbulent times.
• Provide you with access to a broad selection of highly diversified securities.
• Walk you through the current market crisis, the upcoming bull market and the next market dip.

Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, a registered investment advisor.

What is a Bear Market?

The generally accepted definition of a bear is a decline of 20% or more in a broad stock market benchmark, such as the S&P 500 Index, over at least a two-month period.

Even though we have been in a recession for more than a year now, since December of 2007, the current bear market actually began last September. In comparison, the average bear market in the 20th century lasted 14 months, with stocks declining an average of 32%, and fully recovering their lost ground in 22 months. Since 1950, there have been nine bear markets, including the current one.

Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, a registered investment advisor.

The Parallels of the Current Economic Crisis and the Great Depression

There are few parallels between the current economic crisis and the Great Depression.

• The Depression began in 1929, spanned a total of nine years, with two deep recessions. The current recession began in December 2007, and at this point is only a year long.
• During the Depression, the Dow Jones Industrial Average plummeted 91 percent over a three-year period. In contrast, at the end of 2008, the Dow had fallen 38 percent from its high in October 2007.
• Unemployment during the Depression: 24.9 percent. Today: under 10 percent.
• During the Depression, nearly 12,000 banks shut their doors. The current banking crisis has resulted in less than 100 bank failures.
• In fact, runs on banks are a thing of the past, thanks to deposit insurance backed by the FDIC. Which we know has been increased to $250,000 per account holder.

Having learned valuable lessons from the 1930s, today’s government and Federal Reserve are taking a more active role in the current crisis than the Hoover Administration did at the onset of the Great Depression. Today, bailouts, loans, interventions and rate cuts are all examples of a vastly more active approach taken by policymakers.
I will have to say that one similarity between the Depression and the current situation is a high level of uncertainty among investors and bank depositors. Fortunately, due to the more advanced communication tools available today, confidence can be restored more easily.

Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, a registered investment advisor.

Helping to Care for Aging Parents – Research Your Options

Many Baby Boomers are finding that their aging parents are in need of health care assistance. Luckily, there are many options available today to help your parents grow old gracefully, either in their own home or in a facility, and several ways that you can finance the costs of the care.
If your parents are healthy seniors who can look after themselves, they generally are eligible to enter a continuing-care retirement community that allows them to buy or rent an apartment and ensures them lifetime nursing care when it is necessary. Another option for healthy seniors is private long-term care insurance, which can help cover nursing-home costs or the cost of an in-home aide.

There are a wide range of services and options available if your parent needs more substantial assistance and is not eligible for the above-mentioned services. Many families opt for moving an aging parent into their own home. If you are able to peacefully coexist with your parent, this may be a good idea because the arrangement frees you from worry about the upkeep of a second home, and you and your children can have valuable time to spend with your loved one.

Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, a registered investment advisor.