Last year two of my clients were told by their tax preparer that they needed to buy a house for tax purposes.  I guess if there is a good reason to buy a house, that is one!

Check out these companies, they didn’t pay their taxes!
http://front.moveon.org/d-which-corporations-are-the-biggest-freeloaders/?sms_ss=facebook&at_xt=4dac7c525ef33dc1,0

For more information on property taxes, or to check the status of your own, please click on one of the following links:

Alameda County
Contra Costa County

Both Alameda County and Contra Costa County have a county transfer tax of $1.10/$1,000.

Example: If the sales price of a house in Berkeley is $500,000 then the seller can expect to pay $500 for the county transfer tax and both the buyer and seller can expect to split the city transfer tax of $7,500.

No wonder buyers and sellers are confused.

While most houses are moving fast, it certainly isn’t because of the move-up tax credit.  It doesn’t surprise me that this flopped.  The move up tax credit of $6500 is for those who have lived in their home for five consecutive years out of the last eight years.  Whenever I meet with a new seller I mention the tax credit- I have yet to see one seller get excited about this and sell because of it. 

Enthusiasm for the credit is waning. 

The first time homebuyer tax credit is set to expire at the end of April so I imagine we will see a spike in sales over the first quarter.  However, most buyers are prepared to buy with or without the credit.  Perhaps it is because inventory is so low that there just isn’t much to choose from. 

Regardless of the reason, the credit was a good attempt at stimulting the real estate market.  I know plenty who took advantage.  Let’s keep watching to see what happens with rates.

Green market research firm SBI Energy forecasts that in the next five years, the market for energy-efficient home renovation products will grow 15 percent, 50 percent faster than the renovations market as a whole. According to the report, the energy-efficient market will reach $35 billion and claim 15 percent of all home renovation dollars spent. “The growth will come as a result of the tax credits, new incentives, and the reality that more agencies and utilities are promoting the fact that adding improved energy efficiency is the most cost-effective way to decrease home utility bills,” says Norman Deschamps, author and SBI Energy analyst.

Source: SBI Reports

The provision was included in a bill that also extends unemployment benefits by an additional 14 to 20 weeks and lets all companies, not just small businesses, carry back current losses to offset profits made as long as five years ago. The bill passed the House on a 403-12 vote. The Senate passed the legislation 98-0 Wednesday, and President Barack Obama is expected to sign it into law Friday.

The $8,000 first-time home buyer tax credit, which helped home sales rebound this year, was scheduled to expire Nov. 30. The legislation extends it to homes that are under contract by April 30, 2010, and creates a new $6,500 tax credit for owners of existing homes who buy a new principal residence. To take advantage of this credit, buyers must have lived in their old house for at least five of the past eight years.

The legislation also increases the income eligibility limits for the tax credit from $75,000 to $125,000 for individuals, and from $150,000 to $225,000 for joint filers. The cost of the home cannot exceed $800,000.

More than 1.4 million households have benefited from the current tax credit, “the majority of whom have incomes below $50,000,” said Rep. John Lewis, D-Ga.

“This legislation would help even more moderate-income families fulfill the American dream,” he said.

Sen. Johnny Isakson, R-Ga., pushed the Senate to expand the tax credit to “move-up” home buyers. He said this is the last time the tax credit will be extended.

“I urge all Americans, whether they’re first-time buyers who’ve always dreamed of buying a home of their own or someone who’s been gridlocked in the failure of our move-up market, to take advantage of this opportunity,” said Isakson, a former Realtor.

The National Association of Home Builders predicts the extended and expanded tax credit will generate 180,000 additional home sales.

“Today’s action by Congress will further stabilize housing and the economy by creating new jobs, stimulating home sales, reducing foreclosures, cutting excess inventories and stabilizing home prices,” said NAHB Chairman Joe Robson, a home builder from Tulsa, Okla.

The National Association of Manufacturers praised Congress for expanding the net operating loss (NOL) carry-back provision to all businesses. Businesses normally can use current losses to offset taxes paid in the previous two years, enabling them to get a tax refund. The economic stimulus bill enacted in February allowed businesses with annual revenue of under $15 million to carry back losses for five years. The new law allows larger businesses to get this break as well.

“This provision is urgently needed,” said Monica McGuire, NAM’s senior policy director for taxation. “More than 20 percent of small and medium-sized NAM members reported NOLs in 2008, and we expect that number to double for 2009. This relief will give manufacturers the ability to transform a future tax benefit to cash today and stem the flow of mounting job losses.”

Washington Business Journal

He contacted me regarding a couple of items he received.  The first item went something like this:

“Our records indicate that you have not taken advantage of our low cost Mortgage Protection Insurance…”

To someone who doesn’t know, it looks official.  DON’T FILL IT OUT.

The second item was even better:

“Important Notice…Declaration of Homestead Request Form.”  This one included a copy of the recorded Grant Deed and was from “Title Concepts Plus.”  ARE YOU SERIOUS? 

I had no idea that these types of items were being sent out.  If you just purchased a home, be wary of ANYTHING you receive in the mail that doesn’t come from the title company you used to purchase the house, or from the bank who holds your loan.

The bill was introduced by Representative Charles Rangel (D-NY) because it was thought that families serving overseas were being passed over for this one-time opportunity to purchase a home. It passed the Housed passed with 416 votes and 16 abstentions.

It is anticipated that the bill will also be approved by the Senate, but it is not law yet.

So what about the rest of you?  Go buy now.

Did you know that the $8000 tax credit will expire in 70 days?  When you consider that the average transaction takes between 25 and 30 days that means you only have roughly 45 days to locate and get into contract on your house.

Did you know that rates are near where they were in March, which represents a 40 year low?

Did you know that the current high balance loan limits of $729,750 are set to expire at the end of December? To extend this the Government will have to pass another bill like the one they did last year (which took until March and April to be able to offer them to you).

Did you know that FHA loans are quickly becoming the number one loan amongst buyers? 

Did you know that October 1st the requirements for getting an FHA loan on a non-approved condominium complex will become more difficult?

So ladies and gentlemen, first-time home buyers and second-time home buyers, call me today because the clock is a-ticking.  Whatever questions I can’t answer, I have a fabulous team of mortgage brokers and tax people to assist you.

Taxpayers Beware: Zero Profit Doesn’t Mean Zero Capital Gains Taxes!

In this difficult market, many taxpayers are selling property in short sales or other transactions with no profit. Unfortunately, what many taxpayers do not understand is that property may be sold with no profit, but still be subject to significant taxable capital gain.
 
How is this possible? It is possible simply because gain results not just from appreciation in value, but also results from depreciation deductions taken during ownership of the property, gain deferred from previous transactions, and from borrowing against appreciated equity in a declining market. These adverse tax consequences can be avoided by engaging in a Section 1031 tax deferred exchange.

How to Determine Gain
The formula to determine taxable gain is: Basis (original sales price) less adjusted basis (basis plus improvements less depreciation)= taxable gain

Three Situations Resulting In No Profit, But Taxable Gain
1. Depreciation Recapture If a taxpayer takes depreciation deductions, those deductions reduce the taxpayer’s basis, thereby resulting in gain.

Example: Taxpayer acquires investment property A for $200,000. Taxpayer’s basis is therefore $200,000. During taxpayer’s ownership, taxpayer takes $138,500 of depreciation deductions, thereby reducing taxpayer’s basis to $61,500. Taxpayer sells Property A for $180,000.00. Even though taxpayer sells the property for $20,000 less than what he originally purchased it for, he still has a taxable gain of $118,500 ($180,000-$61,500=$118,500) which will result in approximately $41,500 in federal and state taxes. This adverse tax result can be avoided by exchanging the property in a tax deferred exchange rather than selling the property.

2. Carryover Gain If a taxpayer sells property previously acquired in an exchange – at no profit or even at a loss – the taxpayer may still be faced with significant taxable gain.

Example: Taxpayer originally acquired Property A for $20,000. Taxpayer disposed of Property A in a tax deferred exchange for $100,000 and acquired Property B for $150,000, thereby deferring taxes on $80,000 of gain. Taxpayer’s adjusted basis in Property B is $70,000 ($150,000 purchase price-$80,000 carryover gain=$70,000). Taxpayer now proposes to sell Property B for the same price as he purchased it for – i.e. $150,000. Although Taxpayer is not making a profit on this transaction, he will still have significant federal and state taxes of approximately $28,000 on his gain of $80,000.

3. Excess Borrowing If a taxpayer borrows against appreciated equity in their property, tax consequences can also result if the property thereafter declines in value and the taxpayer is forced to sell the property for little or no profit.

Example: Taxpayer acquired property A for $1,000,000, paying $200,000 cash and borrowing $800,000. Taxpayer’s basis is $1,000,000. During Taxpayer’s ownership, the property appreciates in value to $1,400,000, enabling Taxpayer to refinance the existing loan of $800,000 with a new loan of $1,120,000. Taxpayer now sells, but since property values have declined, his selling price is $1,120,000. Although Taxpayer will receive no cash from the sale, he will still have taxable gain of $120,000 ($1,120,000-$1,000,000=$120,000), with combined federal and state taxes of $42,000.

As illustrated by the foregoing examples, sales of property that yield little or no cash can still result in taxable gain. Before selling in a down market, taxpayers and their advisors should first determine the taxpayer’s basis in the property to be disposed of and thoroughly discuss upfront the potential tax consequences. Taxpayers can avoid any of the tax consequences noted in these examples by engaging in a IRC §1031 tax deferred exchange.

Taxpayers contemplating an exchange should always consult their tax or legal advisor.