Return to Transcripts main page

Open House

Last Minute Tax Tips; Mortgage Meltdown; Buy vs. Rent; Allergy Proof Your Home

Aired April 14, 2007 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

GERRI WILLIS, HOST: Good morning. I'm Gerri Willis, and this is OPEN HOUSE, the show that saves you money.
Coming up, I'll show you what kind of house $300,000 will get you across the country, and how to allergy-proof your home.

But first, the countdown to Tax Day. It's this Tuesday, April 17th. And we don't want to waste any time before getting to some last-minute advice to help you out.

Donna LeValley from J.K. Lasser has been here, well, for several weeks now helping us through tax season.

Good to see you, Donna.

DONNA LEVALLEY, J.K. LASSER: Nice to be back.

WILLIS: All right. Let's talk about filing an extension, because a lot of people out there are thinking, oh my goodness, I'm not ready for Tax Day.

How do you file an extension?

LEVALLEY: You can file online, you can file by paper. If you do the paper option, make sure you wait online, get that return receipt, so you have established that you filed for the extension. But it's really easy. It's Form 4686, and you get six months this time around. So October 15th would be your new filing date, but an extension to file isn't an extension to pay.

WILLIS: Exactly right.

Well, let's -- there is also, as we just showed, the credit card option, and I've got to tell you, that's not my favorite option, because you end up paying a lot of fees. In fact, the credit card company's going to charge you maybe as much as 2.5 percent of what you owe, and then you pay interest on top of that. Not really a good option.

LEVALLEY: Not the best option, but some people feel better owing a credit card company than the IRS, and it's more about a personal feeling. But it's true, they can't directly accept credit card payments, so you have to use a third party and they charge you that fee.

WILLIS: All right. So we were talking about the extension. You still have to pay. I mean, that's the secret that most people don't understand.

LEVALLEY: Right.

WILLIS: Even if you file that extension, you've still have got to pay the money. But there is a way out of the box if you can't pay it all right now. What is that?

LEVALLEY: That's an installment or an agreement. And they're very generous about setting them up as long as you can make your debts within five years, if you're willing to make sort of a monthly payment. If you have a direct debit, the fee will be $52. Otherwise, it's $105 to apply for these installment arrangements.

But if you owe less than $25,000, it's basically automatic. And this way you don't have to worry about the IRS coming after you, getting letters, or getting a garnishment. Take control of the situation.

WILLIS: Right. I think it's a great idea, and it's not hard at all to do. I know people are intimidated by that, but I've got to tell you, it's a piece of cake if you're really interested.

So what do you think about borrowing money to pay your tax liability? What's the best way to do it, Donna?

LEVALLEY: Well, it depends on who you're borrowing from. If you have friends, family who are willing to float you the loan, that's probably a good way to go, because the interest rate or no interest rate is probably going to be better than anything that you otherwise get.

However, the IRS charges competitive interest rates, so the interest on the underpayment, probably around 8 percent, 7 or 8 percent at the moment. So probably less than the credit card interest. It's really what your more personal -- what you're comfortable with, who do you prefer to owe.

WILLIS: OK.

Well, we talked to a few people out on the street to find out their questions for Donna. Let's go to the first one.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: The question for us was whether it was better to file jointly or separately, because I am married. So, you know, that's a little bit of difficulty because this is the first year.

(END VIDEO CLIP)

WILLIS: All right. So if you're getting married, what's best to do, jointly or filing separately?

LEVALLEY: Most people benefit from joint filing. Basically, the income averaging effect actually helps people, saves money on taxes. However, if you file separately for a few reasons -- say, for instance, you have lots of medical expenses. If you file separately, it's probably easier to get up to that -- get over that 7.5 percent threshold you need to take those types of deductions. But filing separately usually disqualifies you from taking a number of credits and deductions, like the child tax credit.

WILLIS: OK.

LEVALLEY: So you really need to think about it. In a lot of ways you could hurt yourself, but you need to run the numbers to really know which works best for you.

WILLIS: It's always the devil's in the details.

We've got another question for you. Let's see that.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: I'm curious if there is any type of benefit from having a home office and having a not-for-profit company?

(END VIDEO CLIP)

WILLIS: That's interesting. You know, more than 11 million people are self-employed, and they're always wondering, what kind of tax benefits are out there for me?

LEVALLEY: A home office is terrific. Basically, take the percentage of the space that you devote to the home office, and those are going to be your deductions -- electric, heat, repairs, that sort of thing. Just keep really good records, and make sure that you have a separate phone line for the home office. You can't make an allocation for the phone -- for the phone calls.

So that's probably what you really want to do, is just keep good records and take the deduction if it's legal. Most people are afraid.

WILLIS: Right.

LEVALLEY: Most people are afraid. It's been a red flag for a lot of years, but it's a perfectly great deduction and a really great way to lower your tax bill.

WILLIS: Well, Donna, you're a great way to lower our tax bill. Thanks so much for your help. We appreciate it.

LEVALLEY: Thanks for having me.

WILLIS: From the upcoming tax deadline to the mortgage meltdown.

We first took you to Greeley, Colorado, six months ago. That town saw foreclosure rates rise to the highest levels in the country, and a full real estate recovery, well, it's still way off. But folks there aren't taking the setback lying down. They're stepping up to find solutions. (BEGIN VIDEOTAPE)

WILLIS (voice over): Greeley, Colorado, an all-American city. Manicured lawns, white picket fences. But for a growing number of residents in this community, the dream of homeownership has been shattered.

MATT REVITTE, COLORADO REALTOR: Probably the elements of the perfect storm took place. We had five years where we had healthy appreciation by county standards, and many of these homeowners, unfortunately, use their house as an ATM, and...

WILLIS (on camera): How so?

REVITTE: Well, they would refinance every -- every year or two and pull out their equity. Oftentimes, they would do it with an adjustable-rate mortgage. And when that did adjust and their wages had not gone up to compensate for that increase, they got stuck.

WILLIS (voice over): Stuck ultimately led to foreclosure for one in every 200 Greeley households in February. Countywide last year it was one in every 37.

And on this street, it seems like every other home.

(on camera): There are a lot of houses here. 1018, for example, a lot of houses on this street that are actually in foreclosure.

(voice over): Across town it's the same grim story.

(on camera): Dottie Chrispen has called this house her home for three decades. Today she is packing up a lifetime worth of memories.

Do you think you're going to make your deadline?

DOTTIE CHRISPEN, LOSING HER HOME TO FORECLOSURE: I don't think so. It's going to be touch-and-go. If I can get them to extend it -- I don't think I will be able to, though. Just not enough time and too much to move.

WILLIS (voice over): Colorado led the nation in foreclosures nine out of 12 months last year and is now leading the way in prevention efforts. A foreclosure hotline, the first of its kind, connects homeowners with local counselors.

UNIDENTIFIED FEMALE: Thank you for calling the Colorado Foreclosure Prevention Hotline.

WILLIS: Twelve thousand calls have poured in over the first six months. The results -- four out of five people who met with a hotline counselor avoided foreclosure, according to a newly-released report by the Colorado Division of Housing by getting help working with lenders to restructure their debts. The help can't come soon enough.

REBECCA SAFARIK, COMMUNITY DEVELOPMENT DIRECTOR: For Greeley, I think we're seeing probably the worst of it right now. We sort of feel like we're moving towards the peak. In terms of perspective of how many homes are on the market, we've never seen a higher foreclosure rate.

CHRISPEN: Find out if we could have it at least until noon or later tomorrow. Other than that, I don't know. I know we're not going to be able to get it all out.

WILLIS: Like many homeowners struggling to avoid foreclosure, time ran out for Dottie. She lost her home and is moving to a much smaller rental.

CHRISPEN: I was a farm and ranch girl, and out in the fields all the time. And I don't know that much about any of this stuff. But I'm learning, slow but sure.

(END VIDEOTAPE)

WILLIS: As always, we'll continue to cover the mortgage meltdown in Greeley and the rest of the country.

Still ahead on OPEN HOUSE, should you buy a home right now or should you rent? We'll break it down for you.

And get rid of the sneezing, the coughing, the itchy eyes. We're going to show you how to allergy-proof your home.

But first, your "Tip of the Day".

(BEGIN VIDEOTAPE)

WILLIS (voice over): Before you file those taxes, keep this in mind: if you own a phone, landline, wireless or Internet, you're entitled to at least $30 back from Uncle Sam. The one-time refund is payback for an old telephone excise tax the government has been making people pay for a century. You can get up to $60 for families of four or more.

Simply find the line on your 1040 and collect what's due to you. All in all, the government is expected to refund about $10 billion.

That's your "Tip of the Day".

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: Well, getting into the heart of buying and selling season with clouds, frankly, on the horizon. The National Association of Realtors is now predicting its first annual home price drop in the country ever.

So, when it comes right down to it, should you buy a home right now or ride it out and rent? Mark Zandi is with MoodysEconomy.com, and he's in our Washington bureau today.

Mark, good to see you. MARK ZANDI, CHIEF ECONOMIST, MODDYSECONOMY.COM: Thanks for having me, Gerri.

WILLIS: All right, so explain this to me. The National Association of Realtors comes out and says that this year, 2007, prices are going to drop, but only a couple months ago they said they will actually rise this year.

What gives?

ZANDI: Well, I think the problems in the mortgage market caused them to change their mind. They're a little bit slow -- you know, they're on the optimistic side -- but now I think they're more consistent with what all of us have been saying for quite some time.

WILLIS: Yes. And that whole mortgage crisis, the subprime problem, of course, also adding fuel to the fire here.

ZANDI: Yes, that's a real problem. A lot fewer people will be able to get credit, and there will be more foreclosures, which is also going to weigh on prices.

WILLIS: All right. Well, speaking of prices, let's talk about why you might buy in this market environment. I mean, first off, prices are going down, you could get a real deal here, right?

ZANDI: You could. I think you need to be patient. You need to negotiate.

I don't think I would jump into anything, but I think I would be out there looking, waiting, and just getting a sense of when the bottom is really at hand. And then I would jump in.

WILLIS: And there are tax breaks, of course.

ZANDI: There is. There are people who itemize, and for those folks, they get that mortgage interest deduction.

You know, it is important, though, that you should check to see whether this is an advantage to you. For many people, it is not.

WILLIS: And the rents are going up right now. I mean, if you are considering buy or rent.

ZANDI: They are. Landlords have a bit more pricing power because fewer people are now owning homes and are back to renting. And so we have seen rents begin to pick up.

So this rent/buy decision, which has clearly been in the favor of renting, is still in favor of renting, but a little less than it was in the past. And I suspect a year or two down the road it will be a good time to buy.

WILLIS: So, Mark, you've done some really interesting analysis looking at markets that are good to rent in, markets that are good to buy in. Let's look at the list of markets where it's probably wise to rent right now.

How did you come up with the list? You have got Los Angeles, northern California, a bunch of cities here. What was the primary element that would make these really great rental markets?

ZANDI: Well, we looked at rents and how high they are and how they have changed. And we have looked at house prices and the cost of getting a mortgage, and totaled up all the property taxes involved, the maintenance, the insurance costs, tried to consider the investment returns if you don't buy and you use that extra money to invest somewhere else.

Tried to look at this in a broad, consistent way, and in some of those markets you mentioned, like L.A. and Miami, Boston, it's still -- under most assumptions it makes sense to rent.

WILLIS: Right. OK. Let's talk more about that argument for renting.

Why would you rent in this market? Prices, it cuts two ways. They're headed lower now, right? You could be buying, you know, and we haven't even hit the bottom here.

ZANDI: Yes, that's the problem, and I don't think we have hit bottom. I think we will see prices lower a year from now in places like San Diego, in Phoenix, in Vegas, in Miami and Orlando and Washington, D.C., and Boston. And so why buy now when in all likelihood prices are going to be lower six, 12, 18 months from now?

WILLIS: Mark, thanks so much for your help today. We appreciate it.

ZANDI: Thank you.

WILLIS: Still ahead, $300,000 can buy a lot, but what kind of home can it buy you? We'll take a look.

And learn how to take the allergies out of your home without hiring a professional.

But first, your mortgage numbers.

(COMMERCIAL BREAK)

WILLIS: We are several weeks into spring, and for millions of Americans, that means sneezing, sniffling and runny noses. Now, if you have allergies like I do, the last place you might want to be is outdoors, but as author Donna Smallen shows us, it's about the inside of the house when it comes to avoiding allergies.

(BEGIN VIDEOTAPE)

WILLIS: Let's start in the bedroom. Let's talk a little bit first, though, about the allergens that you find in the home. What are the most common ones? DONNA SMALLEN, AUTHOR: Well, of course, you have dust, we all have a lot of dust. And pet dander if you've got pets. Our human dander as well.

WILLIS: Human dander? What is that?

SMALLEN: Yes. We're shedding skin all the time.

WILLIS: So we can be learn allergic to ourselves?

ZANDI: Well, it's possible. And then also the big one is dust mites.

WILLIS: Dust mites. Now, I read somewhere that there are two million dust mites in the average bed. Can you believe that?

ZANDI: That doesn't surprise me at all, yes. And we don't think about that. And really, the simplest cure for it is to wash the linens on a regular basis, in very, very hot water.

WILLIS: OK. Let's do some laundry.

So, Donna, we talked about the bedroom being a breeding ground for dust, but so is the living room.

ZANDI: Oh, sure, throughout the whole house.

WILLIS: One of my big problems as always, it seems like I'm only moving the dust around, I'm not really getting rid of it. It's sort of flying up in the air.

ZANDI: I use a micro fiber cloth. I love these because it's an electrostatic...

WILLIS: It's wet.

ZANDI: Yes. Well, I wet it because, if you dampen the cloth off -- and I wring it out practically dry, really -- then you won't be stirring up all of the dust into the air as you are dusting.

WILLIS: That's great.

ZANDI: Everything just collects right on the cloth.

WILLIS: And you don't move that dust around, because that's really bad for people who do have allergens.

ZANDI: Sure. You should wear a mask so you can protect yourself from inhaling the dust.

WILLIS: This is the pet allergen problem in my household. My husband is allergic to dogs. Is there anything you can do to reduce pet dander so that maybe he could live with one?

ZANDI: If you frequently bathe your dog at least once a week and do vacuuming three times a week, and also try to keep your animal off the furniture, if you can. If you can't, then you need to vacuum the furniture regularly as well.

WILLIS: So, Donna, some people react to toxins in household cleaners the same way they react to allergens.

ZANDI: Yes. You can be allergic to cleaning supplies.

What I like are homemade solutions. There are a lot of things you can find in your pantry -- like vinegar, baking soda, peroxide, that you can use in cleaning. And in the bathroom, one of my favorites is vinegar.

If you want to clean your toilets, this is the best way. Pour about a cup in the toilet bowl and then let it sit overnight. And then in the morning all you have to do is brush and flush.

WILLIS: So you have a great, natural idea, a natural solution, really, for cleaning a cutting board?

ZANDI: Yes, you can use a mixture of hydrogen peroxide and vinegar. And what you do is first spray the surface with a mist of vinegar, and then follow with a mist of hydrogen peroxide. You let that sit just for a couple of minutes, wipe it down with a paper towel. And what I like about that is you just throw the paper towel and the germs right away.

WILLIS: What about lemons?

ZANDI: Lemons are great. They're a natural sanitizer, and they smell good. So that's always nice in the kitchen.

Cut the lemon -- I sometimes use old lemons for this. Just throw them in the garbage disposal and let it run. It really smells nice and it cleans it out good.

(END VIDEOTAPE)

WILLIS: I love that dog.

As always, if you have an idea for a "Weekend Project," send us an e-mail to openhouse@cnn.com. And if you want to check out this "Weekend Project" again, check out our Web site, cnn.com/openhouse.

Coming up on OPEN HOUSE, find out what type of home $300,000 can buy you from coast to coast.

But first, as the tax deadline draws near, a look at what your state might be forking over to Uncle Sam in this week's "Local Lowdown".

(BEGIN VIDEOTAPE)

WILLIS (voice over): All those taxes you pay really add up.

California's contribution, sitting pretty at number one, paying $111 billion last year, more than 6 percent of the nation's total. In second place, New Yorkers, paying less than half that, $55 billion. Holding court in the middle at number 25, Alabama, at $9 billion. And the state that ponies up the least, South Dakota, just over $1 billion, adding up to a 2006 grand total of $706,334,000,000.

Well, you get the point.

That's your "Local Lowdown".

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: Three hundred thousand dollars is a lot of money, more than the median home price. But just how much house can you buy in Miami, Detroit, Los Angeles?

CNN's Chris Lawrence hit the road to find out.

(BEGIN VIDEOTAPE)

CHRIS LAWRENCE, CNN CORRESPONDENT (voice-over): We start our search in sunny south Florida with a single mom and first-time buyer.

DORIS CHIRINOS, FIRST-TIME HOME BUYER: After working so hard, I think I deserve it.

LAWRENCE: Doris Chirinos sees a three bedroom townhouse 20 miles from the ocean. For about the same price she can afford a two bedroom condo two blocks from the beach.

CHIRINOS: This is the range that I can pay for, $300,000.

LAWRENCE: But look what that same money gets you in suburban Detroit, four bedrooms on half an acre.

DAWN MUELLER, REALTOR: That is quite a lot for this area.

LAWRENCE: You don't get this kind of room in Florida.

MUELLER: Oh, no and certainly not in LA.

LAWRENCE: Realtor Dawn Mueller showed us a seven-year-old home with a classic front porch and a corner house with 2,600 square feet.

MUELLER: I believe this area was selling right around the $320, $325 range a couple of years ago and this house is priced at $280,000 now.

LAWRENCE: Even with everything upgraded she would only offer $240,000.

MUELLER: And if they don't take it, we'll walk away and we'll do it to the next house, 26 houses in that subdivision, someone is ready to move.

LAWRENCE: And so are we, on to LA.

AMBER KRISTIN, REALTOR: We're going to see a condo, which is a one bedroom, one bath, about 650 square feet.

LAWRENCE: Open spacing. Wood floors in the heart of West Hollywood, then an even smaller studio at the base of the Hollywood hills. Kitchen's pretty small.

KRISTIN: It is a small kitchen. Functional, but small and you could reach it from the bedroom.

LAWRENCE: Realtor Amber Kristin says Korea town gets a little less expensive. Still a one bedroom but with upgrades and a walk-in closet.

KRISTIN: For the price, $279,000. If you want to live in LA, that's pretty darn good. You're not going to get much better than that.

LAWRENCE: So you can live the glamorous life, walk to a Florida beach or spread out in suburban Detroit. Look what 300 grand will get you.

Chris Lawrence, CNN.

(END VIDEOTAPE)

WILLIS: All right. Home prices, of course, change, and they do fluctuate wildly from city to city and state to state, as you just saw. If you want to check out home prices in a particular area, log on to cnnmoney.com.

Now that you know what your money will get you, it's important to figure out just how much you can afford. First of all, you need to estimate how much money you can spend each month on your mortgage.

Take into account your gross monthly income, housing expenses, and any long-term debt like student loans.

Go to cgi.money.com and bankrate.com to crunch the numbers.

A rule of thumb, your mortgage payments should not be more than 28 percent of your salary before taxes.

Take a close look at your lifestyle, standard of living, and spending habits to make sure that your monthly mortgage payment won't be beyond your means. Think about how long you expect to be in the home and pick a loan with a fixed rate.

In this market right now, well, you'll probably want to look at a fixed-rate mortgage. Once you have an idea of how much of a mortgage you can afford, shop around and compare mortgage rates and terms that lenders offer.

Thanks so much for watching. OPEN HOUSE will be back next week right here on CNN. You can catch us on HEADLINE NEWS every Saturday and Sunday at 5:30 p.m. Eastern Time.

Don't go anywhere. Your top stories are next in the CNN NEWSROOM.

Have a great weekend.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.voxant.com