Know the terms: Prorations

If you are buying or selling a home, something you should expect to see at your closing are prorations on your final documents. Prorations are basically credits or debits that "proportionally divide" various costs, bills, assesments, or taxes. Common prorations include property taxes, utilities, and homeowner association dues.

Since the seller lived in the home for part of the year there may be fees or dues that they have paid already which they should be reimbursed for. These could be monthly fees or annual fees. Often, HOA fees are paid in advance, so these would need to show as a proration in the form of a credit to the seller and a debit to the buyer for the remaining days in the month. Prorations can go the other way too - for instance, property taxes are paid in arrears (i.e. you pay 2005 taxes in 2006). So, the buyer would need the credit in this case. Since they will have to pay taxes down the road, they need a credit for the time the seller lived in the property for that year.

When calculating prorations, keep in mind that laws and calculations vary by state so talk with a real estate professional who is licensed in your area.

See exactly how it's written in the Colorado Real Estate contract (see line 373 on pg 7).

If you live in Colorado, feel free to contact me with any questions.

Tax Breaks for a Home Business

Do you have a home based business or a home office? It definitely provides you with a lot of flexibility and probably saves you from going on to lunch everyday (like I do) and spending additional money. Another great savings can be the tax write-offs of a home office. But it's important to get a good tax professional that knows the tax laws and can knowledgeably advise you on how this home office could affect your taxes at the end of the year. The last thing you want is to get audited by the IRS and not have the proper records or to realize you've been claiming deductions incorrectly. For instance, did you know that if you sell the home you've been depreciating the space for your home office, the IRS requires that you "recapture" the appreciation? Basically, they don't want you to "double-dip" and get the write-off twice, so you'll need to adjust the profit you made from your house to make up for the depreciation write-offs for previous years. Certainly, I'm no tax professional so I can't stress enough the importance of getting professional advice. Here's a great article with 5 excellent points to get you started.
If you're interested in more information, or potentially selling your home, please contact me today. I can help you list your current home or find your next home with just the home office you're looking for!