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Archive for Friday, December 25, 2009

3 North Poles, but only 1 is for tourists

December 25, 2009

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Q: Is there a real city called “North Pole,” or is it just a bunch of icebergs floating around at the top of the Earth?

Actually, North America has three North Poles.

The “geographic” and “magnetic” North Poles are both at the top of the Earth, about 400 miles apart. The latter, where massive magnetic fields make all compasses in the world point to the north, is basically a 6,800-square-mile ice cube that slowly floats about the Arctic Ocean. It’s a good environment for whales and seals, but not so good for folks who want to build a house, because there’s no land under the water.

Several hundred miles south, however, you can find North Pole, Alaska. It’s a town of about 4.2 square miles, the U.S. Census Bureau reports, with roughly 700 homes and 1,800 residents. Many of its citizens work in its thriving tourism industry, which is largely centered on the legend of Santa Claus.

Alaska’s community of North Pole was founded about 60 years ago by a real-estate developer, who thought that toy manufacturers would flock to the area so they could stamp “Made in North Pole” on their products. But few companies took the offer, in part because the average temperature in December is 15 degrees below zero, and wind-chill factors can make it feel like 50 below. That’s enough to freeze humans, not to mention toy-making machines.

Incidentally, some scientists say that the magnetic North Pole, with its ice blocks shifting up to 25 miles a year, eventually will drift south and wind up in South America or Australia between 500 and 2,000 years from now. At that point, compasses could then be pointing south rather than north — and Santa might need to wear a swimsuit instead of a fur-covered jacket when delivering presents on Christmas Eve.

Q: My wife and I bought a home in October, and the county charged us almost $900 in “transfer taxes.” Can we deduct this cost on our upcoming tax return, just like the annual property taxes we have to pay?

Sorry, but the answer is no. Although the Internal Revenue Service will allow you to deduct any property taxes that you pay in a given year, it specifically prohibits write-offs for transfer taxes that are levied by a local assessor or related government agency as part of a sales transaction.

Most cities and counties now charge transfer taxes when a property is sold. Such taxes were originally created to reimburse the local government for the cost of updating its public ownership records, but now the levies are often used to fund a variety of programs — from food banks to local health-care centers.

Although you cannot deduct the transfer taxes you recently paid on your upcoming return, you can add the amount to the “cost basis” of the home and thereby reduce any taxes that might be owed on your eventual resale profit.

Q: We purchased our first home in November because prices have dropped a lot, and we wanted to get the $8,000 first-time-buyers tax credit that you have written about in the past. Our 30-year loan is for $200,000, with a fixed interest rate of 5.1 percent and monthly payments that are a combined $1,086 for principal and interest. How much money would we save in interest charges if we added all of my recent $75-a-month pay raise directly to the outstanding balance of the mortgage each month? How much sooner would we pay the mortgage off?

There aren’t many folks getting pay raises nowadays, but I’m glad that you are among those who have received one. Using your $75-per-month raise to make extra “principal-only” payments toward your loan will save tens of thousands of dollars during the next several years and will allow you to own your home free and clear much sooner.

If you simply keep the $1,086-per-month repayment schedule that the lender provided, you will pay $190,925 in finance charges throughout the next 30 years. Should you instead add $75 to each of your future monthly payments, you will reduce your future interest charges to $160,638 and pay the mortgage off in 25 years, 11 months.

In short, adding an extra $75 each month directly to your outstanding loan balance would save you more than $30,000 in long-term finance charges and allow you to retire the debt more than four years ahead of schedule.

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