Obama's Healthcare Tax Affects Many Secondary/ Investment Homes

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President Obama’s new Medicare tax on unearned investment income will be one that will change things for our marketplace. Though most of the American population will be unaffected by his new tax imposition, we feel that our area is one that will indeed feel it.

There is much debate about who will have to pay the additional 3.8% taxes on top of already existing capital gains taxes for properties that fall under specific criteria. But one thing is certain. Many of the properties and sellers in our area come will be impacted. To help explain it further, I’ve put together a couple examples after briefly outlining the guidelines for this new tax.

Tax Applicable to Secondary Homes and Investment Properties

The first thing to keep in mind is that this tax will not apply to homes sold that are primary residences. Since most of the properties in our marketplace fall in the other, secondary category, read the following points carefully to find out if you may be subject to additional capital gains taxes. There are some nuances to the tax law as well that have to do with whether or not the property is used for personal enjoyment, is rented out and how long it is rented out for during the year. These (and other) points are mentioned in this concise list of FAQs about the Medicare tax published by the National Association of Realtors.

Gains Over Specified Amount for Individuals and Couples Apply

If the total amount of capital gain exceeds $250,000 for individual sellers or $500,000 for married couples –then the 3.8% tax applies to the amount exceeding the normal capital gains limits. We deal with properties well over this amount regularly and in some cases these properties were purchased a while back, resulting in present day sales that yield significant capital gains.

Upper Level Incomes Are Impacted by New Real Estate Tax

As is the case with most of our clients in this area, the annual Adjusted Gross Income must be at $200,000 for individuals and $250,000 for married couples filing jointly for the tax to be applicable. When these sellers have a capital gain on their property exceeding the capital gains limits mentioned above, the sale involves secondary or income generating properties and they have incomes starting at $200k/$250k, the tax will be applied. For married couples filing separately the AGI threshold is $125,000.

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It is important to keep in mind that both conditions (income and exceeding capital gains limits on relevant properties) must be applicable in order for the tax to be imposed. Here is another report published by the National Association of Realtors outlining additional scenarios where this real estate tax would be applied.

Scenarios to consider:

Example 1:

A property bought by an individual in 1990 for $200,000 that is now worth $700,000 sells accordingly. The capital gains that go above and beyond $500,000 would be taxed an additional 3.8% as long as the seller has an income of at least $200,000. Since the allowable capital gains before taxation for an individual is $250,000 – in this scenario, the amount additionally taxed would be $250,000. The healthcare tax for this property would be $9,500.

Example 2:

A home that was purchased by a married couple filing jointly with a combined income of $220,000 in 2000 for $350,000 and sold today for $800,000 would yield capital gains amounting to $450,000. Since this is $50,000 under the capital gains limit prior to taxation and they earn less than the required income level for couples, they would not have to pay the additional 3.8% tax on the sale of this property.

If you are considering selling your property and are unsure of whether you will be subjected to these taxes in addition to all the other expenses that go along with selling, contact us today.

Home Inspector to the Rescue!

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You Better Give Sherlock Holmes a Ring!

No, you don't need the fictional detective inspector. However, you do need a home inspector! Think of this as a "pre-emptive strike" to maintain or increase your home's value before you put it on the market. Here are the benefits an inspector provides you:

Benefit 1: The inspector can uncover any problems that need fixing, and you can correct them before any potential buyers enter your home. Such an inspection can prevent your sale from falling through!

Benefit 2: With an inspection, you can show prospective buyers receipts to prove the work has been done. Buyers love proof! In reality and in their eyes, it underpins the value of your home and the asking price.

Benefit 3: You may be able to factor the cost of the inspection into the asking price for your home!

Benefit 4: When you have a pre-sale home inspection completed, you're able to estimate if the discount the prospective buyer is asking is reasonable. In other words, you can refuse unreasonably low offers if you know the value of your house, including the degree of its defects.

So, How Do I Find a Qualified Home Inspector?

I can recommend a certified home inspector who will do a great job for you. However, if you decide you want to do it on your own, make sure he or she is qualified!

Con artists sometimes pose as home inspectors, taking your money and giving you nothing but grief in return. Here's how to know if an inspector is the real deal:

Ask your friends for referrals. If they've had a good experience, go with that home inspector. I’d recommend you interview a minimum of two or three inspectors before choosing one. Make sure they’re full-time professionals conducting several inspections a year.

If possible, select a home inspector who’s a member of The American Society of Home Inspectors or the National Association of Home Inspectors.These association members follow a stated code of ethics. In addition, they’re prohibited from having a professional interest in the sale, repair or maintenance of a property they inspect. They’re also forbidden from using their inspection business as a way to find customers for a handyman service that they “happen” to own. You may want to go on the Internet and use ASHI’s “Find a Home Inspector” link to identify potential candidates in our locality.

As part of the interview process, ask for samples of comprehensive reports (about 20-50 pages in length). The samples should be painstakingly done and backed up with complete details, including photos and diagrams. If an "inspector" refuses to give you a report or provides only a sloppily written 2-to-5 page sample, run the other way!

What Does a Home Inspector Cost?

Frankly, the rates vary. On a national level, the rates fall in the range of $200 to $500. As part of the interview process, I recommend you ask several inspectors for their rates so you can get an idea of the price range. In the end, keep in mind that while the cost of an inspection may seem high, it can actually add several thousand dollars to the value of your home! So, don't think of it as a cost; think of it as an investment!

What Exactly Does a Home Inspector Evaluate?

In general, he or she will look at the following areas:

- Electrical System Wiring, Service Panel and Service Capacity

- Energy Conservation/Safety Items

- Exterior Walls, Siding, Trim

- Floor, Wall, Ceiling, Roof Structures

- Foundation, Footings, Crawl Space, Basements, Sub-flooring, Decks

- Gutters, Downspouts

- Heating & Cooling Systems

- Insulation & Ventilation

- Interior Floors, Walls, Ceilings

- Moisture Intrusion/Mold

- Overall Structural Integrity

- Plumbing Systems

- Property Drainage/Landscaping

- Roof & Shingles, Chimneys, Attic

- Walks and Drives
 - Windows, Doors, Cabinets, Counters, etc. 

Should I Be Present During a Home Inspection?

You bet! A typical inspection takes three hours or more, so I recommend that you be present for at least the first 30 minutes to make sure the job is being done thoroughly. At the end of the inspection, the home inspector should give you a point-by-point summary of what needs to be corrected in order to add value to your home!

Hope you enjoyed this very useful information about home inspection! If you have more questions, please don't hesitate to contact me!

8 Reasons Why This is the Best Real Estate Market

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For months, years now most agents have been calling out loud and clear to all buyers saying that it has been a good market. In fact, we have been able to witness a lot of changes during the past several years – with ups and downs in home prices, interest rates, average DOM and inventory levels. Well, today the marketplace has begun an unprecedented shift for the better, amounting to it being a fantastic real estate environment for nearly everyone.

Here are eight reasons why we are currently in the best real estate market that we have seen in a long time and why you should consider getting involved:

1. Lowest interest rates in the history of our market. Right now, at the end of July 2012, we are seeing a typical interest rate of about 3.65% on a 30 year, fixed rate mortgage. Shorter terms can be even lower for qualified buyers.

2. Banks are eager to lend money. The stall we saw a couple years ago where banks were too cautious has now eased up, allowing most well qualified buyers the ease of a smooth financing process.

3. Very low home prices. This has been the case for a while now and it has helped buyers get great deals. But as buyers realize these interest rates may not stay low forever, the low prices work to help sellers too. Also when sellers do sell their properties they will oftentimes need to move elsewhere, making it a dollar for dollar trade up with the result of less taxes and lower borrowing costs.

4. Very low inventory. For the first time in a long time we are seeing inventory levels so low that it is encourage multiple offers and even bidding wars in some situations. Less competition is great for sellers and smoother transactions for buyers make everyone happy. Currently we are looking at a huge decline in active listings across the board.

5. More buyers have more buying power. For the first time, many potential homeowners are able to get into new homes with the availability of little to no down payment or other programs. With the expanded marketplace there is a lot more activity – a healthy indication of a recovering market.

6. Appraisers are being reasonable. Appraisers often hold the key to whether buyer and sellers can engage in a successful deal, especially since financing often depends on an accurate and acceptable appraisal. We are seeing more and more appraisers exercising less scrutiny in their process and working with agents plus lenders throughout their appraisal procedure.

7. The Presidential Election likely to strengthen the economy. One typical effect of a presidential election is the positive impact it has on the economy. This will of course generate further consumer confidence and of course increased real estate activity.

8. Rental rates are higher than ever before. Rents are probably as high as they have ever been, providing investors and secondary property purchases plenty of opportunity to embark on low cost purchases of property that will carry through rental income.

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If you know someone who could use this information right now,  do me a favor and forward this email, share the message with them. It helps get the word out there and I greatly appreciated it.

If I could ever do anything to help you with buying or selling or just making decisions on what you should do with you RE whether it be to hold & sit tight for a few years or just get the property sold now please give me a call and we can discuss your situation.