How the New Health Care Bill will impact real estate taxes.

The claims about the health care bill are a severe exaggeration. Here is the realty: Currently, when someone sells a home, provided that he or she has lived in and owned it for at least 2 of the last 5 years, then he or she gets to exclude the first $250,000 of gain. That’s gain, not purchase price. A married couple gets to exclude $500,000. Now, what does the new tax do? If someone has gain on the sale of a house that is above and beyond the excluded gain described above (so, a single person who has a profit – sale price in excess of purchase price – of more than $250,000; or a married couple in excess of $500,000), then in addition to the already existing capital gains tax of 15%, there is  another 3.8% tax that goes to Medicare. The misinformation currently being circulated states that the sale of a $100,000 home would be taxed $3,800. In actuality, if a married couple sold a $100,000 house for $700,000, then they would pay $3,800 in this tax. And I wouldn’t feel too bad for them.

As you can see, this health care bill would not be the end of the world because the additional tax would only apply to the realized gain, and only then to the amount of gain above and beyond a certain threshold. If you have any further questions about how the health care bill could affect you, or about any other real estate related matters, please contact us.

With hours left until the possible Federal Government shutdown my clients are asking me how this could impact their ability to buy, or sell their house.  Since the Federal Government provides numerous services affiliated with the real estate industry I have written out how some of the programs will be impacted below:

Federal Housing Administration (FHA)

FHA cannot offer endorsements for any new loans in the Single Family Program and cannot make commitments in the Multi-family Program in the event of a shutdown. FHA will maintain operational activities including paying claims and collecting premiums. If clients we going to use an FHA loan that process looks like it will be on hold or delay during the shutdown.

VA Loan Guaranty Program

Lenders may continue to process and guaranty mortgages through the Loan Guaranty program in the event of a government shutdown. VA loans seem to be unaffected by the shutdown.

Internal Revenue Service (IRS)

Should the federal government shut down, the IRS cannot process federal income tax returns or issue refunds (but it can deposit tax payments). Consumers who were expecting to use their tax returns as part of the down payment for a home purchase will temporarily not have access to these refunds. Just because the IRS can not pay your refund dose not mean they can not cash your Tax payment. Taxes are still due on April 15.

Flood Insurance

The Federal Emergency Management Agency (FEMA) confirmed that the National Flood Insurance Program (NFIP) will not be impacted by a government shutdown.

Rural Housing Programs

For the US Department of Agriculture programs, essential personnel working during a shutdown do not include field office staff who typically issue conditional commitments, loan note guarantees, and modification approvals. Thus, lender will not receive approvals during the shutdown. If the lender has already received a conditional commitment from the Rural Development office, then the lender may proceed to close those loans during the shutdown. A conditional commitment, which is good for 90 days, is given to a lender once a USDA Underwriter approves the loan. If a commitment was already issued, the funds were already set aside and the lender may close the loan at its leisure. If Rural Development has not issued a conditional commitment, the lender must wait until funding legislation is enacted before closing a loan.
Government Sponsored Enterprises
Fannie Mae and Freddie Mac will continue operating normally, as will their regulator, the Federal Housing Finance Agency. These two agencies will continue to back loans and therefore conventional financing should continue as normal.

Making Homes Affordable Program

No official word as of yet, but the Making Home Affordable program, including HAMP and HAFA, may not be affected as the program is funded through the Emergency Economic Stabilization Act which is mandatory spending not discretionary.

Contact me if you have additional questions about how the shutdown could impact your ability to sell your home or buy a new one!

Ten Cincinnati Real Estate Tax Deductions

1. Real Estate Deductions: Depending on the square footage of your Cincinnati Real Estate, you can deduct some of  your mortgage if you have a home office.
2. Car expenses if you take standard mileage rate: If, like most small businesspeople, you use the standard mileage rate to deduct your car expenses, you get to deduct 50 cents for every business mile you drove in 2010. You don’t get to separately deduct the cost of gas, insurance, depreciation and similar items because these are all included in the standard mileage rate. Like a home loan you can  deduct the interest you pay on a loan for your business car.
3. Home telephone expenses: You get no deduction for a single phone in your home; but you may deduct the cost of long-distance phone calls and special phone services you use for business such as call waiting or message center. You may deduct the full cost of a second phone line and cell phone.
4. Business gifts: Any gifts you purchase for clients are deductible as a business expense up to $25 per person per year. However if you give a gift to an entire company gifts are deductible in any amount, as long as it is reasonable.
5. Green Renovations: If you have made any energy saving renovations on your home such as new windows, an energy efficient HVAC unit, or a tank-less water heater you may be eligible for a tax credit and deduction.
6. Tax-preparation fees: You can deduct the cost of hiring a tax professional to prepare your business tax return. If the same tax pro prepares your personal and business return, you can deduct only the cost of preparing the business portion.
7. ATM fees, credit card fees, and interest: You can deduct ATM fees, credit card fees and other bank charges you paid during 2010 for all your business accounts.
8. Subscriptions: Real estate-related magazines and trade publications are deductible. You can also deduct the cost of subscribing to an online real estate news service.
9. Greeting cards: Greeting cards you send to clients and sales prospects are a deductible advertising expense.
10. Websites: You can deduct the cost of designing and maintaining a website you use for business. You can also deduct your Internet hosting fees and the cost of obtaining a domain name for your business. If you do Internet advertising that may also count as an advertising related business expense.

Cincinnati property tax due dates

We will be saving nearly 50% off of this unit due as a result of this program.They contract with different service providers so you have your choice of who you want to do your installation. The money comes from a conglomerate of Duke Tax Credits, County Tax Credits and a number of other government and private sources. You pay the discounted amount to the provider and they process the paperwork and get all of the credits through the Energy Alliance themselves. I passed this on to my real estate clients and wanted our Community to be able to take advantage of this opportunity as well. This money will be running out in the next few months so if you are planning to replace any of these items in your home soon, this should give you the incentive to get free money while you can!!!! Contact Alison Warm Moss for the info!

In fact, RIS Media recently reported that younger homeowners have higher average mortgage interest deduction in the 35 to under-45 age group, followed by the 18-to 34-aged taxpayers, and declines as the taxpayer gets older. According to the research, this occurs because the mortgage interest deduction peaks soon after the taxpayer moves from renting to homeownership, and declines over time as homeowners pay down existing mortgage debt and increase homeowner equity.

This extension of the Closing Deadline applies only to transactions with ratified contracts in place as of April 30, 2010 but not yet closed.

Up to 180,000 homebuyers nationwide (including approx. 8,500 in Ohio) would have lost their tax credit had Congress not passed this extension.

What happened

The Senate approved the legislation – by unanimous consent – last night at 9:40 pm.

The House approved the legislation on Tuesday, June 29 by a vote of 409-5.

The legislation provides a seamless transition.  There is no “gap” between June 30 and the time when the bill will be signed into law by President Obama (likely to occur today).

Government Affairs staff from the National Association of REALTORSâ worked vigorously with Congressional leaders on both sides of the political spectrum to get this legislation enacted. 

According to the language in the law, as explained in this FactCheck.org article, the Medicare tax would be assessed only on proceeds from the sale of a home that are ALREADY SUBJECT TO TAXATION.

Every American who sells a home can earn up to $250,000 of proceeds tax free from the sale of the property. Couples that are married can earn $500,000 of proceeds before having to sell taxes. Proceeds are your profit – so if you purchased a home for $100,000 and sold it for $300,000 your proceeds are are only $200,000.

Moreover the medicare tax would only apply to high earning individuals with annual incomes of – $200,000 individuals and $250,000 couples.  So in order to pay this tax a married couple would have to earn $250,000 in income and net over $500,000 in proceeds from the sale of their home. And the tax is only 3.8% on every dollar over $500,000.

Make sure that when you sell a property you always consult your tax professional for assistance in planning and recording for the IRS. The Government affairs office at the Cincinnati Area Board of Realtors provided additional information for this post.

Locally in the Midwest the index rose 4.1% to 104.2 and is 17.9% above April 2009 index. The Cincinnati market was certainly impacted by the credit. Scores of buyers  looked to take advantage of the program, and in turn helped to stimulate the regional economy as well. Each new home purchase helps to provide work for contractors, inspectors, title companies, and movers just to name a few impacted industries. While the tax credit was positioned to help the real estate market the halo effect is that the increased volume of home transactions really has stimulated commerce in a number of sectors.

There are a number of reasons that this is a good time to purchase a home.

First is that over the long term Real Estate has been a solid long term investment. Over the years Cincinnati has seen relatively stable property value appreciation. Our property values did rise and fall with the rest of the country over the last 6 years, but we did not have the dramatic soar and crash like Miami, or Las Vegas. Invest in a home because you love it, not because you are looking for fast appreciation.

Second thing I point to is the closing gap between Rent and Ownership costs. With property values AND interest rates lower the gap between Rent and Ownership has shrunk substantially. According to a national study by Marcus & Millichap Real Estate Investment Services the difference between the cost of Rent and Ownership has decreased to as little as $100 a month in some markets.  The study looked at 43 major markets and found that using the median home price and median rent the cost difference was $256.  That is the smallest gap since 1993.

The third point is that there are still very good deals to be had. There are sellers who want to sell their home now and are willing to negotiate on price and terms to get the deal done. While it is still somewhat a buyers market sellers are also feeling the home values stabilize and may not be ready to give their home away in a fire sale. They key point I try to emphasize is that interest rates are at record lows. Home values have returned to 2003 levels, but the interest rates today are lower. Bottom line – the price may be the same but it will cost you less to buy the same hose today as it did in 2003 thanks to low interest rates.

For more information please e-mail me or call me at 513-518-1140