Waukesha State Bank Blog
This commentary was written and prepared by Waukesha State Bank. Content in this blog is for general information only and not intended to provide specific advice or recommendations for any individual. Please visit with one of our bankers to discuss your individual needs.
It was supposed to be a tax bill that would substantially simplify tax returns and provide tax relief across the board, benefiting in some way all taxpayers. While it didn’t quite get there as far as tax simplification, the Tax Cut and Jobs Act that was just passed by Congress does cut taxes for the vast majority of Americans. Just how much any particular tax payer benefits depends on a number of factors, including the amount of taxable earnings and itemized deductions, marital status, family status and the state of residency. For many Americans, the tax bill gives and takes through various provisions that, on a net-basis, results in less taxes owed. Here are some of the key provisions and the way they help or hurt taxpayers.
Lower Tax Brackets
Original versions of the bill sought to simplify taxes by reducing the number of tax brackets from seven to three or four. That was lost along the way to producing the final tax bill which keeps the number at seven, but many of the marginal tax rates have been adjusted downward. The top rate dropped from 39.6 percent to 37 percent and most income levels will be taxed at lower rates. The downside is that the tax brackets are now linked to an inflation index, which will push many taxpayers into higher brackets over time.
Double the Standard Deduction
Perhaps the bigger news is the doubling of the standard deduction from $12,000 to $24,000 for married couples ($6,000 to $12,000 for single filers). That is significant for taxpayers who don’t itemize or whose itemized deductions don’t exceed the lower threshold. These taxpayers are the most likely to realize a tax reduction.
For those who do itemize, the tax reduction could be much less and some could end up owing more in taxes.
Lower Mortgage Interest Deduction Cap
Under current tax law, the mortgage deduction is capped at $1 million of mortgage indebtedness. The new tax bill lowers the cap to $750,000 so, although it will affect more homeowners, it won’t impact most. Homes purchased before December 15, 2017 will be grandfathered for the $1 million cap. In addition, the tax deduction for interest on home equity loans has been eliminated except in cases where the proceeds have been used for significant home improvements.
SALT Deduction Remains with a Cap
The provision that caused most of the controversy was the elimination of the tax deduction for state and local taxes. Originally, the provision was to be eliminated altogether, but the final bill keeps it with a cap of $10,000 of state and local income, sales and property taxes.
Personal Exemption Gone
Everyone loves the personal exemption – the amount each individual is able to use to reduce their taxable income. Families especially loved it because the exemption was available for each dependent. The new tax bill eliminates the personal exemption. With the doubling of the standard deduction and the larger child tax credit, most taxpayers will still come out on top.
Child Tax Credit Doubles and Access Expands
The child tax credit has been increased from $1,000 to $2,000. More families will qualify for the credit because the phase out has also been increased for married couples from $110,000 to $400,000. The first $1,400 is refundable for people who owe zero taxes.
Alternative Minimum Tax Still Here
One way the original tax bill was supposed to simplify taxes was by eliminating the alternative minimum tax. The final version keeps AMT, but it increases the threshold from $86,200 to $109,400 so AMT will impact fewer taxpayers.
No More Marriage Penalty
Under the new law, married taxpayers will pay taxes at the same tax rate as individual filers. For example, if two individuals each earned $150,000 under the old law they would be in the 28 percent bracket. If they got married, their $300,000 combined income would boost them into the 33 percent bracket. Under the new law, the couple would be in the 24 percent bracket – same as an individual earning $150,000.
Larger Medical Deduction
For taxpayers who do itemize, more medical expenses will be deductible. The new tax bill lowers the adjusted gross income (AGI) floor for medical deductions to 7.5 percent from 10 percent and it will be retroactive to the 2017 tax year. For example, a married couple with $100,000 AGI can start deducting medical expenses above $7,500 instead of $10,000.
You Lose Some Deductions
The tax bill eliminates several deductions, including just about everything that was categorized as “miscellaneous deductions,” which included items such as unreimbursed employee expenses and tax preparation fees. You’ll still be able to deduct charitable contributions and student loan interest.
Larger Estate Tax Exemption
The bill’s authors originally wanted to eliminate the estate tax altogether, but the final bill only included an increase in the amount that would be exempt from estate taxes. The new exemption is doubled to $22.4 million for married couples ($11.2 million for individuals).
There is a lot to absorb from the new tax bill. Be sure to meet with a tax professional to ensure you understand how the new tax law will impact your specific tax situation.
New Year, New Me, right? We’re two months into the new year, and you may have dropped your New Year’s Resolution to become financially fit. Don’t despair. It’s still early in the new year and a great time to clean up your financials, adopt better spending habits, and start saving more. Here are a few tips to keep in mind:
Make a budget and stick with it
This almost cliché financial advice is repeated so often for one important reason: it works. Start by tracking your spending, once you’ve tracked how much money you spend over the course of a few weeks, you can look for trends in what you’re spending. These trends help you start planning on how much income goes towards necessities (like rent/mortgage, utilities, groceries), and see areas where you can cut back (rarely-used subscription services, eating out less) and start putting away a portion of your income towards a savings goal. The most important part of a budget is sticking with it, once you start tracking your spending you should make sure to take time every day or every few days to log your spending and compare that to your planned spending.
Deal with any debt
Debt is an extremely stressful thing to deal with but the new year is a time to get a handle on any debt that may have piled up around the holidays. Debt should be something factored into your budget like your electric bill and tracked. Although it may be daunting, contact your creditors to discuss your situation, they may be willing to work with you to put together a repayment plan. If you're carrying debt on multiple credit cards, talk to your local bank about the possibility of consolidating that debt into a single payment so you can close the extra card accounts. No matter what you do, addressing debt instead of ignoring it will help you get a handle on it and make positive progress.
Many times people will stick with whatever they find first, be it their internet provider, car insurance, or brand of soup, but that may not be the best deal, especially a few years down the line. There’s nothing wrong with being loyal to a company but just because they’ve been your cable provider for a few years isn’t necessarily a good reason to stay with them and doesn’t ensure that you are getting the best value for what you are paying. Look around to see what other companies are charging for similar services, you may find that your current company is priced competitively or you may find that you can get a better deal elsewhere. One thing to beware of is a cheaper product or service that is cheaper for a reason, make sure you are still getting a similar quality or ask yourself if you are ok with a downgrade.
Making a commitment to financial health and wellness can be a great way to start the New Year on good footing that can last throughout the year and your life.
In simple terms, a home equity line of credit works a little like a credit card - a credit card secured by your home. Lenders approve you for a specific amount of credit, but you are not required to borrow up to the limit of your credit line.
How a Line of Credit Works
Here's an example. Say you are approved for a home equity line secured by the equity in your home. Most lenders will limit how much you can borrow, using a percentage of your home's value as a g uideline.
In this example, we will assume you have been approved for a $30,000 credit line.
You can draw funds at your discretion in any frequency or amount during the term of your loan up to the $30,000 limit. In addition, your account may automatically renew from year to year after the initial term. You are charged interest only on the amount you have drawn and payments may be calculated using an “interest only” method or figured using a percentage of your outstanding balance. As you pay down your balance, those funds become available to borrow again and again.
With a home equity loan you receive the entire loan amount up front. If you borrow $30,000, you receive a check for $30,000, and you start making payments on that $30,000 loan immediately based on a predetermined repayment period.
Here is a quick breakdown of the differences between home equity loans and home equity lines of credit:
| Home Equity Loan || Home Equity Line of Credit |
|Receipt of Funds|| Received up front in one lump |
sum, typically by check or direct deposit to an account.
| Funds can be accessed at any time by check, by debit card, or by an in-person withdrawal or online transfer. |
|Interest Rate|| Typically fixed and applied to |
entire loan amount
| Usually variable; applied only to the outstanding principal balance |
|Repayment|| Usually installments over a |
defined repayment term.
| Can vary depending on repayment method and interest rates. |
Home equity lines of credit generally use variable interest rates instead of fixed interest rates. The rate will vary based on a common index like the prime rate. Typically the interest rate is calculated by adding a percentage, called the margin, to the index; for example, your interest may be calculated using "prime rate plus 1%." In that example, if the prime rate is 5%, your interest rate will be 6%. The rate will change based on changes in the index and will impact your payment amount and/or repayment period.
A home equity loan usually has an interest rate that is fixed for a defined term which may be all or part of the repayment period. You have confidence in knowing your interest rate and payment amount will not change for a predetermined period of time.
Which is Right for You: Loan or Line?
Home Equity Loan
- Home equity loans are often used for one-time expenses (home improvements, major purchases, etc).
- Home equity loans often come with fixed interest rates and fixed monthly payments, making budgeting simple.
- Home equity loans will generally require higher monthly payments.
- Payments include interest and principal (using a standard amortization schedule).
- No additional funds are available; to access more cash, you will need to refinance or take out another loan.
Home Equity Line of Credit
- Home equity lines are often used for recurring and unexpected cash needs.
- Home equity lines often come with variable interest rates; your rate can rise or fall based on changes to the prime rate.
- Payment amounts will also vary based on how much money has been borrowed at any given time.
- Payments are often interest-only, but can include principal. During the term of the loan, you will make lower monthly payments but will owe the entire principal balance when the loan term ends.
- Funds can be accessed at any time, and if you pay down the balance, you can draw against that money again and again during the term of the loan.
Need a simple way to decide between a home equity loan and a home equity line of credit?
If you need a lump sum at one time, and want the stability of a fixed interest rate and fixed monthly payments, choose a home equity loan.
If you want greater flexibility and the ability to choose when and how much you will borrow, and are willing to accept the potential for changing interest rates and payment amounts, choose a home equity line of credit.
To speak to a lender about whether a home equity loan or a home equity line of credit is the best choice for your individual needs and goals, simply call our Customer Service Center at (262) 549-8500, click here to schedule an appointment or stop into any of our convenient locations .
Credit cards provide a lot of convenience when you’re traveling. They can be used across the globe, and you can use online tools to track spending and more while you’re away. There are a few considerations for traveling with your credit cards though, especially if you’re traveling abroad. Here are some things to keep in mind.
- Bring copies of the front and back of your cards and keep the copies in a separate place from the cards themselves. A hotel safe can be a good place to store them. If your cards are stolen, you’ll have all of the information you need to contact the company.
- Always carry a back-up card. If something happens to your primary card, you’ll be glad you have a secondary one.
- Carry some cash. Cards don’t always work, especially abroad where card readers are increasingly incompatible with U.S.-issued cards.
- Save your receipts. It can be hard to track your expenditures during a whirlwind trip, so use receipts during vacation and then again to verify the transactions on your statement.
- Check your card’s travel discounts. Many cards, even some that aren’t specifically travel-related, offer benefits on particular airlines, hotel chains, and more.
- If you’re traveling outside of the country, be sure to notify your credit card company in advance. If the company doesn’t know that you’ll be traveling, they may block your transactions. Then you’ll have to call them, which can prove difficult depending where you are.
- Likewise, investigate potential card fees for foreign transactions before your trip. Some companies charge for specific types of transactions, so you’ll want to know what you’ll actually be spending.
- Ask if your transaction will be processed in U.S. dollars or the local currency. If the merchant plans to charge you in U.S. dollars, they may be providing you with currency conversion for a fee. While it may be nice to know your exact purchase amount in U.S. dollars, you may end up paying more than you have to. Ask what the currency conversion fee is and know that you can decline that service.
By planning ahead, you can make your trip as hassle free as possible.
Nearly half of the energy costs in a typical home come from heating and cooling, according to the U.S. Department of Energy, so when the temperature goes up, so do your cooling costs. Here are a few tips on how to stretch your household budget this summer and still keep your chill.
Consider upgrading your old air conditioner. If you have an old window unit air conditioner with an EER energy efficiency of 5, you can cut costs in half by replacing it with a new one with an EER of 10. So do a simple calculation: If your average annual bill is $260, your bill would become $130. Depending on the size of the unit and room (window units range from $100 to $500), your annual savings will pay for the unit in just a few years. Air conditioners also function more efficiently and cheaply (and last longer) when you replace or clean their filters on a regular basis. Read your owner’s manual to find out how often you should replace or clean filters.
Use ceiling fans. Overhead fans get air circulating, which means you might be able to delay turning on the air conditioning-especially if you can also leave windows open on cool summer evenings. Make sure you have the blades spinning in the right direction, though! In the summer, the preferred direction for a ceiling fan to spin in is counterclockwise as you look up at the fan blades. You will feel a cool downward airflow as you stand directly under the fan. In the winter, the preferred direction for a ceiling fan to spin in is a clockwise direction. Check your owner's manual for how to switch the direction on your fans.
Take time to unplug. Even when they're not in use, electronics such as television sets, DVD players, computers and phone chargers can suck power out of outlets. Either unplug them when you're done using them or use a Smart Strip (which cuts power when it's not needed). One exception to this tip: overhead fans, especially at night, will cool air more cheaply than turning down the thermostat.
Invest in a programmable thermostat. Programming your thermostat is one of the easiest, most cost-effective ways you can cut your energy bills this summer. Installing a programmable thermostat prevents your home from going through large temperature swings and can save you up to 10 percent on your cooling bills. A homeowner can save as much as $150 on air conditioning bills by setting a thermostat.
What is your home worth? Ultimately, your home is worth what someone else is willing to pay you for it.
The problem is you won't know that amount until you sell. So, what if you need to estimate the value of your home to determine what you will list it for or to get a sense of how much you can borrow with a home equity loan or home equity line of credit? Here are a few ways you can develop a fairly accurate ballpark figure.
Use Online Tools
One of the most popular sites for estimating home values is Zillow.com. Others include propertyshark.com, and realtor.com. Many real estate agents also offer online tools, including remax.com.
Just keep in mind that some sites use results provided by other sites. If the information you receive from several online value sites seems uncannily similar, it could be due to the fact those sites all pull information from the same database.
You can also see what homes are listing for by checking your real estate agent's site. Some will also show prices for homes recently sold, and in many areas your local government website may list recent transactions including price, square footage, number of bathrooms, the age of the home - everything you need to make apples to apples comparisons. Similarity is important, because comparing similar homes is the best way to accurately estimate your home's value.
Just keep in mind that online tools may only be directionally-accurate, especially in rural areas or in areas where few homes sell on a regular basis. If you live in metropolitan Milwaukee, sites like zillow.com are likely to be fairly accurate; if you live in a smaller rural town, online tools may provide limited value.
Ask an Agent
Experienced real estate agents can quickly ballpark a home's value; they do it every day. A local real estate agent would be more than happy to give you an estimate of the value of your home even if you don't plan to sell right away. If you can, get two or three agents to provide a ballpark figure; compare the results you get to determine an average amount.
And while you're at it, ask the agent(s) to provide comparables. Using comparables is a great way to estimate the value of homes as well as other items. A comparable is a home that recently sold that is very similar to your home: Square footage, age, number of rooms/bathrooms, size of lot, etc. If you provide the agent with the specs for your home, he or she can quickly "pull comparables" for recently sold homes.
Go to Open Houses
Asking others for help is great, but sometimes doing your own Sherlock Holmes impression is useful, too. Open Houses are a great source of information: You can check out comparable homes to your heart's content and get a great sense of how your house compares to others currently for sale.
And while you're there, talk to the agents showing the homes. Agents hold Open Houses for two main purposes: To show the home being listed but also to meet other potential clients. As mentioned, a good agent will be more than happy to share their knowledge with you.
Get a Formal Appraisal
Another option is to pay for a professional appraisal of your home. A home appraisal is the expert determination of value by a certified and licensed professional. Keep in mind that an appraisal is still just an estimate. The appraiser, using a variety of tools and approaches, estimates what the home is worth. An appraisal value is not a guarantee of what the home will sell for.
But it is a widely used and relied upon tool. Mortgage and home equity lenders use appraisals to protect themselves from lending too much on a particular property. After all, you may agree to pay too much for a home; while the home is worth that much to you, it may not be worth that much to other buyers. Lenders will typically only lend up to a certain percentage of the appraisal value even if the home is being purchased for significantly more.
A formal, professional appraisal is the most accurate estimate of home value you can receive. The appraiser will evaluate the specifications and condition of your home, compare your home to comparables, and assess local market trends and conditions. The result is his or her best estimate of the value of your home.
If you want to get an appraisal because you are considering a home equity loan, talk to your lender and ask for an approved list of appraisers. Most lenders will accept an appraisal performed within a few months of your loan application; if that is the case, you may be able to avoid the cost of a second appraisal.
Quick note: Keep in mind, a home appraisal is not the same as a home inspection. A home inspector looks for maintenance, mechanical, and other problems in the home. Appraisers may note obvious problems, but they do not test plumbing, electrical, heating and cooling, and other systems. An appraiser estimates value; an inspector evaluates the condition of a property.