4 Questions to Ask Before Buying a Rental Property

This quick review can help you figure out if you've got what it takes and, if not, how you can get it.

If you’re obsessed with HGTV, remodeling and regularly use phrases like “reclaimed wood” and “farmhouse feel,” you’ve probably kicked around the idea of buying investment property. The popular TV niche has given birth to a group of people who are motivated to improve their incomes with do-it-yourself projects and tenants in tow.

While it may seem simple and fulfilling on the small screen, buying rental property carries the same risks as purchasing your primary home. The following questions are some you’ll want to answer as you consider possible investment strategies.

1. What Are Your Financial Goals?

Are you hoping to earn extra monthly income, or do you view rental property as an attractive long-term investment? Being clear about your expectations is crucial to nailing down whether investment property is a wise choice. According to Mark Ferguson, Realtor, real estate investor and voice of InvestFourMore.com, many buyers fail to think beyond square footage.

“The biggest mistakes I see are investing in a property that loses money while hoping for appreciation, paying all cash for properties when you don’t have to and trying to manage (properties) yourself without skills or time,” Ferguson said.

It’s a good idea to make a list of short- and long-term goals as well as deal-breakers for any investment you choose. Creating rules will help you stay focused.

2. Can You Afford Extra Expenses?

Maintaining rental property takes work and extra cash, and while it’s tempting to focus on the best-case scenario, you shouldn’t discount the hefty expense of rental property taxes, association dues, management, maintenance and repairs. It’s possible to cut expenses by taking on a few handy projects yourself, but it won’t eclipse the costs entirely.

It’s wise to build a reserve fund in anticipation of your property’s needs according to Scott Trench, real estate broker and vice president of operations at BiggerPockets.com. “If you have $10,000, or even $20,000-plus in a bank account set aside for reserves, you can buy your way out of many problems associated with small rental properties,” Trench said.

With that in mind, you may want to consider building an emergency fund for your business investments in addition to your personal savings account. Separating your expenses is necessary for tax purposes, and you’ll need two accounts to maintain personal and professional independence.

3. Which Real Estate Market Is Right For You?

Although analysts predict a healthy rental market in 2017, value is still subjective, and you might consider looking outside your ZIP code to see if there are better buying options elsewhere.

“Certain metropolitan areas are most attractive to the country’s largest population groups—millennials and boomers — and are growing much faster than others,” said Alex Cohen, commercial specialist for CORE, a real estate brokerage firm based in New York City.

“Some of these markets have relatively low land and housing construction costs like Dallas and Houston. But other markets, particularly on the coasts, have much higher land and construction costs, which means less housing will be built in these metros,” Cohen said. “The flip side of this phenomenon is that in these housing-supply-constrained markets, values of homes and rents are likely to rise faster than in the rest of the country.”

While some experts suggest buying in up-and-coming locations, others swear that a good deal can lead to better returns and the ability to expand. “My 16 rentals have increased my net worth by over $1 million dollars through appreciation and buying cheap to begin with,” Ferguson said.

It’s a good idea to research all your options — from foreclosures to new construction — to determine which property could produce the best income and overall bang for your buck. Don’t be afraid to venture beyond your own backyard.

4. Are Your Finances & Credit In Good Shape?

If you are a homeowner, you may feel like a pro when it comes to applying for a mortgage, closing the deal and upgrading your property. While you may have some valuable experience, buying investment property comes with its own set of rules. Unlike purchasing your primary home, most rental mortgages require a larger down payment with a few exceptions.

“The way to minimize the additional costs — particularly higher down payment requirements of an investment property — is to take out an FHA loan, for which a down payment of as low as 3.5% of the purchase price may be possible,” Cohen said. “FHA loans are available to investors in properties with up to four units, as long as the borrower’s primary residence will be one of the apartment units.”

Not familiar with the Federal Housing Administration? You can find our full explainer on FHA loans here.

If you don’t plan to live in the rental property, you’ll need to secure a standard mortgage loan with a host of federal requirements that include financial reserves based on property value and the number of rentals you own, assets required to close and creditworthiness.

The latter requirement is perhaps the most important factor in securing an affordable investment. A high score will help you find the best interest rates and save money long before you decide to buy a rental home. It’s a good idea to order free copies of your TransUnion, Experian and Equifax reports from AnnualCreditReport.com to review your information. Highlight any negative items or errors that may be affecting your scores and consult with an expert about the best way to take action. You can also view two of your credit scores for free, updated every 14 days, on Credit.com.

Remember, whether you’re hitting up the housing market to invest or find your dream home, there are plenty of things you’ll want to do to get ready ahead of your search. Fortunately, we got a 50-step checklist for house hunters right here.

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10 Places That Can Boost Your Child’s Future Income (& 10 That Won’t)

Where you raise your kids matters. Here are 10 counties shown to raise the earnings of kids who grow up there, and 10 counties to avoid.

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5 Ways Being an Airbnb Host Can Cost You Money

should-i-host-on-airbnb

If you’ve ever wanted to make a little extra money on the side by listing your sofa, spare bedroom, guest house or even whole house on a service like Airbnb, you’ve probably wondered just how much money you could make.

After all, there are all those stories of people paying their monthly mortgage payments or annual tax bills through their rental income. What a great way to put an asset you already have to good use, right?

Yes, if your situation is right for the opportunity. When managed properly, these rentals can end up bringing in more than a traditional monthly rent can, though it does require significantly more work due to the constant turnover of renters.

As with any business, though, there are risks that could end up undermining any money-making opportunity your spare sleeping spot might afford. That’s why it’s a good idea to exercise caution and do your due diligence before jumping in.

Here are five things that could end up costing you money as an Airbnb host.

1. Higher Insurance Premiums

Yes, it’s true that Airbnb provides Host Protection Insurance, providing primary liability coverage for up to $1 million per occurrence in the event of a third-party claim of bodily injury or property damage related to an Airbnb stay. But that doesn’t mean you’re not going to need to alert your homeowners insurer that you’re operating as a rental property, even on a part-time basis.

For example, I have a guest house that I considered making available on Airbnb and I talked to my insurer about how that would impact my coverage. In a nutshell, my premiums would have doubled, significantly impacting any income I would’ve made from listing on Airbnb. I decided it wasn’t worth the hassle. Now, sure, I could’ve chosen not to tell my insurer about the rentals and just contact Airbnb with any claims, but that left me feeling very exposed when it came to, well, a lot of things.

As Galen Hayesis, president of El Sobrante, California-based Hayes Insurance, recently wrote for PropertyCasualty360.com, the coverage leaves a lot of gaps for homeowners:

  • Coverage is limited to $1 million per occurrence, $2 million per location. The policy aggregate is $10 million for all insured locations in the U.S. Shared limits are not your friend.

  • Coverage is in excess of any other available coverage. The host must submit the claim to his homeowners insurance and the claim must be denied by that company before Airbnb’s insurance will pay. Presumably, the homeowners insurance may also be cancelled for business use.

  • The summary document lists these other “key” exclusions: (1) intentional acts (of the host or any other insured party), (2) loss of earnings, (3) personal and advertising injury, (4) fungi or bacteria, (5) Chinese drywall, (6) communicable diseases (7) acts of terrorism, (8) product liability, (9) pollution, (10) asbestos, or lead or silica, and (11) insured vs. insured (i.e., host sues Airbnb or vice versa).

  • The coverage is limited to an actual stay, not a booking. No show — no coverage. Overstay or early arrival? No coverage.

“What if a guest breaks into the host’s gun safe, steals guns and goes on a crime spree? Is there coverage for the host from any ensuing lawsuits? Probably not,” Hayesis wrote. “Vacation rental websites like Airbnb are doing their best to protect themselves by offering what looks like insurance to their hosts. But hosts are shouldering a lot of risks with limited protection. So before you sign up or rent your home again, you may want to think twice. The bottom line appears more red than green.”

Airbnb did not respond to Credit.com’s request for comment, but does provide the following on the Airbnb website:

Here are some examples of what the Host Protection Insurance program should cover:

  • A guest breaks their wrist after slipping on the rug and brings a claim for the injury against the host.
  • A guest is working out on the treadmill in the gym of the apartment building.
  • The treadmill breaks and the guest is injured when they fall off. They bring a claim for the injury against the host and the landlord.
  • A guest accidentally drops their suitcase on a third party’s foot in the building lobby. The third party brings a claim for the injury against the host and the landlord of the host’s building.

Some examples of what the Host Protection Insurance program doesn’t cover:

  • Intentional acts where liability isn’t the result of an accident.
  • Accusations of slander or defamation of character.
  • Property issues (ex: mold, bed bugs, asbestos, pollution). Auto accidents (ex: vehicle collisions).

2. Turned Down for a Mortgage or Other Home Financing

Banks also are closely scrutinizing how properties are being used when it comes to writing new mortgages and even refinancing. The issue is primarily about how to classify loans for homeowners hosting through Airbnb and other services Are they a primary residence? An investment property? Both? Mortgages on investment properties have traditionally been viewed as riskier.

One example is Brad Severtson, a resident of Seattle whom the Wall Street Journal recently profiled. Severtson had reportedly earned about $30,000 in 2015 renting out a cottage in his backyard. The Journal reported that he thought the extra income would work in his favor when he wanted to refinance a home-equity line of credit.

“The bank turned him down, saying it didn’t allow home-equity lines of credit on properties in which the homeowner is operating a business, including Airbnb,” the Journal reported.

3. Higher Taxes

Yep, if you’re making rental income, you’re going to be expected to pay taxes on it. Airbnb says on its website “as a host, your earnings may be subject to U.S. income taxes. To assist with U.S. tax compliance, we may collect your taxpayer information. Even if you’re not a U.S. taxpayer, we may still require certain information from you.”

There are some exceptions to keep in mind, though.

According to the Internal Revenue Service, if you use your home or vacation property as a personal residence and rent it for fewer than 15 days in a calendar year, you do not have to claim that income on your personal taxes. In this case, do not report any of the rental income and do not deduct any expenses as rental expenses.

Likewise, if you rent your home or vacation property to others that you also use as a personal residence, limitations may apply to the rental expenses you can deduct, according to the IRS. You are considered to use a dwelling unit as a personal residence if you use it for personal purposes during the tax year for more than the greater of 14 days or 10% of the total days you rent it to others at a fair rental price.

It is possible that you will use more than one dwelling unit as a personal residence during the year. For example, if you live in your main home for 11 months, your home is a dwelling unit used as a personal residence. If you live in your vacation home for the other 30 days of the year, your vacation home is also a dwelling unit used as a personal residence, unless you rent your vacation home to others at a fair rental value for 300 or more days during the year.

4. Losing Your Lease

If you have a landlord and want to host on Airbnb, the very first thing you should do is talk to your landlord and get their permission to advertise your sofa, your spare bedroom or the whole property. And get it in writing.

There are literally hundreds of horror stories of folks not talking to their landlords, only to be sued or have their leases terminated as a result.

5. Being Cited for City Ordinance Violations

Many cities have restrictions about hosting on sites like Airbnb, whether you are a homeowner or a renter. That’s why it’s a good idea to first check on the Airbnb site about what regulations may apply and then follow up with your local government. The last thing you want is to be cited for being in violation of local ordinances.

As Airbnb states on its site, “When deciding whether to become an Airbnb host, it’s important for you to understand the laws in your city. As a platform and marketplace, we don’t provide legal advice, but we do want to give you some useful links that may help you better understand laws and regulations in your town, city, county, or state.”

Remember, making a little extra money from a side gig is a great way to boost your savings abilities or help pay off any debts you might owe (you can see how your debt is impacting your credit by getting your free credit report summary on Credit.com). But, as this list, shows, it’s wise to do your research first. What might seem like a great opportunity can end up costing you big time. So, do your homework before your foray into renting your space and make sure your home can actually work for you.

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U.S. Household Incomes Are Up 5.2 Percent — Here’s Why You Might Not Feel Any Richer

Young mixed race family having fun on their summer vacation outdoors

The Good News

The real median household income for Americans increased 5.2 percent to $56,516 in 2015, the U.S. Census Bureau reported Tuesday. This marks the first annual rise in household income since pre-recession 2007.

Rising incomes led to a significant drop in household poverty rate as well — a decline of 1.2 percent, or 3.5 million fewer Americans. This is the largest annual percentage point drop in poverty since 1999. (The income threshold for poverty is $28,995 in annual income for a family of 5.) Today, roughly 43.1 million people live in poverty.

Don’t start celebrating yet. Progress has been made, but the real median household income is still about 1.6 percent away from catching up with its 2007 levels and even farther — about 2.4 percent —from its 1999 peak.

But Not All Groups Are Doing Well

Income inequality. Income inequality remained stubbornly stagnant in 2015. The Census Bureau measures income inequality on a scale of 0 to 1 (1 meaning perfect income equality) to measure the extent to which income is distributed among the population. In 2015, the U.S. scored a 0.479, showing no significant over the year prior.

The gender wage gap. Women continue to earn about 80 cents to every $1 a man earns, however the real median earnings for women increased 2.7 percent compared to a 1.5 percent rise for men compared to a year ago.

census earnings by sex gender

Asian-American households. Of all race groups, Asian households had the highest median income in 2015 at $77,166, although the group experienced no significant change in income.

Non-Hispanic whites see significant income growth. Real median income of non-Hispanic Whites rose 4.4 percent to $62,950. African-American households saw median incomes rise 4.1% to an average of $36,898. This is the first rise in income for non-Hispanic Black and White households since 2007.  Hispanic-origin incomes rose 6.1 percent to $45,148, the first annual increase since 2013.Census Median household income 2015

Noncitizen income rises sharply. The median income of households maintained by a noncitizen rose the most — by 10.5 percent — although it’s the lowest amount by nativity at $45,137. The real median income of households managed by foreign-born people rose 5.3 percent to $54.295, while that of households maintained by a native-born person rose 4.4 percent to $57,173. Naturalized citizens didn’t see a significant change in household income at $61,982.

Why You May Not Feel Any Richer

It may be hard to hear the jingle of extra cash in your pocket. Public policy think tank American Enterprise Institute reports the consumer price index — the average measure of consumer prices —  jumped about 55% since 1996. The largest increases were in big ticket items: housing, food, medical care, childcare, but you may feel the rise even more if you’re in school.

The average price of college tuition and textbooks rose the most — by a staggering 197% and 207% respectively. Next to that, a 5.2% bump in median income over the past year is meager.

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The Upper Middle Class Has More Than Doubled Since 1979

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The upper middle class in the United States has more than doubled since 1979, according to a new Urban Institute report, “The Growing Size and Incomes of the Upper Middle Class” by Stephen J. Rose

The report shows that the upper middle class made up 12.9% of the United States population in 1979 and had grown to 29.4% of the population in 2014.

“Indeed, a massive shift has occurred in the center of gravity of the economy,” Rose wrote.

Meanwhile, the rich and upper middle class were found to account for 63% of all incomes in 2014 (52% upper middle class and 11% upper class), compared to just 30% in 1979. During that same period, middle class incomes shrunk to 26% (which was the class that reigned supreme in 1979, accounting for more than 46% of all incomes).

The study found that growth in the rich and upper middle class and the declining proportion of the population in the middle and lower classes, indicate widespread economic growth that was not distributed equally.

“On average, incomes grew 53% over the period,” Rose wrote. “If the growth had been equally distributed, then the shift upward would have been much greater. At the extremes, the proportion of the poor and near-poor population would have dropped to 12.8%, and the proportion that is rich would have barely increased (to only 0.5% of the population) because the growth among the near-rich with even growth would have been much less than what happened with uneven growth.”

Methodology

For the study’s purposes, lower, middle, upper-middle and upper class incomes were based upon three-person families making below $30,000, below $100,000, up to $349,999 and above $350,000 respectively.

The study used 1979 as a starting point because “it was the last business cycle peak before income inequality grew dramatically in the first half of the 1980s,” and “the year 2014 was chosen as the study’s end point because it was the most recent year for which income data were available.” The study also examined whether the size of the upper middle class changed dramatically after the slow growth from
2000 to 2007, followed by the deep recession of 2007.
Rose examined data from the Annual Socioeconomic Supplement to the March Current Population Survey (CPS), which collects information monthly from 50,000 to 75,000 households and is used to determine the monthly unemployment rate.

How Your Income Affects Your Credit

Income is not typically part of your credit reports or credit scores, but people often have to include that information when applying for a new line of credit. And, while getting a bigger paycheck can help you afford the things you need (and want), it is still a good idea to live within your means. By not doing so, you may be faced with credit card debt, which is something that can affect your credit. (To see where your credit currently stands, you can view your free credit report summary, updated each month, on Credit.com.)

If you discover your credit scores aren’t where you’d like them to be, there are steps you can take to improve your credit scores, like paying down high credit card balances and avoiding applying for new lines of credit until your scores rebound.

[Offer: Your credit score may be low due to credit errors. If that’s the case, you can tackle your credit reports to improve your credit score with help from Lexington Law. Learn more about them here or call them at (844) 346-3296 for a free consultation.]

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Do I Have to Pay Taxes for the Money I Make on Airbnb?

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Q. I rent my apartment using AirBnb. Do I need to report this rent as income? And if I do, can I take extra deductions because it’s a rental situation?
— Sometimes landlord

A. Here’s the lowdown on rental income.

Income received from the rental of your personal residence generally is subject to federal income tax, said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton, New Jersey.

He said rental expenses can be deducted against the rental income, but must be allocated by the number of days the home is for personal use and the number of days the property is rented.

Hook offered this example: If you rent your primary residence for 36 days during the year, you can deduct 10% of the electric bill (36/365 days) against the rental income.

“Your rental expenses cannot exceed the gross rental income reduced by the rental portion of the mortgage interest, real estate taxes, casualty losses, advertising and realtor commissions,” Hook said. “Expenses such as electric, as well as gas, home insurance, landscaping, etc. which would otherwise not be deductible are deductible for the days the property is rented.”

Finally, Hook said, there is an IRS rule that if you rent your personal residence for less than 15 days during the year that you do not have to report the rental income. But in that case, you can’t deduct the rental expenses.

(Editor’s note: If you are interested in buying a house for rental income or otherwise, it’s important to know how much mortgage you can afford. You can start by pulling your credit reports and credit scores. You can get your credit reports for free once a year from each of the three credit reporting agencies, and you can monitor your credit score using a free tool like Credit.com’s Free Credit Report Card. You can also use Credit.com’s mortgage calculator to determine how much a particular home might cost you.)

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The Wage Gap Really Widens When Women Hit This Age

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It’s no secret that women often make less money than men, but a new study discovered there’s a certain age when that problem escalates.

According to a gender equity report from Visier, a workforce analytics firm, the gender wage gap in America widens around age 32. The study found this is the time when women are earning 90% of men’s wages. That number decreases to 82% in just eight short years — by age 40.

“Every CEO should be looking at gender equity,” John Schwarz, Visier founder and CEO, said in a press release. “Countless studies have shown the equal economic contribution women make in the workforce, yet companies have struggled to achieve the goal of equity in compensation.”

According to Visier’s study, which used information from its database of 165,000 U.S. employees from 31 companies, the age of 32 is a time when men typically start being promoted to managerial positions and earning an average wage two times the wage of non-managers. This is also when many women leave the workforce, take time off for maternity leave or even face discrimination in promotion decisions.

The study points out that paying women and men equally for the same position is integral to closing the gender wage gap. But so is fixing what the study calls “the manager divide” by having a stronger representation of women in managerial roles, which could reduce the wage gap to 10% across all age groups, the report said.

How Income Affects Your Credit

No matter how much you earn or your role, your paycheck won’t directly affect your credit scores. But having more money coming in can make it easier to pay credit card debt or other bills you may have. This can help you maintain a strong payment history, which is a major factor in establishing your credit scores. (To find out how your spending and payment habits are affecting your credit, you can see two of your free credit scores, updated each month, on Credit.com.)

If you aren’t happy with what you see, there are ways you can work on improving your credit score. This can include paying down debt and disputing any errors you find on your credit reports.

[Offer: If you need help fixing errors on your credit report, Lexington Law could help you meet your goals. Learn more about them here or call them at (844) 346-3296 for a free consultation.]

 

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15 States Where Only the Rich Got Richer Post-Recession

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For years, many Americans have struggled to get by due to stagnant wages.

The rich don’t have that problem.

A new report from the Economic Policy Institute, a think tank based in Washington, D.C., points out that income inequality has risen in every state since the 1970s, and the income gap widened significantly in some states after the Great Recession. The report, “Income inequality in the U.S. by state, metropolitan area, and county,” analyzes tax data reported by the Internal Revenue Service, with a particular focus on income trends between 2009 and 2013.

In that time, 15 states saw the top 1% account for all income growth, while average earnings fell among the bottom 99%. Here’s a list of those states, in reverse order of income gap:

Mississippi

The top 1% makes 16.9 times more than the bottom 99%

Maryland

The top 1% makes 17.0 times more than the bottom 99%

North Carolina

The top 1% makes 17.7 times more than the bottom 99%

Virginia

The top 1% makes 17.7 times more than the bottom 99%

South Carolina

The top 1% makes 18.1 times more than the bottom 99%

Missouri

The top 1% makes 20.0 times more than the bottom 99%

Louisiana

The top 1% makes 20.7 times more than the bottom 99%

Georgia

The top 1% makes 21.4 times more than the bottom 99%

Washington

The top 1% makes 21.8 times more than the bottom 99%

New Jersey

The top 1% makes 25.3 times more than the bottom 99%

Florida

The top 1% makes 34.7 times more than the bottom 99%

Nevada

The top 1% makes 38.3 times more than the bottom 99%

Wyoming

The top 1% makes 40.6 times more than the bottom 99%

Connecticut

The top 1% makes 42.6 times more than the bottom 99%

New York

The top 1% makes 45.4 times more than the bottom 99%

What Income Inequality Looks Like

Bummed out yet? Here are more striking statistics about post-recession income inequality:

In 10 states, the top 1% had double-digit income growth while incomes fell among the bottom 99%. These states were Connecticut, Florida, Georgia, Missouri, New Jersey, New York, Nevada, South Carolina, Washington and Wyoming.

In 24 states, the top 1% of earners “captured between half and all income growth,” according to the paper, and in 19 states, 1 percenters “captured between 16.7% and just under half of all income growth.”

While this income growth escaped most people’s reach, the increasing cost of living did not. That’s not great for things like household budgeting, paying bills and debt obligations. (Two strong examples are the rising costs of education and student loan debt.)

Though your income has no direct bearing on your credit standing, it can strongly influence how you’re able to manage credit accounts or other bills. You can keep an eye on how these things are affecting your credit by getting two free credit scores once a month on Credit.com.

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Bernie vs. Hillary: How Do Their Tax Plans Really Stack Up?

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Tax policy is a crucial component of any political campaign, but as important as taxes are to many voters, they’re not easy to understand. Expert analysis comes in handy, but due to the complex nature of tax policy, even that can be puzzling.

Take, for example, recent joint research from the Urban Institute and Brookings Institution. Researchers from the left-leaning think tanks’ tax policy centers assessed the tax plans from Democratic presidential candidates Hillary Clinton and Sen. Bernie Sanders. Together, they include about 80 pages of analyses, describing various ways the candidates’ policies could affect the economy, businesses and individuals. If you want to dive deep into the details (at least, the ones that the campaigns have provided so far), these analyses are worth a read (the Clinton analysis is here and the Sanders analysis here). Here’s a quick look at how Sanders’ and Clinton’s tax plans compare.

On Tax Complexity

The research concluded that Clinton’s proposals make the tax code more complex, particularly for high-income taxpayers, while Sanders’s plan would simplify taxes in several ways.

As with the current tax code, the amount of new taxes Clinton and Sanders propose depends on how much money you’re working with in the first place, which makes it really difficult to concisely summarize every aspect of their plans. And not all parts of their plans have a direct point of comparison in the other candidate’s plan. For example, Sanders proposes a carbon tax, while Clinton proposes eliminating fossil fuel incentives.

Digging into the taxes on businesses adds another layer of complexity that, while not independent of consumers’ tax concerns, can be a bit more difficult to trace back to individual impact.

On Revenue

The research estimates Sanders’ proposals would increase federal revenue by $15.3 trillion by 2026 and an additional $25.1 trillion by the second decade they’re in effect. Sanders has outlined plans to use these revenues to pay for his major initiatives like free college and Medicare for All.

“The plan is unlikely to do much, if anything, to reverse the currently unsustainable path for public debt,” the researchers wrote.

Researchers estimate Clinton’s policies would increase federal revenue by $1.1 trillion in the first decade and another $2.1 trillion through 2036, which would “reduce future deficits and slow, somewhat, the accumulation of public debt,” the researchers wrote. However, Clinton has hinted at proposals-to-come on a tax cut for low- and middle-income households, making it difficult to assess how her plans will affect the federal deficit and the economy.

On Estate & Gift Taxes

Both Clinton and Sanders propose raising the estate tax from 40% to 45%, though Sanders’ plan employs a graduated surtax on estates exceeding $10 million. Both also propose increasing gift taxes.

On Capital Gains

Both Clinton and Sanders propose taxing capital gains at the same rate as ordinary income taxes.

On Take-Home Pay

Clinton and Sanders have each proposed tax increases that would reduce workers’ take-home pay to at least partially pay for services that would theoretically reduce some financial demands on household income, like saving for college and healthcare costs. (If you’re worried about how student loan or medical debt are impacting your credit, you can get a free summary of your credit report every month on Credit.com.) The research concluded that both proposals would decrease incentives to save and invest, though that would mostly apply to only the high-income taxpayers in the case of Clinton’s plan.

Sanders’ proposals would raise tax burdens by an average of $9,000, resulting in a 12.4% cut in after-tax income. It’s higher for the highest income earners and vice versa.

Clinton’s tax plan would mostly hit the highest earners. The top 1% of earners, or those with incomes greater than $730,000 (in 2015 dollars), would see a 5% cut in after-tax income in 2017, while taxpayers outside the top 5% of earners (people earning less than $300,000 in 2015 dollars) “would see little change in after-tax income.”

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Does Taking a Pay Cut Hurt My Credit?

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Income isn’t generally reported to credit bureaus, but that doesn’t mean a shrinking paycheck can’t have an affect on your good credit. If you start missing debt obligations as a result of a less money coming in, you’re credit score can suffer.

And what about changes to your credit limit? Could a change in income from retirement or taking a lower salary impact how much credit card issuers are willing to extend to you?

“Every creditor has debt criteria for limits and terms, but I’ve never had a discussion with anyone who experienced a credit limit decrease because of a salary change,” Bruce McClary, vice president of communications with nonprofit National Foundation for Credit Counseling, said.

Likewise, Thomas Nitzsche, a spokesman for Clearpoint, another counseling service, said he’s never run into that situation.

“While it would certainly make sense for creditors to lower a limit based on income, I don’t have any firsthand experience of clients reporting this,” he said.  “We do see lowered limits when a client’s score begins to slip and during the recession we saw creditors lower limits and increase minimum payments across the board, but I cannot say that we have seen the same happen when clients self-disclose a lower income.”

Several credit card issuers did not immediately respond to questions about lowering credit limits because of salary decreases, but most issuers retain the right to lower your credit limit at any time. For example, the member agreement for the Chase Freedom credit card (you can find a full review here) states “We may cancel, change or restrict your credit availability at any time.”

Remember, a lower credit limit could hurt your credit score, since credit utilization (the amount of debt you owe versus your total available credit) is a major factor among credit scoring models. You might not be able to avoid a reduction in credit card credit limits, related to a pay cut or otherwise, but, fortunately, there are plenty of things you can do to ensure your credit score doesn’t take a hit.

Here are a few tips for managing your credit with a lower income.

1. Live Within Your Means

Whether you’re making six figures or minimum wage, living within your means is key to keeping your credit score in good shape. If you find yourself making less, adjusting your budget can be key to doing that so you avoid missing payments or defaulting on debt.

It’s a good idea to review your monthly expenditures and figure out where your money is going. If you aren’t already doing so, you can start tracking your spending, then you’ll know what to cut. It’s also a great time to start making coffee at home, cook homemade meals, and cut non-essential monthly costs like subscriptions.

2. Create a Budget, or Adjust the One You Have

Adjusting your standard of living comes with a lot of challenges, but reducing your spending is much easier than dealing with a pile of debt, collections accounts and a damaged credit score.

Creating or altering your monthly budget can help, and it’s easy to get started once you think about your financial goals and re-evaluate your needs.

3. Keep Current on Monthly Bills

For the monthly bills you can’t cut out — like loans, credit cards and utility bills — it’s important to keep current on payments so you can stave off any credit dings. Keeping your credit utilization below 30%, and optimally 10%, is also important.

4. Hold Off on Applying for New Credit

While your income isn’t typically part of your credit report or score, it is most often included in a credit application. Some loan products require a certain debt-to-income ratio, and credit card issuers will want to know how much you make before issuing you a credit limit. Remember that hard inquiries can result in a drop in your credit score, so it’s important to know where your credit stands so you don’t apply for cards or other credit you’re unlikely to qualify for. You can check your credit scores for free every month on Credit.com to see where you stand.

If you’re already saddled with debt and are dealing with a drop in income on top of that, you could consider a balance-transfer credit card or debt consolidation loan to help ease your monthly obligations.

At publishing time, the Chase Freedom credit card is offered through Credit.com product pages, and Credit.com is compensated if our users apply and ultimately sign up for this card. However, this relationship does not result in any preferential editorial treatment.

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

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