Let’s Get the Facts Straight Here!

I resent when people take a piece of information and blow it out of proportion. I have been hearing lots of rumors that there will be a new 3.8% tax on all real estate sales to fund the unpopular health care reform - Ouch, that could really hurt my business!  Then just this morning I read an article which clarifies the new tax beginning in the taxable years following December 2012, or should we just say 2013 and beyond.

As it turns out this is a tax on net investment income that could result in a small percentage of home sellers (ie: those defined as high earners) paying additional taxes on a  portion of home sales profits over the designated capital gains threshold amount. ($250,000 per individual or $500,000 per couple). The majority of home sellers will not be impacted.

An example given that was easy to follow helped me understand how it works:

A couple with a combined income of over $250,000 per year (1.5% of  all U.S. households) decides to scale back and sell their 2 million dollar residence in favor of a smaller home and they make a $750,000 profit on the sale; they would pay and additional 3.8% tax on  $250,000 (ie: $750,000 minus the $500,000 capital gains threshold).

We can argue on the fairness of the tax or weather or not we like  health care reform, but let’s at least debate with the true facts.  This information was provided by a Snopes article that was dated April 24, 2010, so this is not new information.  http://www.snopes.com/politics/taxes/realestate.asp

Reprieve for the 1031 Exchange in California

We recently received a bit of good news for real estate investors in California.  Earlier this year the Senate Appropriations Committee had approved SB 1316 a bill which was going to provide tax credits for investors in low income properties in California.  The plan was to offset the tax loss by eliminating the deferral of state capital gains for taxpayers who are doing exchanges into properties out of this state.  The passage of this bill would NOT be good news for the Real Estate Industry or for those citizens who would like to have the freedom to chose another state to exchange their investment property with the IRC section 1031 vehicle.

Fortunately, as the result of some very aggressive lobbying, the bill has been moved to inactive status.  So for now it is a non-issue.  If you would like to know more about the IRC 1031 tax deferred exchange for investment properties, please be sure to check out the website of our exchange colleagues at  Starker Services.   Or if you are one of those people who doesn’t like to visit websites, give us a call and we will hook you up with an experienced professional in the field.

Short Sale & Bankruptcy – What do YOU think?

We value your opinion, reader so we would love to hear what you think about this:

I was at an office meeting this week and one of the agents described the following scenario in one of his short sale escrows — true story.  The agent was representing the seller of a home which was in escrow as a short sale that had been approved by the seller and the bank which held the note.  The buyer was approved and ready to close on the house when about 3 days from closing the sellers filed bankruptcy.  The sale was frozen which means that the buyer can’t buy and the seller can’t sell and, of course, the agents cannot collect their commissions on the deal that they put together.

The question from the agent at the meeting was should they file to become one of the vendors that the bankruptcy court orders paid?  My answer was yes, of course.  The agent had provided the service that was contracted for.  He had brought a bonafide offer that was approved by the seller and their bank.  The agent did what was contracted for — so he should be paid.  What do you think?

Also, I was wondering what you might think of this scenario in general.  The seller was able to stay in this house without making a mortgage payment for about 1 year.  Now that the situation has changed and they have filed bankruptcy, more than likely they will be able to stay in the house for another 6-12 months without paying a mortgage.  Yes, the bankruptcy will destroy the sellers’ credit but not paying your mortgage for a year probably had a similar affect on the credit too.

If  someone out there has an opinion on either of these issues,  I would like to hear it.

BMPs, who needs EM?

The Tahoe Regional Planning Agency says that any property that exists — residential or commercial — within the Tahoe Basin, requires a compliance certificate that their BMPs have been completed.

Jennifer and I attended an informational meeting today at the North Tahoe Conference Center that was put on by the TRPA. Shay Navarro, Associate Environmental Specialist with the Agency did a good job of explaining what the BMPs are. This is an acronym for “Best Management Practices.” The problem is that the clarity of our finest lake — Lake Tahoe – has diminished since 1968 when the visibility was 102 feet. At last measurement 2008, the visibility was 69 feet. Apparently the cause of this regression is a lot of sediment entering the Lake from things like water dripping off of roofs, moving dirt down the road and into the Lake. Another cause might be snow melt off on unformed and unpaved driveways, again picking up sediment including oil from autos and moving it into the lake.

The TRPA has been charged with remedying this situation and one of the ways they plan to do that is to require property owners to have their property assessed and bear the responsibility for mitigating any problems that their property may be causing. The 3 ways they are forcing the property owners hand are requiring the BMP certificate of compliance at 1) the point of application for a building permit; 2) application for a buoy permit; 3) targeted enforcement; or 4) at the point of a real estate transaction as something that must be disclosed to a potential buyer.

Some drastic measure of cooperation must be taken since out of the 45,000 properties within the Tahoe Basin that need to have compliance with this BMP situation, only 12,000 properties have stepped up to the plate (and this has been required since 2003).

For more information on this — there is a lot at the TRPA’s dedicated website where you can even find out if your property has a certificate.

New Developments in Short Sale and Foreclosure

There were a couple of new developments this past month in the banking industry with regard to foreclosures and short sales. The 2 largest banks have made some movement in changing their policies.

First, the Bank of America announced this past month that it will introduce “principal forgiveness.” This term refers to reducing the loan balances of some distressed homeowners who have either adjustable rate mortgages or sub-prime loans. If a borrower “qualifies” for this reduction, it will not only reduce his principal (the loan amount) but also his monthly payments.

The Obama administration’s Home Affordable Modification Program, or HAMP, has a goal of lowering the payment on a first mortgage to about 31% of a borrower’s gross income.

Not sure how this is going to work, or how it will be received by the people who are not currently “distressed,” but it remains to be seen whether or not the Bank of America actually carries through with this promise.

Another problem that has held homeowner’s hostage over the past 2-4 years is the second mortgage. It seems that even though some people qualified for relief for their principal mortgage under the U.S. Treasury’s mortgage-modification program, their home equity or second mortgages were still putting them at risk for default (some consumers’ second loan payments are higher than their first’s). Wells Fargo and the Bank of America have bowed to pressure from the federal government to modify these home-equity loans.

As for its part, government has come to the aid of distressed homeowners in that the IRS has been told not to pursue taxing the forgiveness (the difference between what a short sale/foreclosure/loan modification nets the bank and what the borrower owes), on principal residences. For a while it looked like this would NOT be the case in the state of California but another bill passed very recently by the state legislature (SB 401) and expected to be signed by Governor Swartzenegger in time for April 15, 2010, would, make homeowners immune from state taxation on this “forgiveness” also.

for more info

and even more

and for info on state forgiveness

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