Safe Harbor Law Makes Vacation Home Purchase Attractive
INDUSTRY NEWS, REAL ESTATE LEGISLATION, TIPS FOR BUYERS, TIPS FOR SELLERS
May 20th, 2010
The IRS has finally set ground rules for those that use a tax deferred 1031 exchange to purchase a vacation rental home that later becomes a primary or second residence. In the past, the IRS would penalize those that did this because it violated the tax deferment rules 1031 exchanges were designed to address. Many Americans found themselves with big tax bills when they exchanged their investment property for a vacation home which they later used as a primary or secondary residence.
Now the IRS has set rules for those that buy a vacation home using a 1031 exchange. The owner must use the home no more than two weeks a year and must rent the home out for at least two weeks a year for at least two years after purchase. After two years, the owner can convert the home to his or her second or primary residence while still avoiding the capital gains tax consequences provided by the exchange law. The owner must charge fair market rent, have a written lease for the rental period and it must be an arm’s length transaction- no renting to a family member.
Visiting the home to perform maintenance does not count toward the owner’s two-week time limit. The benefit here is someone with investment property such as income units, commercial buildings or land that has substantially increased in value can exchange it for a home they eventually want as a primary or secondary residence. Until now, selling one to buy the other would trigger a capital gains tax event or prevent the owner from using the home for personal use.
For specifics on this safe harbor provision in the tax code, contact Russell Marsan of IPX Exchanges at 800-406-1031. He can give you particulars on the tax law and assist as an exchange facilitator. I can assist you with the sale or purchase of the investment or vacation property.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL REAL ESTATE SALES EXPERIENCE
Shasta County Entry-Level Home Sales Activity Doubles
INDUSTRY NEWS
May 7th, 2010
Looking over April home sales numbers and comparing them to a year ago one thing stands out- pending home sales priced under $200,000 are nearly double the volume as last year. In April 2009, 33 homes priced under $150,000 sold. This year that number was 62. Twenty seven homes priced from $150,000 to $200,000 sold in April 2009. This year that price bracket saw 45 homes sold.
The number of homes sold in all price catergories year-to-year saw a 21% jump in April. Of the 168 sales reported on the Shasta Multiple Listing Service, 74% were priced under $300,000, roughly the same percentage as last year. The number of homes currently listed for sale is about 5% lower than a year ago at 1467. 160 of those active listings are bank-owned homes and another 254 home listings are short sales. These two distress sale catergories represent about 28% of the active listings. Just over 600 homes have closed escrow year to date. 529 homes are pending sale currently, up from 424 a year ago.
Even though distress sales only make up 28% of the active listings, they represent 60% of the pending sales. Buyers are attracted to these properties indicating traditional sellers are not pricing their homes competitively. Most of the people I talk to in the housing industry believe the best case scenario is prices will stabilize while many believe prices will go lower, especially in the middle and upper price points which are homes priced above $250,000 and $500,000 respectively.
Analyzing the year-to-date closings, just over half were short sales or bank-owned properties. The difference between pending and closed distress properties points to the difficulty buyers face while attempting to buy a property which is typically in rougher condition than traditional homes. In most cases buyers are required to buy these properties “as is”. Even if the buyer is willing to take on the deferred maintenance common with distress sales, the buyer’s lender may balk at loaning money on a subpar home. In many cases, these homes sell two or three times before the right buyer comes along able to offer price and terms acceptable to both the seller and lender.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL SALES EXPERIENCE
2010 Not A Good Year To Die
INDUSTRY NEWS, REAL ESTATE LEGISLATION, TIPS FOR SENIORS
May 4th, 2010
Most are unaware of the capital gains and estate tax tax law changes for 2010. If you stand to inherit real estate from a family member, you may want to do everything possible to keep them alive until 2011! Why? Two changes are in effect for this year only which could have significant tax consequences for those that inherit real estate that has appreciated substantially.
The first change is there is no estate tax for those that die this year. However, there is also no stepped-up tax basis for real property transferred from one’s estate to their heirs. Confused? Perhaps an example will help:
Uncle Buck bought an investment property for $100,000 years ago but today he died and the current market value is $1,000,000. His heirs immediately sell the investment and pocket $1,000,000 (for the sake of this example there were no sale costs deducted from the gross sales price). No estate tax is due but the heirs will pay capital gains tax on the gain of $900,000 (The sales price minus the base purchase price of $100,000). If Uncle Buck had died in 2009, the basis value of the investment would have been “stepped-up” to current market value ($1,000,000). If the heirs sold the property today for $1,000,000, no estate tax or capital gains tax would be due.
Next year, the rule that allows a step-up in basis will once again apply and estate tax will only be due if the estate exceeds several million (the exact number has yet to be determined). Last year, the first $3.5 million was exempt from estate tax for a single person and $7 million for married couples. It’s expected the 2011 exemption limits will be similar to those that sunset-ed last year.
The bottom line is keep grandpa and grandma alive until next year when this lapse in favorable tax treatment is restored. This may not be something you can control, but seeking tax advice may be beneficial if you expect a big inheritance due to the untimely death of a wealthy friend or family member who has you in their will.
A tax deferred 1031 exchange may allow you to postpone or eliminate tax liability if you follow the law. Russell Marsan, certified exchange specialist for IPX, can answer any questions regarding these tax law changes at 800-406-1031.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL SALES EXPERIENCE
California And IRS Ramping Up Audits Of Homebuyers Claiming Tax Credits
INDUSTRY NEWS, TIPS FOR BUYERS
April 21st, 2010
Fraud is rampant according to state and federal taxing authorities triggering a high number of audits of those who filed returns claiming one or more of the various homebuyer tax credits. The Feds have offered a $7,500-$8,000 tax credit for first-time buyers and California has a $10,000 tax credit for new home purchasers. The Feds also added a $6,500 tax credit for existing homeowners purchasing another home.
IRS Form 5405 is attached to the tax return to prove one is eligible for the tax credit. Unfortunately, some see an opportunity to get a size-able check from the government as easy money. Audits have found many claiming the tax credit never bought a home.
In response, state and federal tax agencies have hired thousands of auditors to verify these claims. The only documentation requested to prove eligibilty is a certified copy of the closing statement provided by the escrow company. This form can be hard to come by in California because real estate closings are handled differently here than most states. The buyer is provided a partial HUD-1 closing statement reflecting their costs but do not receive the seller’s version of this statement. The IRS prefers a certified HUD-1 signed by both buyer and seller.
To prove a buyer has actually purchased a home and qualifies for one of the credits, a local tax preparer recommends including optional documentation including any of the following:
- driver’s license showing the address of the home purchased
- utility bill in the buyer’s name for the new home
- copy of homeowner’s insurance policy
- copy of grant deed
Though not required, these items may speed the approval and issuance of the tax credit check. The incidence of fraud is not unlike the problems the IRS has been dealing with concerning the Earned Income Tax Credit for dependants. The IRS has discovered multiple people claiming the same children resulting in over-payments.
The fact our state and federal governments are broke has made combatting this type of fraud a top priority for the IRS and Franchise Tax Board. Tough economic times may also be motivation for some who wish to cheat the system.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL REAL ESTATE EXPERIENCE
County Candidates Face Off Before Realtors
LOCAL GOVERNMENT
April 7th, 2010
All but one of the candidates running for Shasta County office attended a debate sponsored by the Shasta Association of Realtors. The only candidate not in attendance was Russell Hunt. Sheriff Tom Bosenko attended and addressed the group briefly, in light of running unopposed in the upcoming June election.
The debate lasted just over an hour. Candidates running in a contested race were asked 3 questions. First, they were given an opportunity to briefly review their qualifications for the office they seek to be elected or re-elected. Then they were asked to state their single most important goalif elected or re-elected. Finally, one office-specific question was asked of each participant. Only two minutes were allowed for participants to respond to each of the three questions. Marie Whitacre, Government Affairs Director for the Shasta Association of Realtors, served as timekeeper.
Several candidates spoke passionately about their reasons for wanting to unseat the incumbent. This was particularly true of the Assessor-Recorder, DA and Auditor candidates. Even while being verbally attacked by their opponents, all candidates responded with civility. Some rebutted statements made by opponents while others focused on what they would do differently if elected or re-elected.
The budget crisisfacing Shasta County was cited by the supervisor and DA candidates as being the largest challenge
for their departments. Les Baugh pointed to recent union concessions regarding retirement benefits as one step toward reducing future budgetary obligations to taxpayers. Jerry Benito’s office has coped with the closure of one floor of the jail with programs to monitor those released using funds paid for by offenders. Leslie Morgan indicated Prop. 8 property reassessments are well ahead of Butte County,which shares similar type and number of properties on their tax role.
Randal Faulkner harped on several negative Grand Juryreport findings regarding the Auditors office which cited low morale and high employee turnover. Connie Regnell fired back that those reports were done before she officially took the reins of office in 2007. Randal would implement more audits if elected. Connie claims recent upgrades to computer software programs have increased efficiency and automation of vendor payments.
Supervisor candidate Les Baugh said his focus will be keeping Shasta County’s budget in the black.Chris Young believes job creation should be Shasta County’s top priority. Corkey Harmon stated the county must do a better job eliminating departmental red tape that slows development and the jobs they create. He cited personal experiences as a local businessman jumping through all the permit process hoops to get a local project approved.
I believe those in attendance, myself included, have a much better understanding of candidate’s positions and public demeanor upon conclusion of the debate. I hope they found the forum useful, though all probably wished for more time to detail their platform. This format forced the candidates to stay on topic and be as clear and concise as possible, a rarity in the political arena.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL REAL ESTATE EXPERIENCE
Liar Loans Recede, But Still Common
HOME LOANS, INDUSTRY NEWS
April 5th, 2010
A reporter for The Wall Street Journal recently outlined the latest mortgage fraud strategies. James Haggerty points out that the rate has declined but hotspots remain. He quotes data published by First American Core Logic, a company which tracks real estate related information. “Liar loans” as they are called in the business, were common during the subprime boom that peaked in 2007.
The most common types of fraud as it relates to mortgage loan origination include:
- Misstating a borrower’s income
- Misrepresenting the borrower’s identity
- Incorrectly designating who will occupy the property upon purchase
- Misleading information about the type of property or its condition
- Misrepresenting the borrower’s employment
- Misrepresenting the borrower’s debts and/or assets
Specific areas of the country have fraud occurring at a rate several times the national average. They include:
- Orlando, Fla
- Miami, Fla
- Jamaica, NY
- Atlanta, Ga
- Detroit, Mi
Government backed loans, including FHA, are estimated to have fraud rates of 1.22%. Conventional loans had a corresponding rate of 0.55% according to a First American representative. He estimates 25% of all loans currently in foreclosure show “some evidence of fraud”.
During the subprime meltdown, I heard estimates of fraud of 50% for these hard-money loans from staff at the California Association of Realtor’s business meetings. They stated the fraud was perpetrated by the borrower, the loan officer, or both. In response, lenders are requiring more documentation from borrowers than is actually needed. This action is apparently due to banks being required to buy back billions of dollars of “fraud-infested” loans.
I guess the new mantra in today’s lending environment is “trust but verify”!
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN A QUARTER CENTURY LOCAL SALES EXPERIENCE
Turtle Hunters Outrage Mary Lake Park Visitors
REDDING RECREATION, SHASTA COUNTY
April 2nd, 2010
A Honda coupe with two upset ladies pulled up alongside my wife and I as we began a walk around Mary Lake yesterday afternoon. They had just jotted down the license number of a suspected turtle hunter’s Jeep and informed us two guys were trapping turtles for resale on EBay. We love the turtles. We shared their dismay. How dare these guys steal our turtles to make some quick bucks on the Internet!
I suggested the ladies call the local fish and game office to see if this type of hunting was legal. They said they would and also planned to call the police because the Jeep’s license tags were expired. They went on to say they grabbed their buckets of captured turtles and threw them back in the lake. We promised to talk to the guys when we crossed the dam where they were again fishing for turtles using a net and fishing pole.
Just then, a vehicle emblazoned with City of Redding Fire Department decals drove by and was flagged down by another group of ladies also angry with the turtle hunters. He offered to speak to them and we decided to tag along. The two men calmly explained why they were trapping the turtles. The turtles they were after are non-native turtles such as those purchased from pet stores apparently released into the lake by owners that no longer wanted them.
Dozens of turtles perch on logs scattered around the lake sunning themselves this time of year. They are shy, usually dropping into the water when approached. These guys easily lured the turtles using baited fishing poles and trapped them with nets. Regardless of the legality of catching the turtles, many folks let these guys know in no uncertain terms their for-profit hobby was not appreciated one bit!
The gentleman from the fire department agreed with the men that ridding the lake of these turtles was probably legal and beneficial. I was torn by this reasonable explanation-not wanting to surrender our local terrapins to these guys motivated primarily by dollar signs. They said it is perfectly legal and were actually encouraged by fish and game officials to rid this lake of these competitors of native turtles.
That explanation didn’t fly with park users who confronted the two men. They eventually left with a couple turtles -far less than their original catch. I doubt they will be deterred from returning to trap more turtles in coming weeks believing they are doing us a service.
Last year, several beavers were found dead in the lake apparently victims of a teenage prank. One neighbor saw several youths pelting the beavers with large rocks. Mary Lake residents and park users are sensitive to those that would exploit the wildlife for their own amusement or profit. Hopefully the lake will remain a home for water fowl, beavers, otters, fish and yes, even turtles!
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN A QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
Luxury Home Loans See Rise In Delinquencies
HOME LOANS, INDUSTRY NEWS, TIPS FOR SELLERS
April 1st, 2010
Jumbo loans, as we call them in real estate jargon, are showing a steady uptick in the number of delinquencies for the 33rd consecutive month according to a recent article in The Wall Street Journal. Depending on what part of California you reside, jumbo loans could be loan amounts exceeding $417,000 or $729,750 for high-cost areas. February saw 11.6% delinquency rate as reported by Fitch Ratings, a global company that renders independent opinions of credit markets.
California has the lion’s share of jumbo loans at 44% due to the fact real estate prices here are higher than most. New York is second with 7% followed by Florida at 6%. These loans are difficult to qualify for- usually requiring larger down payments and interest rates about 1% above conforming conventional loans. The biggest problem has been the drop in values leaving many luxury homeowners without enough equity to refinance or in some cases they are now underwater-owing more than the current market value of their home.
One exampleof how hard the high-end market has been hit was the recent sale of Hilton Hotels CEO’s Los Angeles home. Christopher Nassetta sold his home for $18 million which was $10 million less than the asking price and 35% less than what he bought it for in 2007!
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN A QUARTER CENTURY LOCAL REAL ESTATE SALES EXPERIENCE
Short Sale Could Lead To Big Tax Bill
HOME LOANS, SHORT SALES, TIPS FOR SELLERS
March 29th, 2010
The IRS warns homeowners underwater to study the law regarding debt forgiveness before deciding which course of action to take to get out from underneath an over-encumbered property. The Mortgage Forgiveness Debt Relief Act of 2007 details who will be exempt from paying income taxes on debts forgiven by lenders. Some property owners that successfully sold their home are getting hit with huge tax bills because they were not exempt under this act.
Here are some basic provisions of the bill:
- Relief is granted to borrowers with mortgages on a qualified principal residence. Second homes, rentals and business properties do not qualify
- The maximum amount eligible to be forgiven is $2 million for married taxpayers filing jointly and $1 million for single taxpayers. This should cover 99% of Redding/ Shasta County homeowners!
- The loan must have been used to purchase, build or substantially improve a principal residence. Refinances qualify if the debt stays the same or if the mortgage increased, the funds were used for capital improvements or renovations of the principal residence. In the event the money was used for personal purposes such as paying off credit cards, buying a car or boat, or investing in stocks, then the mortgage debt attributable to those items is not eligible for debt relief
- Homeowners in California who sold their homes in 2009 using a short sale or were foreclosed upon, may be stuck with a bill for income taxes from the state
The IRS views forgiveness of debt as a taxable gift from the lender. The homeowner should inquire with a tax attorney or accountant before agreeing to a short sale. Short sales are less likely to cause as much damage to ones credit rating as a foreclosure but if doing so results in a huge tax liability the homeowner must factor this into their decision. Foreclosure or a Deed in Lieu of Foreclosure may be better options to divest oneself of an underwater property depending on individual circumstances and advice from a tax advisor.
Expect a push in coming months by some lenders to write down the principal balance on loans in an effort to keep homeowners in their homes and off the foreclosure block. Bank of America is undertaking a trial program to do just that due to the failure of loan modification programs. Homeowners can avoid unexpected tax consequences by consulting with qualified tax law professionals before agreeing to a short sale or loan modification.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN A QUARTER CENTURY LOCAL SALES EXPERIENCE
AG Publishes Names Of Fraudulent Loan Mod Companies
HOME LOANS, LOCAL GOVERNMENT, TIPS FOR SENIORS
March 26th, 2010
State Attorney General Jerry Brown has published the names of individuals and companies that have been sued by the AG for alledgedly running loan modification scams. Some of these companies have pocketed as much as $3,500 per victim promising loan modification services, but done nothing. Those duped in the schemes can apply for restitution through the Ag’s website. Assets have been frozen and property belonging to some of these scammers has been seized in an effort to recover some of the funds for victims.
To see a list of individuals and companies involved, click here:http://ag.ca.gov/loanmod/
If you or someone you know was duped by one of the listed firms, make sure they contact the Ag’s office for information regarding potential compensation from those being sued. It’s likely to be only pennies on the dollar but that’s better than nothing!
Jerry also lists tips to avoid becoming a victim of these schemes.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN A QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
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