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Help for Repaying Homebuyer Tax Credit

Back in 2008, a first-time homebuyer tax credit was established to help with the damage the housing crisis had created. The credit acted as a no-interest loan, and those who used it were able to pay it back over time in annual installments through their tax return.

Sadly, the payback requirement was eliminated in 2009, and many borrowers found themselves in a predicament. The tax credit was of course gone, but more concerning was how they might pay back the government the money they borrowed. Additionally, taxpayers were responsible for keeping track of all their own records, making a stressful situation worse.

The IRS recently created a tool to help organize information and streamline the process. Now, borrowers can see their balance, the amount paid back to date, total tax credit received, annual installment amount, and the exact payback amount online. Taxpayers simply enter their social security number, birthday and some other identifying information. To access the tool, please visitthe IRS website.

This tool isn’t exclusive to 2008 homebuyers. Those who used the tax credit in 2009 or 2010 and sold their homes within three years of purchase are also required to pay back their benefit.

Tips for Sellers

The real estate market can be a challenging one these days, especially for sellers hoping to standout in a sea of available properties. Keep these tips in mind when listing your home and the process will be much more seamless!

1. Find a Pro: Selling your home is the time to enlist professional help. Selling a home is a complicated transaction, and a real estate professional can help you navigate any problems, accurately price your home, deal with contracts, and most of all, bring potential buyers to your doorstep.

2. Price Realistically: If you’re serious about selling your home, you’ll need to price it correctly from the start. So be realistic and take cues from your listing agent regarding price. Sure a big price tag seems appealing, but overpriced homes sit on the market and don’t sell.

3. Be Honest: Why are you selling your home? Full disclosure to your listing agent and potential buyers up front is the way to play.

4. Detach Emotions: When listing your home for sale, remove family photos and anything else that’s sentimental. Sellers won’t have the same emotional connection, and attaching yourself to your home will only make it harder to hand over the keys.

5. Set the Stage: It’s pretty critical to stage your home so buyers can see the full potential of each room. You’ll make concessions about your own style, but you need to create a neutral scheme that appeals to a wide range of buyers.

6. Stay Involved: While it would be easy to wash your hands of the sale and let your listing agent handle everything, you’ll be much more relaxed if you stay involved.

7. Scatter: When your listing agent arranges an open house, make yourself scarce. Your presence can make buyers uncomfortable, and that’s the last thing you want.

8. Plan to Move: Assume the best–your home will sell quickly and new buyers will be moved in shortly. That means you need to plan on moving, and you’ll want to have this sorted out well in advance of the sale closing.

9. Remain Flexible: Stay flexible on both your price and terms of the sale, and you’ll reap the rewards. Be firm with your bottom line, but know that you will need to leave room to negotiate.

10. Be Positive: Staying positive and upbeat will take you far in this process. Take the feedback you get seriously from both buyers and your agent, and stay focused on the task at hand…selling your home!

6 Tax Breaks Every Homeowner Should Know

Buying a home makes a lot of sense because of the built-in tax breaks that accompany homeownership. To take full advantage, it’s usually necessary to itemize your taxes, and while this may seem like an unnecessary hassle, the benefits are well worth it. Here are six tax breaks every homeowner should know about.

1. Mortgage Interest Deduction—Since the bulk of your monthly mortgage payments are applied towards interest at the beginning, a Mortgage Interest Deduction (MID) allows you to deduct what you pay from your taxes. Your lender will issue Form 1098, and it’s important that you keep it with your tax records. This form shows what you’re entitled to deduct and is your proof should you be audited by the IRS.
2. Mortgage Insurance Premiums—If you have a mortgage with a loan-to-value ratio that is higher than 80%, you are required to carry private mortgage insurance (PMI) to protect your lender against default. But did you know that if your AGI is less than $100,000 for married couples, you might be able to deduct what you paid?
3. Energy Star—It pays to install energy-efficient fixtures in your home, as they can offer you another tax deduction. To qualify, you must install items like energy-efficient windows, doors and skylights by the end of the year. Tax credits equal 10% of the product costs, assuming you meet the criteria. Installation costs are not tax-deductible.
4. Points—If you paid fees to obtain a mortgage, you can deduct these charges in the year you paid them if the loan was for a primary residence. For refinances, you can deduct the points over the life of the loan.
5. Property Taxes—Homeowners with property taxes that are based on the assessed value of their real property can deduct state and local property taxes. If you pay out of pocket, you will need to keep track of your bills. However, if you pay through an escrow account, the information will also appear on Form 1098.
6. Construction Loan Interest—If you’re remodeling your home and take out a construction loan, you may be able to deduct the interest. This deduction is only available for the first two years of the loan, despite the length of time it takes to complete your construction.

Differentiating Between Personal and Real Property

‘Lectric Law Library defines Real Property as “Land and all the things that are attached to it.  Anything that is not Real Property is Personal Property:  anything that isn’t nailed down, dug into or built onto the land.”  That should prevent any misinterpretations, right?

Not necessarily. While furniture and appliances are typically considered “personal” property, individual jurisdictions may have their own interpretations of “real” vs. “personal” property, leaving parties with substantial “grey” areas.  Take that chandelier in the entryway…  It may not have been meant to be moved once it was installed, but its value – whether in dollars or in sentiment – could change when it comes time to selling the property.  That changing priority can, on occasion, lead to confusion and/or dispute between buyers and sellers.

The best thing to do?  Identify items that are staying and going at the outset.  If you’re selling a home and know the appliances are staying or the drapes are going, mention it to potential buyers.  When drawing up the purchase agreement, be sure any items like this are clearly identified.  Built-in bookshelves, window air conditioners, and radiators are examples of other items that could cause dispute.  The list of property items should be included in escrow docs so it’s clear to all parties what items stay and what items go.

Changes Afoot in Property Tax Writeoffs

Beginning in the 2012 tax year, property owners will be required to break down payments into deductible and non-deductible portions when they file their tax returns with the Franchise Tax Board.  This could be a serious wakeup call for property owners, shaving thousands off their deductions.

The change has nothing to do with new taxes or laws, but rather a new Franchise Tax Board computer system being installed in 2012.  Until that system is up and running, the state’s tax department has no way of differentiating between deductible and non-deductible portions of property tax payments.  Since property owners typically deduct the total amount of their property tax bill – or the 1098 amount provided by their mortgage company – the state has lost millions each year.  Mello-Roos in Orange County alone accounts for more than $200 million of non-deductible amounts expected to be written off for tax year 2011.  That’s $200 million new taxable dollars the state expects to collect revenue on once the computers are up and running later this year.

The Franchise Tax Board has made the announcement early in the year so taxpayers can adjust withholdings for the year.  It also allows taxpayers and preparers the time they’ll need to ensure the proper documentation is at hand come time for filing for tax year 2012.

Finding a Better Mortgage – Tips for Success

 

Banking woes have brought the mortgage industry back down to Earth, but the new rules and requirements don’t mean that you can’t get a loan.  With a little work ahead of time, you can increase your own chance of qualifying for the best loan when you’re ready to buy.

• Ensure your credit report is 100% accurate.  Review each line item on your credit report to be sure that everything on there belongs to you.  (Mistakes happen, especially if you have a common name.)  Ensure that your payment record is accurately reflected.  If you find any discrepancies, contact individual creditors to request corrections.  Once the creditor has corrected any error(s), re-check your credit report to determine if your record has been updated accurately.
• Credit maintenance.  Cleaning up your credit BEFORE applying will help ensure the lowest rates.  By making timely payments, paying off any collections, and paying down credit card balances, you increase your credit score.  It also shows potential creditors that you’re being responsible with your obligations and keeping debt levels low.
• Being upfront.  If you’ve had credit issues in the past, trying to cover them up will only hurt you.  Be straight forward on your source(s) of income, and don’t try to hide assets.  Omissions like these can only delay your application, and may jeopardize your chances of securing credit at all.
• Documentation accuracy.  Review your paystubs, investment and bank statements to ensure information on them are accurate.  If the amounts, names, and addresses, are incorrect, submit corrections ahead of time.  If you’re putting a down payment on the property, be prepared to provide documentation on the source of the funds.
• Review your Good Faith estimates.  Know all the fine print of the loan(s).  While paying the lowest APR is what we all aspire for, focusing solely on the APR can mask other negative terms buried in the fine print (e.g. origination fees and/prepayment penalties).

Before you go to the bank seeking a loan, a little attention to your finances can go a long way.  While some of these steps may be time-consuming, they can help you get the best deal possible.

Tax Credits For Making Your Home Energy Efficient

 

As winter closes in, the chill that you feel in the air could very well turn into cold hard cash in your pocket! On December 31, 2011, federal tax credits for energy efficiency are set to expire. So, as you buy those last minute gifts and sip on eggnog, why not explore opportunities to improve the energy efficiency of your home? Not only will you see some dollars on April 15th (up to a maximum of $500), but these upgrades promise to save you money for years to come:

 

1. Windows: By replacing drafty, single-pane windows with models that
insulate better against the elements, you can save up to $200 on your taxes.
2. Insulation: Whether it’s attic or wall insulation, weather stripping for
your doors or windows, or expanding foam to fill voids, up to 10% of the
cost can be reimbursed by way of tax credits.
3. Doors: Up to a 10% tax savings.
4. Heating & cooling systems: Tax credit of up to $300.
5. Main air circulating fans: Up to $50 worth of tax credits are available.

Before you tick away the final moments of 2011, check with your tax advisor and visit Alliance to Save Energy’s website for program requirements and suggestions: http://www.ase.org. Who knows: by improving your home’s efficiency, you might also find a few extra dollars to finance this year’s festivities!

Studies Show Energy-Efficient Homes Pay Off

Energy-efficiency ratings have started finding their way into listings for residential properties.  A recent survey conducted by The Earth Advantage Institute, a non-profit group in Portland, OR, found that Energy Star or LEED (Leadership in Energy and Environmental Design) certifications increase the sale price of a home.  EAI states that new homes certified for sustainability and energy efficiency sell for 8% more, on average, than their non-certified counterparts.  The news is better for existing construction, where the same certification can add a premium of about 30% to the home.

In response to the trend, new training programs are finding their way into the banking and appraisal industries.  The institutions have found it necessary to teach officers how to acknowledge the benefits of energy efficient designs and how to translate them into lending and appraisal practices.  Banks are starting to realize that, when a borrower pays less for heating and electricity in an energy-efficient home, their ability to pay (and thus, credit-worthiness) increases, making them less risk for the underwriting bank.

Sales price isn’t the only place energy efficiency pays.  In the Portland, OR, market, a recent review of listings showed that energy-efficient homes spent 18 days less than comparable non-certified properties on the real estate market.

Understanding Net Operating Income (NOI)

Net Operating Income is one of the most important components of financial analysis for commercial real estate investors. A few months ago we discussed another important financial index, CAP Rates, which are determined directly from the NOI.

What is the NOI?

The NOI is calculated as follows:

NOI = GOI – Expenses, where GOI is the Gross Operating Income of the commercial real estate asset. Expenses include property taxes, insurance, maintenance, utilities, capital reserves, management fees and incidental expenses. NOI is analogous to a simple profit calculation for a business.

Of course, the commercial property’s Gross Operating Income (GOI) is needed for the NOI calculation. The GOI is determined by subtracting the vacancy rate reserve from the Scheduled Gross Income (SGI). This is done to adjust the SGI for tenant vacancies. The SGI is simply the total amount of rents scheduled to be collected annually.

An investor (buyer) typically obtains the necessary financial information by requesting it from the seller or the seller’s agent prior to executing a commercial real estate sale transaction.

It is customary that the sale transaction purchase contract sets forth the details by which the buyer and his agent verifies or determines a NOI and other important components of his financial analysis by his own due diligence work, while in escrow.

New Laws to Affect California Real Estate Agents and Brokers in 2012: Part Three

We hope that you’ve found our past few posts regarding the new California real estate laws and regulations helpful! This article marks the final laws that will be going into affect in the near future. The following laws relate to notice of sale, condo rentals, smoking bans, political signs and recycling. We wish you the very best in the final months of 2011!

Revising the Notice of Sale: Effective April 1, 2012, a notice of trustee’s sale for the non-judicial foreclosure of one-to-four residential units must contain specified notices to the owner on how to seek postponement of the trustee’s sale, and to potential bidders on the risks involved in bidding at trustee auctions.  Additionally, a lender or authorized agent must make a good faith effort to provide up-to-date information about sale dates and postponements to persons who want this information.  The lender must also provide updated information through the Internet, a telephone recording, or any other means that allows free access at any time.  Senate Bill 4.

Renting Out Condominiums: C.A.R. also successfully sponsored legislation protecting owners’ right to rent out their units in common interest developments.  Starting January 1, 2012, an owner in a common interest development is exempt from any prohibition in a governing document against renting or leasing the unit, unless that prohibition was in effect before the owner acquired title to his or her unit.  When renting out a unit, the owner must give the HOA verification of the owner’s acquisition date, and name and contact information of the prospective tenant.  An owner’s right to rent under this law does not terminate for certain transfers of title, including, but not limited to, probate, spousal, parent-to-child, adding a joint tenant, and other transfers exempt from property tax reassessment.  For sales transactions, the required HOA disclosures must include a statement describing any prohibition in the governing documents against renting or leasing.  This law does not apply to rental prohibitions in effect before 2012.  Senate Bill 150.

Tenants Smoking Ban: Beginning January 1, 2012, a residential landlord can prohibit the smoking of cigarettes and other tobacco products on the property, including any dwelling unit, building, other interior or exterior area, or the premises on which the property is located.  For new tenants on or after January 1, 2012, the areas where smoking is prohibited must be stated in the lease or rental agreement.  For preexisting tenants before 2012, a new provision prohibiting smoking is a change in the terms of tenancy that requires adequate written notice, depending on whether the tenancy is month-to-month or for a fixed term.  Senate Bill 332.

Tenants Displaying Political Signs: Effective January 1, 2012, a residential tenant can generally display political signs related to elections, legislative votes, initiatives, and other political matters as specified, but the landlord can make reasonable restrictions as to location, size, and duration of display.  In a single-family dwelling, a tenant’s political signs can be displayed from the yard, window, door, balcony, or outside wall of the leased premises.  In a multifamily dwelling, a tenant’s political signs can be posted in the window or door of the leased premises.  A landlord can restrict the size of a political sign to six square feet.  A landlord can also prohibit a tenant from displaying political signs that violate local, state or federal law, or a lawful provision in an HOA’s governing documents.  A tenant must remove political signs in compliance with time limits set by local ordinance, or absent such time limits, the landlord can reasonably restrict the posting of a sign to 90 days before an election or vote, and its removal within 15 days after the election or vote.  Senate Bill 337.

Tenants Recycling Rights: Commencing July 1, 2012, a multifamily residential dwelling of five or more units (or a multifamily residential dwelling or business that generates more than four cubic yards per week of commercial solid waste as defined) must arrange for recycling services.  The intent of this law is to address the challenges local governments are facing in reducing solid waste disposal in multifamily properties.  The required recycling services are to be consistent with state or local laws, to the extent that these services are offered and reasonably available from a local service provider.  The property owner of a multifamily residential dwelling may require tenants to source separate their recyclable materials to aid in compliance with this law.  Assembly Bill 341.