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Last-Minute Tax Tips; Don't Accept First Mortgage Offer; Environmentally Friendly Way To Power Your Home; Spring Cleaning Tips

Aired April 15, 2006 - 09:30   ET


GERRI WILLIS, CNN ANCHOR: It is April 15, but the good news is you don't have to file your taxes today. Tax day is Monday for most of us and if you haven't filed yet, you've got a lot of company. Millions of Americans have got file their paperwork with Uncle Sam.
Good morning, I'm Gerri Willis. Welcome to OPEN HOUSE. We're going to have last-minute tax advice you won't want to miss and later in the show we'll look at how you could be getting ripped off by your mortgage broker.

Mortgage rates are at the highest level in over three years. The rate for a 30 year fixed rate mortgage rose to 6.5 percent this week. Now, this could really put a squeeze on home buyers and people who have an adjustable rate mortgage. Using your credit card is more expensive.

Rates have also shot up almost three percentage points in the past year. But there is good news for savers. After years of bargain basement returns, CDs, that is certificates of deposit, are paying 4.6 percent if you lock it up for a year or more. Back to the taxman now, and making sure it all adds up for you this year.


WILLIS (voice-over): Uncle Sam is giving you a little break this year. Most of the country has until the end of Monday to file and pay taxes because today is a Saturday. Taxpayers in the Northeast and Washington, D.C., have until Tuesday because of Patriot's Day at the IRS center in Massachusetts. Residents of Louisiana and Mississippi that were affected by Hurricane Katrina get an automatic extension until August 28.

If you're going to need more time, anyone can file the short IRS form 4868. It will give you an automatic six month extension to file, but not to pay your taxes. If you owe the IRS you still need to pay before the deadline. If you don't have the money you can use a credit card through an approved company, but you still have to pay a hefty service fee and big interest charges. Uncle Sam will also lend you the dough, an IRS installment plan will cost $43 plus interest.


Here with some more last-minute tax tips is Donna Levalley, a tax attorney.

Dona, great to see you. DONNA LEVALLEY, TAX ATTORNEY: Thank you for having me.

WILLIS: All right, let's start with the basics. What do people typically get wrong when they file their taxes.

LEVALLEY: On the tax return, in general, stuff that can slow down the refund, math error, not signing the return.

WILLIS: That's a basic. Signing the return should be easy, but people forget to do it.

LEVALLEY: People do it, especially in the rush. You know, they get back -- get back to the final line that says what they owe or what they're going to get and they're finished. Goodness knows they've had enough of it. And also Social Security numbers tends to be a problem -- missing lines transposed and you need them for kids and if you've gotten married. So, the names and the numbers have to match or they'll refigure the entire return.

WILLIS: Now, a lot of people this week have been getting their tax return back from the accountant. They want to go over it, check it for mistakes. What are they looking for?

LEVALLEY: Well, do they think that they've got everything? Do they have a 1099 hanging around? Maybe they should get out last year's tax return and make sure everything they deducted last year is on this year's return. So, I think that's sort of the best place to start and, you know, if they find more income or more deductions just get a 1040x, they can amend it and get more money back.

WILLIS: A 1040x, that's a -- OK, great to know. And so is the drill the same if I filed by soft -- using software online?

LEVALLEY: Oh, absolutely, but that's going cost you money to press the send button. So you might want to think about doing this on paper.

WILLIS: All right, OK, lots of choices for people who want to file, obviously. Let's talk about real estate and home, now if you sold your home this year you're going to get a really big tax break.

LEVALLEY: Everybody knows about this tax break and everybody loves it and it's certainly helped the people who've been flipping. You know, property has been really hot. Basically if you're a joint filer, you can exclude up to $500,000 worth of gain and for everybody else it's $250,000.

WILLIS: So if you're single, $250, married, $500. You said that flippers are using this, I thought there was a two-year rule, that you had to be in the house for two years before you sold it.

LEVALLEY: Exactly, well the two years and that's the sort of a thing, how do you do this? You can own and occupy it for two years and then sort of get it -- you know, get out. If you're doing the work yourself the whole flip may take two years, I don't know, but the idea is people can sort of take depreciation if they've gotten a huge swing in their market, leave in two years, maybe buy something else.

WILLIS: Yes, absolutely, that's a great idea. I can get any kind of deduction from my home improvements?

LEVALLEY: Oh, absolutely. If you use a home equity line. For instance if you're going to be taking out a second mortgage or home equity loan, if you use the proceeds to improve your home, that's going to boost up your mortgage interest deduction. But in terms of off the return, no, when you make an improvement to your home, you save the receipt, you edit the cost of your home. So when you go and sell it, the amount of gain is reduced by how much you improved it.

WILLIS: I think you should work thought that one more time because it's complicated and I think people forget about it. So every time you improve your house you want to save that receipt, add those all up and it's going to reduce your tax bill when you sell that home, right?

LEVALLEY: Absolutely. And you can sort of look at it this way, it's the difference between painting your home and residing your home. Residing is an improvement, painting is just maintaining it. So when you build an addition, you redo a kitchen, a bathroom and something like that, those are improvements and those are the type of receipts you should be keeping.

WILLIS: So Donna, one other question. If I rent out my house or maybe a vacation home for a couple of weeks, do I have to tell Uncle Sam about that income?

LEVALLEY: Well, fortunately, if you do it for a short period of time, you're be able to get away with everything, no income reported; however you won't be able to take any deductions. And so that's the other side of not reporting the income.

So, if it's your second home, your vacation home, as long as you rent it out for less than 15 days and you occupy it for 14 days or 10 percent of how long you rent it out for, you know, if you're only using for a limited period of time, it's a wash. So, as long as you're not looking for a deduction, you don't have an income.

WILLIS: All right, so if I do have that second home and I'm trying to figure out. What's the best case scenario? I want deductions, but I also want to use my house. How much of my time should I spend in that house?

LEVALLEY: I think as much as possible. You know, once again it goes back to the less than 15 day rules is where you don't have to actually report the income. And something else people should be aware of in terms of vacation homes or second homes, if they're empty nesters and they're starting to plan their retirement, they may want to think about selling the big home, moving into the vacation or second home and living there for two years and renewing and getting that two-year occupancy period so they can get exclusion on that house as well.

WILLIS: We love the exclusion. So, there are benies (ph) out there for home owners.

LEVALLEY: Oh, absolutely.

WILLIS: Donna, thanks for your help today.

LEVALLEY: Thank you for having me.

WILLIS: Coming up on OPEN HOUSE Spring cleaning, two dirty words that you probably have tried not to think about. I know I haven't. I'll show you how to clear up the clutter and get ride of the grime in as little as 15 minutes.

And are you paying too much for your portionage? Your mortgage broker may have gotten a big bonus for giving you a bad deal. We'll show you how to protect yourself. But first, your "Tip of the Day."


WILLIS (voice-over): You wouldn't buy the first house you see, so don't accept the first mortgage offer. Look for the right lender.

DOUG DUNCAN, MORTGAGE ASSN. OF AMERICA: If you don't talk to more than one, you're not forcing them to compete, so you're not going get the best deal.

WILLIS: And look for the right kind of loan.

DUNCAN: There are probably 150 different kinds of mortgages out there today, but some will be better for your household financial efficiency than others.

WILLIS: Shop around. I'm Gerri Willis and that's your "Tip of the Day."



WILLIS: Earth Day is one week from today and with oil and gas prices skyrocketing, we take a look at an environmentally friendly way to power your home. Allan Chernoff explains.


ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): When Peter Baumert decided to build a house with his family he knew he'd be breaking ground of a different kind. Baumert had an eye towards energy efficient housing.

PETER BAUMERT, HOMEOWNER: Rising energy costs was a big factor. Second is the environmental impact. We're looking at newer products to make my house healthier, more efficient and stronger.

CHERNOFF: But he's taken energy efficiency to a whole new level.

BAUMERT: We're looking to create Long Island's first net-zero energy-efficient home which basically means whatever electricity or utilities that the home would consume, it'll produce that much and give it back to the utility grid, so basically zeroing it out on the utility side.

CHERNOFF: And that could mean big savings. The Department of Energy estimates the average homeowner in the U.S. spends about $1500 a year on utility bills, though homeowners in northern states can pay far more. An energy efficient home will have a lower impact on the environment.

DAVID GARMAN, UNDER SECRETARY OF ENERGY: Your home, and the power that you use in your home, is probably responsible for more pollution than the cars you drive. A lot of people don't understand this. So, obviously, by using less electricity in the home or by generating some of your electricity in the home with zero emission generation sources like solar, you're actually contributing to a cleaner environment and cleaner air.

CHERNOFF: Construction costs can run higher than a conventionally-built house, but the energy savings can make it world while in the long run.

GARMAN: Energy-efficient homes are cheaper to operate and they tend to be more comfortable than less energy efficient homes. You may find yourself paying a little bit more for some of these features up front, over the life cycle of the home and or even in the first few years of ownership, you can get all of this money back in lower energy savings and sometimes, in some areas, energy efficient mortgages are available to homeowners who want to buy an energy-efficient home, so they can buy more home for the money.

CHERNOFF: Fannie Mae, the Federal Housing Authority, the U.S. Department of Veteran Affairs, as well as some mortgage companies offer special financing for energy-efficient homes.

PAT GOOLSBY, CRITERION MORTGAGE: The loan product will take into account the fact that the consumer will be saving monthly on their utility bills because of the added energy efficient measures that have been add into the home. The consumer will have lower utility and so they're able to qualify for additional mortgage money.

CHERNOFF: A potential added bonus...

GOOLSBY: A home that has energy efficient measures and has documented lower energy costs will be worth more in both the value and market ability of that home.

CHERNOFF: But Peter Baumert says he has a greater goal.

BAUMERT: Because every single day that you live in the house, it's a healthier house, it's more energy efficient, you're payback is that you're not burning the resources that everybody else is.

CHERNOFF: Allan Chernoff, CNN New York.

(END VIDEOTAPE) WILLIS: No one wants to pay more than they have to on their mortgage, but many of you could be paying too high a rate and the worst part is someone may have profited from your misfortune, Peter Viles has the story.


PETER VILES, CNN CORRESPONDENT (voice-over): It can be awfully confusing buying a house these days. Do you go with a fixed-rate mortgage, an adjustable, a highbred or maybe an interest only? So confusing, more than half of buyers now turn to mortgage brokers to sort through their options. But do you really understand how the mortgage broker makes his money and that ultimately it comes out of your pocket.

MARK PEARCE, CENTER FOR RESPONSIBLE LENDING: Unless you're a mortgage broker in the mortgage industry you don't understand it at all. It's poorly disclosed on statements with an acronym, "YSP" or something to that effect and it really amounts to thousand of dollars out of your home equity.

VILES: Brokers charge fees and they collect something called a Yield Spread Premium from the lender. Here's how it works. Lets say the lowest interest rate you qualify for on a $300,000 loan is 6.75 percent. If the broker places you on a loan it's 7.25 percent, he can receive a premium from the lender of $3,000. If he places you at a loan of eight percent his premium goes up to $6,000.

Lenders, like New Century Financial, say reasonable premiums often serve a useful purpose by lowering up-front closing costs.

MARC LOEWENTHAL, NEW CENTURY FINANCIAL: It's really to assist the borrower who doesn't have enough cash to pay the broker points and fees that the broker wants to charge at the closing. Typically, when a borrower pays a Yield Spread Premium it doesn't result in a huge increase in the interest rate, it's typically a quarter to a half a point.

VILES: And on the question of whether homebuyers really understand that they're paying this premium, well, brokers insist they do understand.

JOSEPH FALK, NAT'L ASSN. OF MORTGAGE BROKERS: My experience is the borrowers do in fact understand that brokers get paid either as a part of a broker fee or an origination fee and also, in most cases, there's an additional compensation called the Yield Spread, fully disclosed to the Good Faith estimate.

VILES: But critics say some buyers are simply getting ripped of by brokers who are looking for a bigger premium.

PEARCE: In many cases, in all too many case, a Yield Spread Premium is a fancy name for a kickback, that a mortgage lender will pay to the mortgage broker for putting the borrower into a loan that is more expensive than the loan they could actually qualify for. VILES (on camera): Now, the advice from the Mortgage Broker's Association, itself on this is kind of interesting. They say you should not rely solely on one mortgage broker to get a loan. They say you should shop around, go directly to banks and other lenders and get a total of four estimates before you choose one and close on the loan.

Peter Viles for CNN, Los Angeles.


WILLIS: It is trickier than you may think. When I applied for a mortgage recently my mortgage broker charge me a Yield Spread Premium, but she never volunteered the information, in fact, hi to ask her about it after reading the fine print in my mortgage documents. I suggest you do the same and don't be intimidated, negotiate any fee that you feel is unfair.

You've been putting it of long enough, Spring is here and you want to get your house in top shape, but you don't want to spend all day doing it. We're going to show you the easy way to get your Spring cleaning done, but first, the mortgage numbers.



WILLIS: Welcome back to OPEN HOUSE today we're talking about spring cleaning. I know two dirty words, but we have great ideas for you that will help you cut down your spring cleaning from two weeks to two hours, maybe even 15 minutes says Annemarie O'Neal from "Real Simple" magazine. Welcome.


WILLIS: OK, I hate cleaning. Not even spring cleaning, just picking up around the house. Not my favorite thing. Well, you've got some great ideas if you have even just 15 minutes to get started.

O'NEAL: There are things you can do in 15, 30 minutes, an hour. If you've got half a day you can use that too.

WILLIS: OK, let's say mother-in-law's coming over in 15 minutes. What should I do?

O'NEAL: You grab a laundry basket or else you grab a box you've got handy or a bag, clear the clutter. That's the first thing to do. So you put everything that's in your eyesight that shouldn't be there into that box and just put it away.

No. 2 is you want to do a general tidy up. We all know what this means. So, basically you fluff your pillows, you fold your throw rugs, just basically make everything look neat, and then you want to dust at high level and for that, there's this great product that's a microfiber cloth. If you've got time left over in your 15 minutes -- you can do this at well. Simple lint roller, grab the inside of your lampshades and stroke it down and you'll be surprised how much dust you get.

WILLIS: So much dust on those, yes. OK, what if I have 30 minutes?.

O'NEAL: If you have 30 minutes, you're not going have to add a lot of things. You've only have 15 extra minutes, so vacuum, hit the floors. It's really important to actually vacuum your carpets.


O'NEAL: Those dust particles over time can actually do damage to the fibers that are in your carpet, they can break them. And if you're got wooden floors getting dirt in between the grooves, that can do long-term damage.

WILLIS: Ruins the floors too, and then you have to pay the money to fix them up. OK, let's say I've got an hour, I've got a little bit more time, I can actually really focus in on this now. What do I do?

O'NEAL: Get you're vacuum cleaner, put on the attachment and go over the nitty-gritty corners where the coins and dust and the crumbs accumulate, get rid of all of that, really vacuum the surface and then flip the cushions when you put them back.

One of the things that's handy to do, rubber glove. Simple, you probably have one under your sink, dampen it, wipe it across your upholstery and it picks up your pet hairs.

If you've got curtains, close up the curtains, grab your vacuum attachment, up and down the curtains with that, open them up again and they look fine. If you have blinds, you can actually clean them with either your microfiber cloth or you can even just get something like a fabric softener sheet, which is another really good thing to have around the house, it picks up dirt really well.

WILLIS: Beautiful, so half a day. Let's say somebody took the kids away, the husband's somewhere else, you actually have a full half day, you want to clean. What do you do?

O'NEAL: OK, if you have a full half day, and it's the first one in ages is you should check in yourself if you actually want to clean.

WILLIS: I agree.

O'NEAL: But let's say you finally come around when you finally have the time to clean then this is what you add. You really clean the floors property. Roll up your rug, get to all the dirt and dust underneath. Make sure you get into the corners and the doorways, the high-traffic areas where dust and dirt builds up.

If you've got a lot of time to do your cleaning this is a handy little tool. Your basic Swiffer duster, but what it allows you to do is get to all those hard to reach places because you can get on top of all your window treatments and if you've got paintings and mirrors, you can get on top of those, as well.

WILLIS: Perfect. Annemarie, thanks for your help today.

O'NEAL: OK, you're welcome. Happy cleaning.


WILLIS: Well, I don't know about happy cleaning, but at least it's easier with some of these products. My favorite was the electronic, the e-tronic wipes. We have five computer screens in our homes, five CPUs, so it makes life just a little bit easier. So, hang out with us. Don't go away, I'll be back with my final tips on how you can save money at the gas pump, right after this.


WILLIS: Taking a road trip this summer is will really take a bite out of your budget. The Department of Energy said this week that gas prices will increase 25 cents a gallon this summer and in some markets folks will pay $3 a gallon. Now, to cut your costs, park your car in the shade.

This is true especially if your car is more than five years old. That's because the sun heats up the gas in your gas tank and it evaporates, plus parking in the shade also means you won't have to crank the air conditioner full blast when you get into the car.

You'll also want drop the bling. Spoilers on the back of the car have virtually no aerodynamic benefit. That's right. In pack, it could be a drag on the fuel conservation. And while a revved up sound system may be the range, removing the 50-inch subwoofer will lighten the load and your gas bill.

And finally, keep your cruising to the highway. Cruise control can help you save gas as long as you're on the flat highway and you can maintain speed, but if you're driving on a hilly terrain, cruise control will give you less bang for your buck. That's because the car will have to speed up faster to maintain the pre-set speed.

We want to hear from you, send us your comments, your questions to and you'll find more on today's guests and topic on our Web site

Thanks for watching OPEN HOUSE, we'll see you here next week. The day's top stories are next on "CNN SATURDAY." Have a great weekend.


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