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Guide to Managing Finances for Deploying Service Members
Life in the military offers some distinct experiences compared to civilian life, and that includes your budget and finances. The pre-deployment process can feel overwhelming, especially when youâre organizing your money and bills.Â
Itâs important you provide your family with everything they need to keep you and any dependents comfortable and stable. This means gathering paperwork, making phone calls to service providers, creating new budgets, and organizing your estate. The more you prepare ahead of time, the less you have to worry about the state of your investments and finances when you return home.Â
To help make the process easier, weâve gathered everything you need to know for deployment finances. Read on or jump to a specific category below:
Pre-Deployment Needs
- Review Your Estate
- Reassign Financial Responsibilities
- Update Your Services
- Build a Budget
- Prepare a Deployment Binder
Deployment Needs
- Protect Yourself From Fraud
- Adjust Your Savings
- Financial Assistance
Post-Deployment Needs
- Update Your Budget
- Pay Off Debt
- Review Legal Documents
Before Your Deployment
Thereâs a lot of paperwork and emotions involved in preparing for deployment. Make sure you take plenty of time for yourself and your loved ones, then schedule time to organize your finances for some peace of mind.Â
investments, and dependents. Itâs an important conversation to have with your partner and establishes:
- Power of attorney
- Living will
- Last will and testament
- Long-term care
- Life insurance
- Survivor benefits
- Funeral arrangements
Anyone with property, wealth, or dependents should have some estate planning basics secured. These documents will protect your wishes and your family in the event you suffer serious injury. There are several military resources to help you prepare your estate:
- Defense Finance And Accounting Servicesâ Survivor Benefit Plan and Reserve Component Survivor Benefit Plan
- Department Of Defenseâs Military Funeral Honors Pre-arrangementÂ
- Service Memberâs Group Life Insurance
- Veterans Affairs Survivorâs Benefits
- The Importance Of Estate Planning In The Military
- Survivor Benefits Calculator
Servicemembers Civil Relief Act (SCRA) allows you to cancel a housing or auto lease, cancel your phone service, and avoid foreclosure on a home you own without penalties. Additionally, you can reduce your debt interest rates while youâre deployed, giving you a leg up on debt repayment or savings goals. Learn more about the SCRA benefits below:
- Terminating Your Lease For Deployment
- SCRA Interest Rate Limits
- SCRA Benefits And Legal Guidance
Build a Deployment Budget
Your pay may change during and after deployment, which means itâs time to update your budget. Use a deployment calculator to estimate how your pay will change to get a foundation for your budget.Â
Typically, we recommend you put 50 percent of your pay towards needs, like rent and groceries. If you donât have anyone relying on your income, then you should consider splitting this chunk of change between your savings accounts and debt.Â
Make sure you continue to deposit at least 20 percent of your pay into savings, too. Send some of this towards an emergency fund, while the rest can go towards your larger savings goals, like buying a house and retirement.Â
Use these resources to help calculate your goals and budgets, as well as planning for your taxes:
- My Army Benefits Deployment Calculator
- My Army Benefits Retirement Calculator
- Mint Budget Calculator
- IRS Deployed Veteran Tax Extension
- IRS Military Tax Resources
- Combat Zone Tax Exclusions
Prepare a Deployment Binder
Itâs best to organize and arrange all of your documents, information, and needs into a deployment binder for your family. This will hold copies of your estate planning documents, budget information, and additional contacts and documents.Â
Make copies of your personal documents, like birth certificates, contracts, bank information, and more. You also want to list important contacts like family doctors, your petâs veterinarian, household contacts, and your power of attorney.Â
Once you have your book ready, give it to your most trusted friend or family member. Again, this point of contact will have a lot of information about you that needs to stay secure. Finish it off with any instructions or to-dos for while youâre gone, and your finances should be secure for your leave.Â
While Youâre Deployed
Though most of your needs are taken care of before you deploy, there are a few things to settle while youâre away from home.Â
Romance and identity scams are especially popular and can cost you thousands.Â
- Social Media Scams To Watch For
- Romance Scam Red Flags
- Military Scam Warning Signs
Adjust Your SavingsÂ
Since you wonât be responsible for as many bills, and you may have reduced debt interest rates, deployment is the perfect time to build your savings.
While youâre deployed, you may be eligible for the Department of Defenseâs Savings Deposit Program (SDP), which offers up to 10 percent interest. This is available to service members deployed to designated combat zones and those receiving hostile fire pay.
Military and federal government employees are also eligible for the Thrift Savings Plan. This is a supplementary retirement savings to your Civil Service Retirement System plan.
- Savings Deposit Program
- Thrift Savings Plan Calculator
- Civil Service Retirement System
- Military Saves Resources
Additional Resources for Financial Assistance
Deployment can be a financially and emotionally difficult time for families of service members. Make sure you and your family have easy access to financial aid in case they find themselves in need.Â
Each individual branch of the military offers its own family and financial resources. You can find additional care through local support systems and national organizations, like Military OneSource and the American Legion.Â
- Family Readiness System
- Navy-marine Corps Relief Society
- Air Force Aid Society
- Army Emergency Relief
- Coast Guard Mutual Assistance
- Military Onesourceâs Financial Live Chat
- Find Your Military And Family Support Center
- Emergency Loans Through Military Heroes Fund Foundation Programs
- The American Legion Family Support Network
After You Return Home
Coming home after deployment may be a rush of emotions. Relief, exhaustion, excitement, and lots of celebration are sure to come with it. Thereâs a lot to consider with reintegration after deployment, and that includes taking another look at your finances.Â
Update Your Budget
Just like before deployment, you should update your budget to account for your new spending needs and pay. Itâs time to reinstate your car insurance, find housing, and plan your monthly grocery budget.Â
After a boost in savings while deployed, you may want to treat yourself to something nice â which is totally okay! The key is to decide what you want for yourself or your family, figure if itâs reasonable while maintaining other savings goals, like your rainy day fund, and limit other frivolous purchases. Now is not the time to go on a spending spree â itâs best to invest this money into education savings, retirement, and other long-term plans.
In addition to your savings goals, make sure youâre prepared to take care of yours and your familyâs health. Prioritize your mental health after deployment and speak with a counselor, join support groups, and prepare for reintegration. Your family and children may also have a hard time adjusting, so consider their needs and seek out resources as well.Â
FTC | NFCCÂ
The post Guide to Managing Finances for Deploying Service Members appeared first on MintLife Blog.
Source: mint.intuit.com
Romance and identity scams are especially popular and can cost you thousands.Â
FTC | NFCCÂ
Set Financial Goals for Yourself
Everyone wants to have more money, less debt, and greater financial freedom, but very few will attain it. Simply telling yourself that youâll earn more cash and clear more debts isnât enough to realize those goals, but writing those tasks down, setting realistic targets, and steadily working towards them can significantly increase your chances.Â
Nothing is guaranteed, but someone with clearly defined financial goals has more chances of attaining financial freedom than someone without.
Types of Personal Financial Goals
Financial goals come in many forms, but they all revolve around money and acquiring as much of it as possible. Some of the most common short and long-term goals include:
Establish a Budget
The first step to fixing your finances is to create a budget. Itâs a short-term goal and itâs also one of the simplest, but that doesnât make it any less important. Many Americans underestimate how much they spend and overestimate how much they earn, making a budget essential for adding a little clarity.
Clear Credit Card Debt
Americans have an average of $38,000 worth of debt excluding mortgages. A small percentage of this is allocated to credit card debt, but it often carries the highest interest rate and has the worst terms. Clearing this debt is an honorable and sensible goal for anyone with mounting debts.
Save Money for a Big Purchase
The average American family under the age of 35 has between $2,500 and $4,000 in savings. Thatâs barely enough to cover a used car, let alone a mortgage down payment or college education, which is what most families are saving towards.
Save for Retirement
This is the ultimate long-term financial goal. Saving for your retirement will give you something to look forward to and make life easier as you enter your old age. Many retired Americans regret not saving more money, with some experts recommending that you have at least $1 million tucked away to cover you for an average of 18 years.
Thatâs a lot of money, but it comes from a lifetime of saving and means you can enjoy plenty of cruises and vacations when you call time on your career.
Fix your Credit Score
Next to your Social Security Number, your credit score is one of the most important numbers you have and one you need to pay close attention to. Build a good score and a world of opportunities will open for you, making it easier to get low-interest loans and secure high credit limits.
Create an Emergency Fund
You can never underestimate the benefits of an emergency fund. Itâs essentially a savings account without an end goal and itâs used to cover you in the event that youâre hit with an unexpected bill or expense. It will also help if you lose your job or become ill.
Improve your Financial Situation
This incorporates many of the goals discussed above, one can be both a short-term financial goal and a long-term one. The most common goal is simply to have more money for an easier life or an early retirement, but there are also those who save so they can move abroad, start a dream business or simply become a millionaire.
These goals are a little harder to achieve than simply clearing debt or have some extra money in your pocket, but theyâre not unreasonable. If you have a detailed plan and work hard to realize it, thereâs no reason why those lofty long-term financial goals canât be realized.
Why Should You Set Personal Financial Goals?
Goals give you direction and purpose. They provide a detailed outline of what you need to do, what you have achieved thus far, and what remains. This adds a sense of accountability that simply wouldnât exist without those goals.
If you simply tell yourself that youâre going to do something, youâre more prone to procrastinating and moving the goalposts whenever it suits you. If you write all your goals down and separate them into clear and manageable chunks, thereâs no room for denial or deviation.
Think of it as a visit to the grocery store. If you have a list, you buy what you need, donât forget anything, and are more inclined to focus on the purchases that are within budget and will actually be eaten and enjoyed. If you visit without a list, youâll end up with a bunch of unnecessary foods you bought just because they were on offer and will forget all the things you went there to buy.
Our minds need direction, purpose. When the road is long, itâs easier to traverse if there are milestones, checkpoints, and clearly defined borders; without all that, itâs just a chaotic mess and youâll never make it to the end.
Short vs Long-Term Goals
A short-term goal spans days, weeks or months; a long-term goal stretches things out over several years and even a decade. Itâs important to have both, but short-term goals should have priority as long-term ones can get lost and forgotten about.
As an example, letâs suppose that your goal is to save a lot of money for your retirement. A long-term goal would be as simple as:
- Save $500,000 before retirement
This doesnât really help. However, if you break it down into multiple short-term goals you can focus on each of these in turn, ticking them off as you go and motivating you to keep going. As an example:
Increase Debt-to-Income Ratio
- Cancel unused subscriptions
- Sell unwanted items
- Ask for a pay rise
- Get a part-time job
Repay Debts
- Clear credit card 1
- Clear credit card 2
- Repay student loans
- Repay personal loan
Save Money
- Open a savings account
- Save $500 a month
- Make a sound investment
You can break these debts down even further and focus on making extra cash every single day. If thatâs what gets you up in the morning and pushes you towards your long-term goal, thatâs what you need to do.
How to Track Your Progress
As the saying goes, there is an app for everything and where financial goals are concerned there are actually multiple tools and apps to help you out:
- Mint: Track activity in real-time after connecting bank accounts and credit cards. Monitor spending, create budgets, and learn how to manage your money. Mint is one of the highest-rated budgeting and financial management apps on the market and is well-deserving of the praise it has received over the years.
- Wally: A great little budgeting tool that can keep track of your savings goals and tell you when certain bills are due. Itâs free and if your goal is to save and cover your debts, it does everything you need.
- Every Dollar: A simple but useful app designed to help you escape debt and manage your finances more effectively. It literally lets you see where âevery dollarâ is being spent.
- Clarity Money: A useful app to help you manage your subscriptions. The average consumer has dozens of subscriptions and itâs easy to lose track, but Clarity Money keeps everything in one place.
- Spendee: Manage family finances with this shared budgeting app. Itâs ideal if youâre saving along with a partner or want to keep track of what everyone in your household is spending.
How to Meet Your Financial Goals
Whateverâs on your to-do list, just set a goal and start working towards it. Take a look at these tips to help you:
Debt EliminationÂ
Debt is crippling and the less you repay, the more damaging it becomes. Credit card debt, student loans, medical debt; it creeps into your life, it grows, and it never seems to go away. Before you focus on your savings and build towards a brighter future, you need to focus on clearing those debts.
Debt relief methods can help you with this, including consolidation, debt management, and debt settlement. In the first instance, however, you should try debt payoff strategies like Debt Snowball and Debt Avalanche, both of which rely on you generating extra money to meet more than your minimum.
Every time you meet the minimum payment on your debt, youâre paying a lot of interest and a little principal. The interest compounds, the debt grows, and if you keep sticking with just the minimum payments it will take forever to repay. When you repay more than the minimum, however, youâll clear more of the principal, reducing the compounding interest, amount, and term.
Emergency FundÂ
It doesnât matter how substantial your net worth is, how much money you have in the bank and what sort of long-term financial goals you have, it always helps to have an emergency fund.
An emergency fund is a sum of money put aside for a rainy day. Unlike a savings account, which might be used for retirement, a vacation or college tuition, an emergency fund has no predetermined purpose and is designed just to sit, grow, and wait for a rainy day.
An emergency fund can help you if you lose your job or have a medical crisis. We live in times of uncertainty and exist under one of the costliest healthcare systems in the world. A short stay in a hospital can bankrupt you if youâre not insured and even if you are, there are still costs to consider.
Budget to save and invest but keep some money aside to build an emergency fund and make sure youâre prepared.
Savings Goals
Successful savings goals are built on careful planning and sacrifices. If you want a new home, you need to say no to luxury purchases, eating out, vacations, and other expenditures.Â
The average American family wastes about $1,500 a year on uneaten groceries, $3,000 on restaurants and takeout, up to $500 on gambling, and thousands more on vacations, smoking, unused subscriptions, and more.
You donât need to eliminate these expenditures entirely, just look for cheaper and more sustainable alternatives. Save on wasted groceries and dining out by going for a picnic; swap an expensive vacation abroad for a family fun staycation.Â
Once you eliminate these expenses, you can start saving towards whatever goal you have, be it a retirement fund, a car or the down payment on a house.
Achieving a Huge Net Worth
Itâs okay to scoff at this one as it does seem a little far-fetched. However, itâs a dream that countless Americans have and one that is very attainable. Of course, itâs easier if you have a talent or youâre young enough to develop one, but providing you have a good work ethic, donât spend your days procrastinating, and have the right mindset, you can build a sizeable net worth.Â
Itâs about making smart financial decisions, acquiring lots of knowledge, adopting careful investment strategies, and working endlessly. Here are some tips to help you accomplish this lofty goal:
Donât Spend Frivolously
The world of the rich and famous is awash with stories of people who adopt unbelievably frugal lifestyles despite having millions or billions in the bank. There are stories of Warren Buffet going to great lengths to use coupons to buy fast food, even though heâs one of the richest men in the world.
This kind of frugality is a little extreme, but it comes from the right place. Rappers, rock stars and sports stars like to throw money around when they have it, but theyâre the ones declaring bankruptcy and being arrested for tax debts when their careers enter a slump. Thatâs not a sustainable lifestyle for anyone, even the super-rich.
Learn how to manage money properly and accumulate as much as you can. Donât scoff at the end of saving a few dollars just because you have a few hundred; donât throw away a few hundred just because you have a few thousand.Â
Adopting this frugality will hasten your journey to becoming a millionaire. It will also allow you to manage your money effectively when you eventually make it, preventing you from being one of many sob stories of people who came into lots of money and then blew it.
Treat Life Like a Business
To become rich and successful in a way that doesnât rely on good fortune, you need to treat your life like a business. A business, for instance, is very wary of accumulating expenses and will instead try to invest additional cash into assets. These assets increase the value of the business, whereas expenses reduce it.
As an example, letâs assume that youâre 18 and have a talent for writing. A good investment would be an education in literature or creative writing, a laptop, a writing course, even a home office. An expense, however, would be a holiday, a flashy watch or lots of designer clothes. None of these things will grow your wealth and most will hinder it.
Take a look at our guide on good debt vs bad debt to learn more.
Read, Learn, Fail
Read as many books as you can on your chosen subject and on similar subjects. Youâll learn about the world, the English language, and more. All these will help to improve your reasoning, logic, and knowledge, which will help with your goals.
Learn New Skills
Knowledge doesnât just come from books and it shouldnât be limited to specific subjects. If you want to be rich and successful, you need to devote every minute of your spare time to working, learning, and acquiring new skills.Â
Learn a language, adopt a craft, research into a niche subjectâall these things can broaden your horizons and increase your earning potential.
Find a Specialty and Stick with It
While itâs good to read many different subjects and learn many different things, when it comes to actually making money, you need to stick with a single subject. The world is filled with wannabee millionaires who spend their days writing music, books, and screenplays, and their nights trying to juggle freelance careers and businesses.
Specialize in one thing, be the best you can be, and once you have the money and the success you can start venturing into other areas.
Stop Making Excuses
Generally, people who dream of becoming rich and successful will fall into one of two categories. In the first, there are those who spend their days dreaming, partying, and procrastinating. They assume that being rich is simply a case of having a great idea and then waiting for the riches to descend. In the other group, youâll find people who work every minute of the day and are always willing to take risks and make sacrifices.
If you want to accomplish great things, you need to work for it. Donât assume that all the rich and successful people you see on social media have it easy. If theyâre not working every minute of every day, thereâs a good chance they worked that much to get where they are.
Set Financial Goals for Yourself is a post from Pocket Your Dollars.
Source: pocketyourdollars.com
Repossession Credit Scores: What You Need to Know
One of the harsh truths of secured loans is that your asset can be repossessed if you fail to make the payments. In the words of the FTC, âyour consumer rights may be limitedâ if you miss your monthly payments, and when that happens, both your financial situation and your bank balance will take a hit.
On this guide, weâll look at what can happen when you fall behind on your car payments, and how much damage it can do to your credit score.
What is a Car Repossession?
An auto loan is a loan acquired for the sole purpose of purchasing a car. The lender covers the cost of the car, you get the vehicle you want, and in return you pay a fixed monthly sum until the loan balance is repaid.
If you fail to make to make a payment or youâre late, the lender may assume possession of your car and sell it to offset the losses. At the same time, they will report your missed and late payments to the main credit bureaus, and your credit score will take a hit. Whatâs more, if the sale is not enough to cover the remainder of the debt, you may be asked to pay the residual balance.
The same process applies to a title loan, whereby your car is used as collateral for a loan but isnât actually the purpose of the loan.
To avoid repossession, you need to make your car payments on time every month. If you are late or make a partial payment, you may incur penalties and itâs possible that your credit score will suffer as well. If you continue to delay payment, the lender will seek to cover their costs as quickly and painlessly as possible.
How a Repossession Can Impact Your Credit Score
Car repossession can impact your credit history and credit score in several ways. Firstly, all missed and late car payments will be reported to the credit bureaus and will remain on your account for up to 7 years. They can also reduce your credit score.Â
Secondly, if your car is repossessed on top of late payments, you could lose up to 100 points from your credit score, significantly reducing your chances of being accepted for a credit card, loan or mortgage in the future.Â
And thatâs not the end of it. If you have had your car for less than a couple of years, thereâs a good chance the sale price will be much less than the loan balance. Car repossession doesnât wipe the slate clean and could still leave you with a sizable issue. If you have a $10,000 balance and the car is sold for $5,000, you will owe $5,000 on the loan and the lender may also hit you with towing charges.
Donât assume that the car is worth more than the value of the loan and that everything will be okay. The lender isnât selling it direct; they wonât get the best price. Repossessed vehicles are sold cheaply, often for much less than their value, and in most cases, a balance remains.Â
Lenders may be lenient with this balance as itâs not secured, so their options are limited. However, they can also file a judgment or sell it to a collection agency, at which point your problems increase and your credit score drops even further.
How Does a Repo Take Place?
If you have a substantial credit card debt and miss a payment, your creditor will typically take it easy on you. They canât legally report the missed payment until at least 30-days have passed and most creditors wonât sell the account to a collection agency until it is at least 180-days overdue.
This leads many borrowers into a false sense of security, believing that an auto loan lender will be just as forgiving. But this is simply not true. Some lenders will repo your car just 90-days after your last payment, others will do it after 60 days. They donât make as many allowances because they donât need toâthey can simply seize your asset, get most of the money back, and then chase the rest as needed.
Most repossessions happen quickly and with little warning. The lender will contact you beforehand and request that you pay what you owe, but the actual repo process doesnât work quite like what you may have seen on TV.Â
Theyâre not allowed to break down your door or threaten you; theyâre not allowed to use force. And, most of the time, they donât need to. If they see your car, they will load it onto their truck and disappear. Theyâre so used to this process that they can typically do it in less than 60-seconds.
It doesnât matter whether youâre at home or at workâyou just lost your ride.
What Can You Do Before a Repo Hits Your Credit Score?
Fortunately, there are ways to avoid the repo process and escape the damage. You just need to act quickly and donât bury your head in the sand, as many borrowers do.
Request a Deferment
An auto loan lender wonât waste as much time as a creditor, simply because they donât need to. However, they still understand that they wonât get top dollar for the car and are generally happy to make a few allowances if it means you have more chance of meeting your payments.
If you sense that your financial situation is on the decline, contact your lender and request a deferment. This should be done as soon as possible, preferably before you miss a payment.
A deferment buys you a little extra time, allowing you to take the next month or two off and adding these payments onto the end of the term. The FTC recommends that you get any agreement in writing, just in case they renege on their promise.
Refinance
One of the best ways to avoid car repossession, is to refinance your loan and secure more favorable terms. The balance may increase, and youâll likely find yourself paying more interest over the long-term, but in the short-term, youâll have smaller monthly payments to contend with and this makes the loan more manageable.
You will need a good credit score for this to work (although there are some bad credit lenders) but it will allow you to tweak the terms in your favor and potentially improve your credit situation.
Sell the Car Yourself
Desperate times call for desperate measures; if youâre on the brink of facing repossession, you should consider selling the car yourself. Youâll likely get more than your lender would and you can use this to clear the balance.Â
Before you sell, calculate how much is left and make sure the sale will cover it. If not, you will need to find the additional funds yourself, preferably without acquiring additional debt. Ask friends or family members if they can help you out.
How Long a Repo Can Affect Your Credit Score
The damage caused by a repossession can remain on your credit score for 7 years, causing some financial difficulty. However, the damage will lessen over time and within three or four years it will be negligible at best.
Derogatory marks cease to have an impact on your credit score a long time before it disappears off your credit report, and itâs the same for late payments and repossessions.
Still, that doesnât mean you should take things lightly. The lender can make life very difficult for you if you donât meet your payments every month and donât work with them to find a solution.
What About Voluntary Repossession?
If youâre missing payments because youâve lost your job or suffered a major change in your financial circumstances, it may be time to consider voluntary repossession, in which case there are no missed payments and you donât need to worry about repo men knocking on your door or coming to your workplace.
With voluntary repossession, the borrower contacts the lender, informs them they can no longer afford the payments, and arranges a time and a place to return the car. However, while this is a better option, it can do similar damage to the borrowerâs credit score as a voluntary repossession, like a traditional repossession, is still a defaulted loan.
Missed payments aside, the only difference concerns how the repossession shows on the borrowerâs credit report. Voluntary repossession will look better to a creditor who manually scans the report, but the majority of lenders run automatic checks and wonât notice a difference.
Summary: Act Quickly
If you have student loan, credit card, and other unsecured debt, a repo could reduce your chances of a successful debt payoff and potentially prevent you from getting a mortgage. But itâs not the end of the world. You can get a deferment, refinance or reinstate the loan, and even if the worst does happen, it may only take a year or so to get back on track after you fix your financial woes.
Repossession Credit Scores: What You Need to Know is a post from Pocket Your Dollars.
Source: pocketyourdollars.com
Easiest Credit Cards to Get After Bankruptcy
There’s nothing fun about declaring bankruptcy, but those who emerge from it can be thankful for the opportunity to rebuild their personal finances without the burden of debt. Unfortunately, bankruptcy also does damage to your credit, making it difficult to get approved for credit cards and other lines of credit. Since credit cards are a good way to build or rebuild credit, we have the details for some credit cards to get after bankruptcy.
Secured Credit Cards
Secured credit cards generally have lower credit score requirements and often can be obtained post-bankruptcy. While they do require an upfront security deposit to open, they otherwise work just like traditional credit cards and can help you rebuild your credit. When choosing a secure credit card, look for one that lets you build toward unsecured credit status and reports to all three credit bureaus so it helps you positively impact your credit.
Credit Cards for Bad Credit
Secured credit cards are often considered bad debt credit cards because they’re targeted to people with poor or no credit. But you can also find credit cards that are approved for people with less-than-stellar credit and don’t require a security deposit. In return for the chance to get positive reporting on your credit report via one of these cards, you might have to pay an annual fee or deal with a high interest rate.
Credit Card for After Bankruptcy
Thereâs no single best credit card to get after a bankruptcy, but there are many options to consider. Carefully review the details of relevant credit card offers before making a decision for yourself.
OpenSky® Secured Visa® Credit Card
OpenSky® Secured Visa® Credit Card
- No credit check necessary to apply. OpenSky believes in giving an opportunity to everyone.
- The refundable* deposit you provide becomes your credit line limit on your Visa card. Choose it yourself, from as low as $200.
- Build credit quickly. OpenSky reports to all 3 major credit bureaus.
- 99% of our customers who started without a credit score earned a credit score record with the credit bureaus in as little as 6 months.
- We have a Facebook community of people just like you; there is a forum for shared experiences, and insights from others on our Facebook Fan page. (Search âOpenSky Cardâ in Facebook.)
- OpenSky provides credit tips and a dedicated credit education page on our website to support you along the way.
- *View our Cardholder Agreement located at the bottom of the application page for details of the card
Card Details +
Annual Fee: $35
APR: 17.39% (variable)
Why we picked it: This card helps you build credit while still offering a fairly low interest rate and a refundable deposit for as little as $200 (some restrictions apply; see cardholder agreement for details).
The details: There is no credit check necessary to apply, and you can apply in less than 5 minutes. Your responsible use of the card is reported to all three credit bureaus each month. And when you need extra credit, you may be eligible for a credit line increase.
Drawbacks: There is an annual fee, which isn’t necessarily bad in exchange for building credit.
First Progress Platinum Elite Mastercard Secured Credit Card
First Progress Platinum Elite Mastercard® Secured Credit Card
- Receive Your Card More Quickly with New Expedited Processing Option
- No Credit History or Minimum Credit Score Required for Approval
- Full-Feature Platinum Mastercard® Secured Credit Card
- Good for Car Rental, Hotels; Anywhere Credit Cards Are Accepted!
- Monthly Reporting to all 3 Major Credit Bureaus to Establish Credit History
- Credit Line Secured by Your Fully-Refundable Deposit of $200 — $2,000 Submitted with Application
- Just Pay Off Your Balance and Receive Your Deposit Back at Any Time
- Apply in just a few moments with no negative impact to your credit score; no credit inquiry will be recorded in your credit bureau file
- Nationwide Program though not yet available in NY, IA, AR, or WI * See Card Terms.
Card Details +
Annual Fee: $29
APR: 19.99% Variable APR for Purchases
Why we picked it: With responsible use, this card can be a good place to start working to rebuild your credit. There is no minimum credit score required for approval, and it also reports to all three credit bureaus each month.
The details: You can secure your credit line by putting down a fully refundable deposit of $200 to $2,000 during the application process. When you pay off your balance, you can receive your deposit back. Its expedited processing option lets you receive your card more quickly, and you can apply in minutes with no negative impact to your credit score.
Drawbacks: While the APR isn’t super high for a bad-credit credit card, it’s still high enough to run up hefty interest charges. You’ll want to pay the balance off as often as possible to avoid that extra expense. The card is not yet available in all states.
Milestone Unsecured Mastercard
Milestone® Unsecured Mastercard®
- Easy pre-qualification process which does not affect your credit score
- Choice of card image at no extra charge
- Less than perfect credit is okay, even with a prior bankruptcy!
- Mobile friendly online access from anywhere
- Accepted nationwide, wherever Mastercard is accepted
- Unsecured credit card, no deposit required
- Protection from fraud, if your card happens to be lost or stolen
Card Details +
Annual Fee: $35 – $99*
APR: 24.90%
Why we picked it: It is possible to be approved with poor credit and a bankruptcy on your credit report, but you don’t have to start with a security deposit. Plus, you can choose your card image at no extra charge!
The details: Prequalification doesn’t require a hard credit inquiry, so you can find out if you’re a likely candidate for this card without impacting your credit. You can access your account via mobile to manage it, helping you stay on track with positive payment history and balance management, and the card comes with decent fraud protection.
Drawbacks: The annual fee can be pretty high depending on the terms you’re approved for. The interest rate is also fairly high, so you might not want to carry over large balances between statements.
Indigo Mastercard for Less Than Perfect Credit
Indigo® Mastercard® for Less than Perfect Credit
- Less than perfect credit histories can qualify, even with prior bankruptcy!
- Choose your card design with chip technology at no additional cost
- Quick pre-qualification available with no impact to your credit score
- Easy pre-qualification process with fast response
- 24/7 access to your account, even on mobile!
- Protection from fraud, if your card happens to be lost or stolen
- Accepted nationwide wherever Mastercard is accepted
Card Details +
Annual Fee: $0 – $99*
APR: 24.90%
Why we picked it: You can prequalify for this card without impacting your credit, and thereâs no security deposit required.
The details: The APR is fairly steep, so you probably want to limit what balances you carry over each month. How much the annual fee is depends on your credit profile. However, it doesn’t require a security deposit.
Drawbacks: A potentially high annual fee and less-than-stellar APR make this a potentially expensive way to build credit.
Avant Credit Card
Avant Credit Card
- No deposit required
- No penalty APR
- No hidden fees
- Fast and easy application process
- Help strengthen your credit history with responsible use
- Disclosure: If you are charged interest, the charge will be no less than $1.00. Cash Advance Fee: The greater of $10 or 3% of the amount of the cash advance
- Avant branded credit products are issued by WebBank, member FDIC
Card Details +
Annual fee: $39
APR: 25.99% (variable)
Why we picked it: Thereâs no deposit required, no penalty APR, and no hidden fees.
The details: What you see is what you get with this card. With responsible use, you can strengthen your credit history.
Drawbacks: There is an annual fee and the variable APR can be a bit steep. You may also need fair credit to qualify.
Surge Mastercard
Surge Mastercard® Credit Card
- All credit types welcome to apply!
- Monthly reporting to the three major credit bureaus
- See if youâre Pre-Qualified without impacting your credit score
- Fast and easy application process; results in seconds
- Use your card at locations everywhere that Mastercard® is accepted
- Free online account access 24/7
- Checking Account Required
Card Details +
Annual fee: See Terms*
APR: See Terms*
Why we picked it: All credit types are welcome to apply, and the pre-qualification process wonât impact your credit score.
The details: Surge can be used anywhere Mastercard is accepted. , and the card reports to all three major credit bureaus.
Drawbacks: You need a checking account to apply. Because the card is specifically for people with less-than-perfect credit scores, interest rates and terms may be a bit high.
How to Choose a Credit Card After Bankruptcy
After a bankruptcy, improving your finances and rebuilding your credit should be a priority. Do some research and pick a credit card that helps you achieve that goal. If you feel that you can’t responsibly manage credit right now, you should wait until you’re in a better place to submit a credit card application.
Since secured credit cards require an upfront security deposit, you’ll need to determine how much money you can afford. Most secured cards will give you a credit line that equals the amount of your original deposit.
While high APRs and annual fees are common with all of these credit cards, you should compare rates across several cards to find the ones that are best for your spending habits.
Some cards for bad credit are designed to exploit people using unfair terms or policies that make it difficult to rebuild your finances. You may even start receiving multiple credit card offers in the mail after your bankruptcy is discharged. Watch out for red flags to avoid getting burned.
And remember: A credit card can only build credit if you use it correctly. You should keep your credit card balance below 30% of the available credit limit and make all your payments on time to help build your credit.
The post Easiest Credit Cards to Get After Bankruptcy appeared first on Credit.com.
Source: credit.com
How and When to Talk to a Credit Bureau
Your credit score can have a huge impact on your lifeâfor better or worse. In many ways, the three major credit bureaus are the keepers of your credit score. Theyâre responsible for maintaining credit reports, which means you may need to contact them about the information included on yours. While this may seem daunting, it’s really not complicated.
Read on to learn about when to contact a credit bureau and how to do it. Contact information and tips have been provided for each of the three credit bureausâExperian, Equifax and TransUnionâto make it as simple as possible.
When to Contact a Credit Bureau
Anytime you notice inaccuracies on your credit report, you should immediately contact the credit bureau. This can include misspelled names, incorrect address information, unreported salary changes or erroneous employment information.
Here are some other reasons why you might need to contact a credit bureau:
- There are credit cards, collections missed payments or anything else on your report that you don’t recognize.
- You’re in credit disputes with your credit card issuer or financial institution. You can address this with the credit bureaus, which are required to investigate.
For help talking to the credit bureaus and starting a credit repair plan, you can work with a professional credit repair agency. They offer credit monitoring, credit repair services and text alerts so you don’t miss a thing.
- You want to get a hard inquiry removed from your history, especially if it’s an unauthorized inquiry.
- An account is missing from your report.
- You want to remove inaccurate or unfair collection accounts from your report. Keep in mind that if you can’t dispute them successfully, these accounts can stay on your account for a number of years.
- You want to request a free annual credit report.
- You want to put a temporary freeze or lock on your credit file.
- You notice any sign of fraud on your credit report.
Information to Gather before You Call
You want to have the right information on hand when you call a credit bureau. Prepare yourself by collecting the following information in advance, just in case:
- Your name, address, Social Security number and date of birth
- A copy of your annual credit report
- Evidence of the inaccuracies or errors, if relevant
- Personal financial information, such as your mortgage information, depending on the reported issue
- Any other supporting documentation
Credit Bureau Contact Information
Because there are so many potential reasons to contact a credit bureauâgeneral inquiries, disputes and credit freezes, for exampleâthere are many different phone numbers and online contact forms to wade through. If you call the wrong number, you may simply be told they cannot help you and directed to call a different number, wasting precious time and energy.
To help you avoid that frustration, weâve gathered several ways you can contact the credit bureaus for common inquiries here.
Equifax Phone Numbers
|
Reason to Contact |
Phone Number |
Availability |
|
General inquiries |
866-640-2273 |
|
|
Service cancellation |
866-243-8181 |
8 a.m. to 3 a.m. (ET) |
|
Request a copy of your credit report |
866-349-5191 |
8 a.m. to midnight (ET) |
|
Fraud alert |
800-525-6285 |
8 a.m. to midnight (ET) |
|
Credit dispute |
866-349-5191 |
8 a.m. to midnight (ET) |
|
Credit freeze |
888-298-0045 |
8 a.m. to midnight (ET) |
|
2017 data breach |
888-548-7878 |
8 a.m. to midnight (ET) |
|
Opt out of mailing lists |
888-567-8688
|
|
If you donât like talking on the phone, Equifax also offers live chat support. You can chat with a member of their customer support team between 8 a.m. and midnight (ET), Monday through Friday.
TransUnion Phone Numbers
|
Reason to Contact |
Phone Number |
Availability |
|
General inquiries |
833-395-6938 |
8 a.m. to 11 p.m. (ET) |
|
Credit dispute |
833-395-6941 |
8 a.m to 11:00 p.m. (ET) MondayâFriday |
|
Credit freeze |
888-909-8872 |
8 a.m. to 11 p.m. (ET) |
|
Fraud alert |
800-680-7289 |
8 a.m.to 11 p.m. (ET) |
|
Free annual report |
877-322-8228 |
|
|
Havenât received your report |
800-888-4213 |
|
|
Manage your subscription |
833-806-1626 |
8 a.m. to 9 p.m. (ET) MondayâFriday
8 a.m. to 5 p.m. (ET) |
|
Technical support |
833-806-1626 |
8 a.m. to 9 pm. (ET) MondayâFriday 8 a.m. to 5 p.m. (ET) |
Experian Phone Numbers
|
Reason to Contact |
Phone Number |
Availability |
|
Experian membership |
479-343-6239 |
6 a.m. to 8 p.m. (PT) 8 a.m. to 5 p.m. (PT) |
|
Free credit report |
888-397-3742 |
|
|
Credit dispute |
866-200-6020 |
|
|
Fraud alert |
888-397-3742 |
|
|
Credit freeze |
888-397-3742 |
|
|
Cancel membership |
479-343-6239 |
|
|
ProtectMyID subscription |
866-960-6943 |
|
|
Opt out of prescreened offers |
888-567-8688 |
|
Alternatives to Calling Credit Bureaus
Not all experts think calling a credit bureau is the best approach. Don Petersen, an attorney at Howard Lewis & Peterson, PC, in Utah, recommends calling a bureau for only basic administrative questionsâsuch as updating an address or asking if a recent data breach has affected you.
For most other issues, Petersen advises his clients to write to credit bureaus or submit disputes online. This provides you with an official record of your request.
If you do prefer to call a credit bureau, take notes during the call and follow up in writing after the telephone conversation. In your follow-up letter, you should include the name of the representative you spoke with as well as details of what transpired in your conversation.
Send important requestsâespecially disputesâthrough certified mail. This allows you to track the letter and ensure that the credit bureau responds in a timely manner. Never send original copies of documents, as the bureaus may not return anything you send.
Equifax Mailing Addresses
|
Reason for Contact |
Address |
|
Credit dispute |
Equifax Information Services LLC |
|
Request a copy of your credit report |
Equifax Disclosure Department |
|
Fraud alert |
Equifax Information Services LLC |
|
Credit freeze |
Equifax Information Services LLC |
TransUnion Mailing Addresses
|
Reason to Contact |
Address |
|
Credit freeze |
TransUnion |
|
Credit dispute |
TransUnion Consumer Solutions |
|
Fraud alert |
TransUnion Fraud Victim Assistance |
|
Request credit report |
TransUnion LLC |
Experian Mailing Addresses
|
Reason to Contact |
Address |
|
Credit dispute |
Experian Dispute Department |
|
Credit freeze |
Experian Security Freeze |
|
Privacy |
Chief Privacy Officer |
|
Report a relativeâs death |
Experian |
Track Your Credit
Under the Fair Credit Reporting Act, you have the right to obtain a free copy of all three reports once each year. These free reports can be accessed on the government-mandated site operated by the big three credit bureaus, AnnualCreditReport.com.
You can also sign up for the free credit report card offered by Credit.com, which provides a snapshot of your credit as well as the ability to dig deeper into the elements that affect your credit score. When you sign up, youâll also get regular emails with tips and tricks for keeping your credit healthy.
The post How and When to Talk to a Credit Bureau appeared first on Credit.com.
Source: credit.com
6 Tips for Successfully Managing a Checking Account in College
Heading off to college is exciting. Really exciting. You finally have freedom! You’re out on your own for the very first time, managing your studies, managing your social life and… managing your finances.
Despite being a big part of your newfound independence, personal finance is a subject you probably won’t find on your course schedule. If you didn’t take a personal finance class in high school and never had money lessons from your parents, you may not know how to manage a checking account as a college student.
“College students have very different needs for their checking account than their parents or other adults,” says Tommy Martin, CEO of Clear Path Financial Planning and a finance blogger at TommyMartin.com. If you live in a different city during the school year than you do during winter and summer breaks, for example, you may be after a bank for which location doesn’t matter.
Ok, so how do I manage my checking account in college, you ask? First, don’t get overwhelmed. Learning how to manage money while in college and getting a handle on checking account basics is simpler than you might think (oh, and the skills will serve you for years to come). Second, you can kick off your checking account education with these tips for managing a checking account in college:
1. Compare checking accounts before signing up
While your college life may center around your school campus, you should consider venturing off-campus to pick the right checking account for your lifestyle.
“Students typically sign up with a bank that’s on campus or close to campus,” says Sahil Vakil, a financial planner and president of MYRA Wealth in New Jersey. However, the nearest bank might not be the one that best fits your needs, he adds.
Instead of picking a bank based solely on proximity, consider all of your options, including banks with off-campus locations and online-only banks.
Martin agrees, saying that learning how to manage money while in college means considering all of your banking options rather than “automatically enrolling or choosing the official school bank just because it has the school logo on it.” There are other ways to show your school pride, after all.
2. Learn about checking account fees and rewards
Vakil and Martin both say a tip for managing a checking account in college is to consider an account’s fees before signing up. Costly fees can eat into your savings and spending money, which can be a blow for students who are not working full-time. When you are choosing a checking account in college, consider fees for:
- Monthly maintenance (essentially keeping your account open)
- Minimum balance (not maintaining one)
- ATM usage
- New checks
- Wire transfers
- Online bill pay
- Replacement debit cards
Martin says a checking account with no minimum balance requirement or minimum number of transactions could be a good fit for students. “It allows them to focus on their education” instead of worrying about incurring penalties, he says. “Even a $5 fee on a checking account with $60 in it can be devastating.”
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Costly fees can eat into your savings and spending money, which can be a blow for students who are not working full-time.
Martin also suggests finding an account that has a large network of no-fee ATMs located across the country to better manage your checking account as a college student. “Especially if you’re going to a school in a different state, the local bank from home might wind up costing you a lot in terms of ATM fees,” he says. If your parents plan to wire you money, find an account that doesn’t charge incoming wire fees, Martin adds.
While fees should be a focus when you are learning how to manage money while in college, don’t forget about incentives. You may be able to find a checking account that actually helps you grow your balance by paying interest or offering a cash back rewards program.
“If you have to pay for books or supplies, at least you can get some cash back and use it for a free dinner,” Martin says. Discover Cashback Debit, for example, offers 1% cash back on up to $3,000 in debit card purchases each month.1
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3. Track your checking account balance
Luckily, you don’t need to take Banking 101 to figure out your funds, and tech makes tracking your balance and account activity easier than ever. Most banks let you log in to your account online (don’t get distracted in class!), and with a bank’s mobile app you can transfer money to friends, pay bills, deposit checks and check your balanceâall while you’re on the go.
Knowing your balance at all times is a tip for managing a checking account in college because it can help you avoid overdrafts and insufficient funds fees. It can also help you forecast your income and expenses to ensure you’ll have enough money to cover future costs. Surpriseâthat’s budgeting!
There’s no one-size-fits-all budgeting program or system, though. You can go old-school and track your budget on a printed-out budget sheet, or you can go tech-savvy with a budgeting and spending app. “What’s best for you is the one you’re actually going to use,” Martin says.
If you learn how to manage money while in college and make a practice of maintaining your budget, the habit will follow you after graduation.
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âCollege students have very different needs for their checking account than their parents or other adults.â
4. Secure your account
One of Vakil’s tips for managing a checking account in college is to make sure your account stays secure. Create a unique account name and password that you use only for your checking account, and never share your credentials.
Vakil says you can also enable two-factor authentication if your bank offers it and you’re looking for another way to improve the management of your checking account as a college student. “This additional layer of protection safeguards your sensitive financial data and strengthens the security of your account by requiring two methods of verifying your identity.”
For example, if you log in to your account from a new device, you may be sent a text message with a code that you’ll need to enter to access your account.
5. Keep an eye out for debit card holds
No matter where you bank, a merchant may place a hold on funds in your checking account when you use your debit card. Generally, a hold is placed for travel-related purchasesâsuch as at rental car companies, hotels and gas stationsâand used by merchants to protect against fraud and errors.
“Holds on a debit card can make it tricky for you to manage your finances,” Vakil says. For example, “when you rent a car, the car rental company might put a $500 hold on your account. If the balance in your account was $550, now you can only use another $50.”
Being aware of holds can be particularly important if you are managing a checking account as a college student and tend to have a low account balance.
If a merchant will be placing a hold, it will generally post a sign to notify customers. The hold will typically be removed after the funds are transferred to the merchant from your financial institution, typically within three to four days.
Knowing when a hold will be placed, the amount of the hold and how much money you have in your checking account can help you manage your checking account as a college student by avoiding overdrafts and missed bill payments due to insufficient funds.
6. Don’t let one mistake throw you off track
If you can learn how to manage a checking account as a college student, and more generally, how to manage money while in college, you can lay the groundwork for a solid financial future. Checking account mistakes may occasionally happen (oops, I didn’t budget enough for that spring break trip), but don’t let them discourage you to the point of apathy. Instead, try to continually expand your knowledge and practice healthy financial habits.
1 ATM transactions, the purchase of money orders or other cash equivalents, cash over portions of point-of-sale transactions, Peer-to-Peer (P2P) payments (such as Apple Pay Cash), and loan payments or account funding made with your debit card are not eligible for cash back rewards. In addition, purchases made using third-party payment accounts (services such as Venmo® and PayPal
, who also provide P2P payments) may not be eligible for cash back rewards. Apple, the Apple logo and Apple Pay are trademarks of Apple Inc., registered in the U.S. and other countries. Venmo and PayPal are registered trademarks of PayPal, Inc.
The post 6 Tips for Successfully Managing a Checking Account in College appeared first on Discover Bank – Banking Topics Blog.
Source: discover.com
2020 Could Be an Unprofitable Year for Rental Properties. Hereâs How to Handle the Taxes
Darwin Brandis/Getty Images
Economic fallout from the COVID-19 crisis and civil unrest could cause many rental real estate properties to run up tax losses in 2020 and maybe beyond. This column covers the most important federal income tax questions and answers for rental property owners. Here goes.
What can I write off?
Nothing new here. You can deduct mortgage interest and real estate taxes on rental properties. You can also write off all standard operating expenses that go along with owning rental property: utilities, insurance, repairs and maintenance, care and maintenance of outdoor areas, and so forth.
What about depreciation write-offs?
For many rental property owners, the tax-saving bonus is the fact that you can depreciate the cost of residential buildings over 27.5 years, even while they are (you hope) increasing in value. You can generally depreciate the cost of commercial buildings over 39 years.
Example: You own a small apartment building that cost $1.5 million not including the land. The annual depreciation deduction is $54,545 ($1.5 million/27.5). The deduction can shelter that much annual positive cashflow from income taxes. So, depreciation write-offs are nice tax-savers, especially if you own an expensive property or several properties.
Variation: As stated earlier, commercial buildings must be depreciated over a much-longer 39-year period. Even so, the annual depreciation write-off for a $1.5 million commercial building is $38,462. The deduction can shelter that much annual cash flow from income taxes.
Can I claim 100% first-year bonus depreciation?
Yes, for qualified improvement property (QIP) expenditures on a nonresidential building. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) included a retroactive correction to the statutory language of the Tax Cuts and Jobs Act (TCJA). The correction allows much faster depreciation for commercial real estate qualified improvement property (QIP) thatâs placed in service in 2018-2022. QIP is defined as an improvement to an interior portion of a nonresidential building thatâs placed in service after the building was placed in service. However, QIP doesnât include any expenditures attributable to: (1) enlarging the building, (2) any elevator or escalator, or (3) the internal structural framework of the building. Thanks to the CARES Act correction, you can write off the entire cost of QIP in Year 1, because it qualifies for 100% first-year bonus depreciation.
Alternatively, you can choose to depreciate QIP over 15 years using the straight-line method. That alternative might make sense if you expect higher tax rates in future years. Discuss your QIP depreciation options with your tax pro.
What else do I need to know about depreciation write-offs?
You ask such good questions. Thereâs more. The TCJA increased the maximum Section 179 first-year depreciation deduction for qualifying real property expenditures to $1 million, with annual inflation adjustments. The inflation-adjusted maximum for tax years beginning in 2020 is $1.04 million. The Section 179 deduction privilege potentially allows you to deduct the entire cost of qualifying real property expenditures in Year 1. I say potentially, because Section 179 deductions are subject to several limitations. Ask your tax pro for details.
The TCJA also expanded the definition of qualifying property to include expenditures for nonresidential building roofs, HVAC equipment, fire protection and alarm systems, and security systems.
Finally, the TCJA further expanded the definition of qualifying property to include depreciable tangible personal property used predominantly to furnish lodging. Examples of such property include beds, other furniture, and appliances used in the living quarters of an apartment house.
Can I claim the qualified business income (QBI) deduction base on my net rental income?
Maybe. For 2018-2025, the TCJA established a new personal deduction based on qualified business income (QBI) passed through to your personal Form 1040 from a pass-through business entity (meaning a sole proprietorship, LLC treated as a sole proprietorship for tax purposes, partnership, LLC treated as a partnership for tax purposes, or S corporation). The deduction can be up to 20% of QBI, subject to restrictions that kick in at higher income levels. For a while, it was unclear if you could claim QBI deductions based on net rental income passed through to you from one of the aforementioned pass-through entities. The IRS eventually issued taxpayer-friendly guidance that allows QBI deductions in most such cases, but you must follow complicated rules to collect the tax-saving benefit. As your tax pro for details.
What about the passive loss rules?
Ugh. If your rental property throws off tax losses (most properties do, at least during the early years and during years when the economy is suffering â like now), things can get complicated. The so-called passive activity loss (PAL) rules may come into play. Losses from rental properties will usually be classified as passive losses.
In general, the PAL rules only allow you to currently deduct passive losses to the extent you have current passive income from other sources, like positive income from other rental properties or gains from selling them. Passive losses in excess of passive income are suspended until you either have enough passive income or you sell the property that produced the losses. Bottom line: the PAL rules can postpone any tax-saving benefit from rental property losses, sometimes for years. Fortunately, there are several exceptions to the PAL rules that can allow you to deduct rental property losses sooner rather than later. Your tax pro can explain the exceptions and help you plan to become eligible, if possible.
Is that the end of the bad news?
Not exactly. Say you manage to successfully clear the hurdles imposed by the PAL rules for your rental property losses. So far, so good. But the TCJA established another hurdle that you must also clear to currently deduct those losses. For tax years beginning in 2018-2025, you cannot deduct an excess business loss in the current year. An excess business loss is one that exceeds $250,000 or $500,000 for a married joint-filing couple. Any excess business loss is carried over to the following tax year and can be deducted under the rules for net operating loss (NOL) carry-forwards. This loss disallowance rule applies after applying the PAL rules. So, if the PAL rules disallow your rental losses, this rule is a nonfactor.
COVID-19 Relief: Thankfully, the CARES Act suspends the excess business loss disallowance rule for losses that arise in tax years beginning in 2018-2020. Thatâs good news.
Whatâs the deal with net operation losses (NOLs)?
Say you manage to successfully clear both of the preceding hurdles for your rental property losses. Now we are talking, because you can generally use those losses currently to offset taxable income from other sources. If losses for the year exceed income from other sources, you may have a net operating loss (NOL) for the year.
COVID-19 Relief: The CARES Act allows a five-year carryback privilege for an NOL that arises in a tax year beginning in 2018-2020. So, you can carry an NOL from one of those years back to an earlier year, deduct it, and recover some or all of the federal income tax paid for the carryback year. Because federal income tax rates were generally higher in years before the TCJA took effect, NOLs carried back to those years can be especially beneficial. The TCJA kicked in starting with tax years beginning in 2018.
What if I have positive taxable income?
Eventually your rental property should start throwing off positive taxable income instead of losses, because escalating rents will surpass your deductible expenses. Of course, you must pay income taxes on those profits. But if you piled up suspended passive losses in earlier years, you can now use them to offset your passive profits.
Another nice thing: positive taxable income from rental real estate is not hit with the dreaded self-employment (SE) tax, which applies to most other unincorporated profit-making ventures. The SE tax rate can be up to 15.3%. Something to avoid when possible.
One bad thing: positive passive income from rental real estate owned by a higher-income individual can get socked with the 3.8% net investment income tax (NIIT), and gains from selling properties can also get hit with the NIIT. Ask your tax pro for details.
The bottom line
There you have it: most of what you need to know about the federal income tax issues that can come into play for rental property owners. The economic fallout from the COVID-19 crisis and recent civil unrest increase the odds that rental properties will suffer losses in 2020, but tax relief provisions may soften the blow.
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Source: realtor.com