Real Estate Information Archive

Question:  Allison, we are wondering how the “fiscal cliff” really affects us.  Any thoughts?

Answer: Just when you never wanted to hear the words "Fiscal Cliff" again, I’m glad you asked!  Here are some of the details of the changes in the law that affect property owners. 

(This information was compiled by the National Association of Realtors

* Mortgage cancellation relief is extended until January 1st, 2014.  This is for people doing short sales and not wanting to be taxed on the amount shorted to the bank.
* Deductions for mortgage insurance premiums for filers making under $110,000 is extended through 2013 and is retroactive for 2012.
* This one affects ALL home owners, the energy efficiency tax credit of 10% (up to $500) was extended through 2013 for improvements to EXISTING homes.
* Capital gains rate: This stays at 15% for those making under $400k/$450k.  After that tax rate is now 20%.  The $250k/$500k exclusion for the sale of a single family residence stays in place.
* Estate Tax:  The first $5m in individual estates and $10m in family estates are now exempt from estate taxes.  After that the rate is 40%.

This is just the down and dirty about how the newest changes may affect you and your family.  Give us a call if you’d like more information – or, as always, speak with your accountant to get detailed info about your particular situation!

For answers to your real estate questions, call Allison at 970-468-6800. Email - Info@SummitRealEstate.com. Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  Want to know the value of your Summit County property? Visit www.SummitHomeValue.com  

Question:  Allison, we’re selling our home in Breckenridge, CO and wonder what changes our sale will have on our taxes from a real estate perspective.

Answer:  Good question! I’m FAR from being a tax expert, but from time to time the IRS releases tips designed to help people with their taxes. Some of these are quite useful.

According to Stephen Fishman, Inman News, last week the agency released "Ten Tax Tips for Individuals Selling Their Home," (IRS Summertime Tax Tip 2011-15).

Here are the IRS's top 10 tax tips for home sellers:

1. In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.


2. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).


3. You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.


4. If you can exclude all of the gain, you do not need to report the sale on your tax return.


5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.


6. You cannot deduct a loss from the sale of your main home.


7. Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.


8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.


9. If you received the first-time homebuyer credit and within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. The full amount of the credit is reflected as additional tax on that year's tax return.


10. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.

Best to speak with your Accountant to keep on all the minor and major changes that can affect you! 

For answers to your real estate questions, call Allison at 970-468-6800. Email - Info@SummitRealEstate.com. Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  Want to know the value of your Summit County property? Visit www.SummitHomeValue.com  

There have been some interesting changes and challenges with the current 1031 tax deferred exchange laws and regulations.  The capital gains tax is currently at only 15%, but that is set to "sunset" at the end of the year.  It will most probably go up to at least 20%.  If you're considering selling and want to buy another investment property somewhere, now might be a good time for you to take advantage of the 1031 exchange.  Here is some information you might find interesting from my friend, Mary Lou Schwab of Bankers Escrow - a great 1031 exchange qualified intermediary company.

1031 CHALLENGES IN A CHANGING ECONOMY!

Decisions — Decisions!  It is more challenging in this economy to understand all the tax, lending and insurance issues which affect a successful 1031 Exchange transaction. Tax changes are forth coming. Lenders are requiring more equity & also limiting the number of investor loans.  Insurance is a challenge as well.  An exchanger needs to review many factors to determine if they can successfully complete a 1031 exchange.  

TAX REGULATORY PROPOSALS:
Capital gains tax rates have a high probability of increasing in 2011.  Currently, the 2010 long term capital gains tax rate is 15% for married tax payers that have income exceeding $66,800.  Publicly, the Obama administration has recommended an increase in long term capital gain tax rate to 20% and some members of Congress support a higher rate.  
Watch for changes in State Tax regulations for 1031 exchange recognition and tax rates.  As State legislators try to increase tax    revenues for their enormous budget deficits, both 1031 Exchange    recognition & capital gains tax rates are in jeopardy.  Currently, a proposed California Assembly Bill 2640 would eliminate a company’s ability to use 1031 exchange deferred tax treatment.  In Rhode Island, favorable capital gain treatment is no longer recognized for 1031 exchanges.  In Minnesota, the majority of 1031 exchanges are audited by state auditors. Many exchanges are being excluded from tax deferral treatment due to their ultra conservative interpretation of 1031 exchange regulations.   
Depreciation recapture has a current rate cap of 25% which Congress could change to match the current maximum individual tax rate of 35%.  Changing the cap rate on depreciation recapture would be a simple maneuver.  Then the Legislators could claim they have not raised taxes for individual taxpayers.  

LENDING ISSUES:
Commercial banks & mortgage lenders are creating incredible challenges for investors who need loans.  Lower appraised values of property, higher equity requirements by banks & the FDIC requirements for limiting the amount of bank lending that is available for real estate has created a shortage of lending options.  Additionally, FNMA regulations limit lending for investors if they have 3 or more investment property loans & their own principle residence loan.  Double check the availability of lending prior to initiating your 1031 exchange transaction.  Lastly, begin your lending request early in the 1031 exchange process as the loan processors, underwriters, SBA & bank officers are requesting more information & are not timely in responding to contract closing dates.  

INSURANCE ISSUES:
For any new insurance coverage a credit check is generally requested & will be utilized to calculate your premium rate.  Utilize your insurance broker to compare coverage & premiums to determine the most economic alternative.  By shopping for your insurance needs early in your replacement 1031 property purchase, you have the opportunity to minimize your premiums.
Prior to any contemplated 1031 exchange transaction check with your direct tax advisor regarding your own tax situation.  If you have a passive loss carry forward or a long term capital loss it could be beneficial for you to do an outright sale; a partial 1031 exchange or an installment sale for tax purposes. Additionally, if you have converted a rental property into your primary residence in the last 5 years you may receive only a prorated exclusion based upon how long the property was used as a primary residence.  
Planning is key to your successful 1031 exchange.   Utilize Bankers Escrow Corp. for your qualified intermediary needs.

And now for your Coffee Break..."All the art of living lies in a fine mingling of letting go and holding on."    ~  Henry Ellis   
 
 
Make it a great day.....

Warmly,

Allison Simson, Owner/Broker
Lynn Sustad, Buyer Specialist
Kelie Gray, Buyer Specialist
Anna Willis, Buyer Specialist
Kristi Warner, Client Care Manager
Margaret Bowes, Transaction Coordinator

Question:  Allison, I heard that Congress recently changed some of the capital gains laws.  What have you heard?

Answer: Hardly anybody noticed it, but Congress tucked away a valuable bit of holiday cheer for real estate when it passed its final tax bill of the year.

It was the first substantive change in years to the generous capital gains rules governing sales of principal homes.

According to Kenneth Harney, most homeowners and real estate professionals can recite these rules in their sleep: Married, joint-filing sellers of houses can exclude up to $500,000 of gain, and single-filing sellers can take up to $250,000 … provided they've used the property as a principal residence for a cumulative two of the previous five years.

But what happens when a married home owner dies? Does the surviving spouse still qualify for the full $500,000 -- or does she or he only get to exclude $250,000?

The answer from the IRS has been this: you only get the full $500,000 if you sell during the tax year in which you were married and filing a joint return. Otherwise, the tax code sees you as single, and then you're limited to $250,000.

In other words, if your wife or husband died in June of 2007, you can only claim the full $500,000 benefit if you sell before December 31, 2007.

After that, as long as you remain unmarried, you're capped at the $250,000 limit for single taxpayers.

As a practical matter, most surviving spouses inherit their husband's or wife's share of the property at what's known as a "stepped up" tax basis, with no capital gains tax liability at the current market value.

But here's the problem: Some surviving spouses complain that they feel rushed into sales by the current tax rules. This is especially true for people who've lost their loved ones during the final few months of the year.

With everything else going on, they don't want the additional pressure of having to make the decision to sell the family home quickly. They want more time. Fair enough.

Well, now they've got it. Legislation signed into law before the holiday recess gives surviving spouses two full years to qualify for the $500,000 exclusion -- even though technically they're single.

And who says Congress doesn't have a heart?

Since your tax professional may not be familiar with this yet, here's the official citation: The bill is H.R.3648. The capital gains change is in Section 7.

For answers to your real estate questions, call Allison at 970-468-6800 or 1-800-262-8442. Email - Info@SummitRealEstate.com or visit their web site at www.SummitRealEstate.com. Allison is a long time local in Summit County. Summit Real Estate – The Simson/Nenninger Team is located at the Dillon Ridge Marketplace. Allison’s long-time residency and years of real estate experience can help you make the most of any buying or selling situation. She’s a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field.  Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.