Each month the Northwest Multiple Listing Service sends out a press release showing what has happened the month before in its service areas. When learning about real estate in your area, though national real estate statistics might be interesting, what is truly important is what is happening in your market space….which is often very different from the national view.
Click the link above to view the report.
Thank you for reading this blog, please feel free to comment.
Each month the Northwest Multiple Listing Service sends out a press release. This is for March 2014 and gives a snapshot of what is happening with real estate listings and sales in the Seattle, Puget Sound area.
Each month the North West Multiple Listing Service puts out a press release based on the statistics from the month before. Here is March 2013 statistics for areas that NWMLS covers in Washington State.
Please excuse my current look. This is sort of what home buyers and sellers go through……when boxing everything up to move…… it looks really really bad before it starts looking better.
Please hang in there and check back as I learn how to use a new a new theme.
With nearly one third of homeowners upside down on the value of their home there are many who have and many more who will seek options to extricate themselves from their financial crisis.
A few options open to them: Bankruptcy, Deed in Lieu of Foreclosure, Foreclosure and Short Sale. All of these are tools that a homeowner can use to get out of a financial bind that they have either created or the falling economy has done to them. Before choosing any of these paths homeowners should consult with their attorney as each have pros and cons.
All of these choices have tax consequences, extending this tax relief would be of help to those in need.
NAR Issue Brief
Mortgage Cancellation Tax Relief
ISSUE: If Congress does not act by the end of the year, both home sellers and some home owners could face an
additional tax burden in 2013. Already real estate transactions, including loan modifications, short sales and
foreclosures, are in the pipeline and may not be able to close before year-end. If owners are unable to close
these transactions, and if Congress does not act, these owners and sellers will not receive the benefit of tax relief
provisions they have relied on.
Today, if a lender forgives some portion of a homeowner’s mortgage, either as part of a short sale or foreclosure,
or in a loan restructuring that reduces principal, the owner/seller will pay no income tax on the forgiven amount.
That relief expires on December 31, 2012. Those who are unable to close their transactions in this calendar year
face a “phantom income tax” in 2013. Already the pending expiration of this tax relief is discouraging sellers
who may require some debt forgiveness. This uncertainty adds a new financial burden to sellers who are already
in financial trouble.
BACKGROUND: WHY IS THIS IMPORTANT?
- Homeowners shouldn’t be forced to pay tax on money they’ve already lost with cash they never receive and never will receive.
- More than 20% of current homeowners with a mortgage owe more on their homes than the current fair market value.
- Transactions not completed by year-end could become taxable in 2013, despite a borrower’s reliance on this tax relief.
- The housing market, while recovering, is still fragile enough that this tax relief will be needed in 2013 and possibly beyond.
PROTECT MORTGAGE DEBT FORGIVENESS TAX RELIEF
- Congressional Action Needed:
- Cosponsor Mortgage Cancellation Tax Relief Legislation
- Secure its passage well before year-end.
What to Tell your Senator:
- Cosponsor S. 2250 introduced by Senator Debbie Stabenow (MI)
- Urge Senate Leadership to act quickly on a tax package that includes this bill.
What to Tell your House Republican Representative:
- Cosponsor H.R. 4336 introduced by Representative Tom Reed (NY-29) Urge Chairman Camp to act quickly on this bill.
- Urge House Leadership to schedule a floor vote on this provision before year-end.
What to Tell your House Democratic Representative:
- Cosponsor H.R. 4202 introduced by Representative Charles B. Rangel (NY-15)
- Urge Ranking Member Levin to work with Chairman Camp to secure this tax relief well before year-end. NAR Issue Brief Mortgage Cancellation Tax Relief
WHAT HAS NAR DONE ALREADY:
- Secured introduction of bills cited above.
- Worked with Federal Political Coordinators and other Realtors to secure cosponsors for these bills.
- A Senate Finance Committee package that extends dozens of expired and expiring provisions includes a one-year extension (through 2013) of the mortgage cancellation relief. No bill number is yet available.
- Communicated with House and Senate leadership to convey the importance of extending this relief well before year-end.
This information was provided by National Association of Realtors
3.8% Tax Will go into Effect in 2013
Now that the Supreme Court has upheld the health care legislation, all of its major provisions remain in effect, including the new tax that was designed to affect upper income taxpayers. The 3.8% tax is imposed ONLY on those with more than $200,000 of Adjusted Gross Income (AGI) ($250,000 on a joint return). The tax applies to investment income, defined as interest, dividends, capital gains and net rents. These items are all included in an individual’s AGI. A formula will determine what portion, if any, of these types of investment income would be subject to the tax.
The tax is NOT a transfer tax on real estate sales and similar transactions . Not long after the tax was enacted, erroneous and misleading documents went viral on the Internet and created a great deal of misunderstanding and made the tax into something far more draconian than the actual provisions.
The new tax does NOT eliminate the benefits of the $250,000/$500,000 exclusion on the sale of a principal residence. Thus, ONLY that portion of a gain above those thresholds is included in AGI and could be subject to the tax.
REALTORS® should familiarize themselves with the tax, but should not advise their clients about the application of the tax. The amount of tax will vary from individual to individual because the elements that comprise AGI differ from taxpayer to taxpayer.
Q-1: Is there a 3.8% real estate “sales tax” or a transfer tax created in health care bill?
A: No. There is neither a real estate “sales tax” nor a real estate transfer tax under any federal law. The Internet has generated several viral items describing such a tax. Those Internet postings are totally false. The 2010 health care legislation did create a new 3.8% tax, but it applies only to a limited group of taxpayers.
Q-2: So who will be subject to the new tax? When is it effective?
A: The new 3.8% tax will apply to the “unearned” income of “High Income” taxpayers. The new Medicare tax on unearned income will take effect January 1, 2013. Proceeds from the tax will be allocated to shoring up the Medicare fund.
Q-3: Who is a “High Income” Taxpayer?
A: Those whose tax filing status is “single” will be subject to the new unearned income taxes if they have Adjusted Gross Income (AGI) of more than $200,000. Married couples filing a joint return with AGI of more than $250,000 will also be subject to the new tax. (The AGI threshold for married filing separate returns is $125,000.)
Q-4: Are the $200,000 and $250,000 thresholds indexed for inflation?
A: No.Thus, over time, more individuals may become subject to this tax.
Q-5: What is “unearned” net investment income?
A. Unearned income is the income that an individual derives from investing his/her capital. It includes capital gains, rents, dividends and interest income. It also comes from some investments in active businesses if the investor is not an active participant in the business. The portion of unearned income that is subject both to income tax and the new Medicare tax is the amount of income derived from these sources, reduced by any expenses associated with earning that income. (Hence the term “net” investment income.)
Q-6: So the new tax will apply to rents from investment properties that I own?
A: Maybe. Remember that net investment income includes only net rental income. Thus, gross rents would not be subject to the tax. Rather, gross rents would be reduced (as they are under the income tax) by all allowable expenses, including depreciation, cost of repairs, property taxes and interest expense associated with debt service. AGI includes net income from rent, so if your AGI is above the $200,000/$250,000 thresholds, then the rental income might be subject to the tax.
For many investment real estate owners, the net rents will be the same as or similar to the amounts reported on their Schedule E, filed with their Form 1040 Income Tax Return. (For calculations, see Q-7, below. See also Q-8 through Q-12 related to capital gain from sale of principal residence, losses on sale and to vacation homes, below.)
Q-7: Does the tax apply to the yearly appreciation of an asset?
No. Capital gains are subject to this new tax only in the year when the asset is sold. The amount of the gain will be measured in the same way that it is for income tax purposes. This rule applies to real estate and all other appreciating capital assets. Net capital gains are taxable only in the year of sale.
Q-8: How is the new 3.8% Medicare tax calculated?
A: The new 3.8% Medicare tax is assessed only when Adjusted Gross Income (AGI) is more than $200,000/$250,000. (See Q-2 above.) AGI includes net income from interest, dividends, rents and capital gains, as well as earned compensation and several additional forms of income presented on a Form 1040 Income Tax Return.
The tax is NOT imposed on the total AGI, nor is it imposed solely on the investment income. Rather, the taxable amount will depend on the operation of a formula. The taxpayer will determine the LESSER of (1) net investment income OR (2) the excess of AGI over the $200,000/$250,000 AGI thresholds. Thus, if net investment income is the smaller amount, then the 3.8% tax is applied onlyto the net investment income amount. If the excess over the thresholds is the smaller amount, then the 3.8% tax would apply only to the excess amount.
Q-9: Give me an example.
If AGI for a single individual is $275,000, then the excess over $200,000 would be $75,000 ($275,000 minus $200,000). Assume that this individual’s net investment income is $60,000. The new 3.8% tax applies to the smaller amount. In this example, $60,000 of net investment income is less than the $75,000 excess over the threshold. Thus, in this example, the 3.8% tax is applied to the $60,000.
If this single individual had AGI if $275,000 and net investment income of $90,000, then the new tax would be imposed on the smaller amount: the $75,000 of excess over $200,000.
Rules of thumb for predicting the application of this tax year to year are not readily determinable, largely because the proportion of net investment income compared to AGI will vary from year to year and from individual to individual.
Q-10: Will the $250,000/$500,000 exclusion on the sale of a principal residence continue to apply?
A: Yes. Any gain from the sale of a principal residence that is less than $250,000 (individual) or $500,000 (joint return) will continue to be excluded from the income tax. The new 3.8% tax will NOT apply to this excluded amount of the gain.
Q-11: Will the 3.8% tax apply to any part of the gain on the sale of a principal residence?
A: Maybe. The new Medicare tax would apply only to any gain realized that is more than the $250K/$500K existing primary home exclusion (known as the “taxable gain”), and only if the seller has AGI above the $200K/$250K AGI thresholds.
So, for example, if the taxable gain was $30,000 and a married couple had AGI (which would include the taxable gain) of $180,000, the 3.8% tax would not apply because AGI is less than $250,000. If that same couple had AGI of $290,000, then the application of the 3.8% tax would be subject to the same formula described above. The $30,000 taxable gain on the sale would be less than the $40,000 excess above $250,000 AGI, so the $30,000 gain would be subject to the new 3.8% tax.
Q-12: Is rent from a vacation home subject to the 3.8% tax? And what about the gain on sale of a vacation or rental property?
A: The application of the tax will depend on whether the vacation home has been rented out, the period for which it has been rented and whether the property is solely for the enjoyment of the owner. If the owner has rented the home out to others, then the 14-day rent exclusion will continue to apply. Thus, if the owner rents the property to others (including family members) for 14 or fewer days, there would be no net investment tax. (Note that no deductions for expenses would be available, as under current law.)
If the home has been rented to others (including family members) for more than 14 days, then the rents (minus related expenses) would be considered as part of net investment income and could, depending on AGI and the calculations described above, be subject to the new tax.
If the vacation home has been used solely for personal enjoyment (i.e., there is no rental income and no associated expenses), then a gain on sale would be treated as net investment income and could be subject to the tax, depending on AGI. Similarly, if the property had generated rents, any net gain on sale could also be included in net investment income. The amount of the tax (if any) would depend on the calculation formula, above in Q-8 and Q-9.
Q-13: My rental property generates a net loss each year. How will those losses be factored into the new tax? And what if I have net capital losses when I sell?
A: Net losses from rents and net capital losses reduce AGI. Thus, the losses themselves would not be subject to the tax. If, after losses, AGI still exceeds the High Income thresholds, the 3.8% tax would still apply to any net rental, interest or dividends income.
Q-14: I earn all of my income from real estate investments that I own and operate myself. Will my rents and gains be subject to the new tax?
A: No.If the ownership and operation of real estate you own is your sole occupation, then those activities are what’s called your “trade or business.” Income derived from a trade or business is not subject to the new 3.8% tax. If the owner of rental properties has a “day job,” however, real estate investments are not considered as a trade or business, but are rather considered as investments, even if they are a major source of income.
Many Realtors engage in business activities are that are the “typical” selling, leasing and brokerage endeavors usually associated with the term “Realtor.” If they also own rental real estate assets as part of their own personal investment portfolio, the net rents from that portfolio could become subject to the new 3.8% tax on net investment income, depending on AGI.
Q-15: Will “High Income Filers” lose any portion of the Mortgage Interest Deduction?
A: No. The mortgage interest deduction is unchanged. No cap was imposed on any itemized deductions.
Q-16: Why is this new tax called a “Medicare tax?”
A: The revenues generated from this tax will be allocated to the Medicare Trust Fund that is part of the Social Security System. That fund is currently on shaky financial footing. These additional revenues are intended to shore up the Medicare Trust Fund.
Q-17: How will this new tax affect marginal (the highest) tax rates when it is combined with existing law and with the possible expiration of the Bush tax cuts enacted in 2001?
A: Marginal tax rates are the tax rates assessed on the “last” dollars included in taxable income. If the Bush tax cuts are allowed to expire, then the marginal rates for upper income individuals will increase, particularly for capital gains income. The chart below reflects the impact of those changes, presented based on implementation of current law effective dates.
This spring market is really showing signs of stabilizing our market in Kitsap County. Despite the fact that overall home values in Kitsap declined 5% last month all of the signs are there for price stabilization as well as price appreciation as we move into 2013. For the North West Multiple Listing Service (NWMLS) news release click here.
What are those signs you might ask? We are seeing more activity; at open houses, on our phones, more buyers looking at houses and more offers. We are also seeing inventory decreasing in many price ranges and homes that are on the market a shorter period of time as well as multiple offer situations. And I’ll be the first to say….this feels good.
This is also a good time to be going into the real estate business. Right now we are working within what you might call a good thick condensed broth. Much of the water has boiled off over the past couple of years, and what I mean by that is many of the part time brokers or brokers who were not serious about this as a profession have taken their leave.
This is truly a time to get back to the basics of running a real estate business. As a new broker who applies all of the principles that a good Branch Managing Broker should teach you, you should be able to start your business off and double your income each year for years 2 and 3 while hitting your overall goals between years 3 and 5.
If you are new to the business or just getting started in the process be sure to interview several brokers and focus on how you feel about the person you are interviewing (the branch managing broker) and the environment of the office. Is there energy and momentum in the office? Are they doing transactions?
Just like individual brokers there are still offices who have their heads in yesterdays market. You want to ensure your new office is excited about real estate and optimistic about the future. A company may claim to be #1 in the region…what is more important is how is that office doing by itself.
In case you hadn’t guessed, I think this is a great time to be getting into real estate!