The 2013 3.8% Tax

Starting January 1, 2013, a 3.8% tax on some investment income will take effect.  This tax will affect some, but not all, real estate transactions.  When the tax goes into effect two years from now, it MAY impose a 3.8% tax on some interest income, dividends, rental income (less expenses) and capital gains (less capital losses).  The tax will apply only to those individuals with an adjusted gross income (AGI) above $200,000 and couples filing a joint return with an AGI of more than $250,000.  The new tax would apply to the lesser of the investment income amount or the excess of AGI over the $200,000 or $250,000 amount.

The National Association of Realtors provides the following examples of the how tax will work in certain common situations:

Example 1:  Capital Gain Sale of a Principal Residence

John and Mary sold their principal residence and realized a gain of $525,000.00.  They have an AGI of $325,000.00 (before adding taxable gain).

The tax applies as follows:

AGI before taxable gain:                       $325,000

Gain on sale of residence:                    $525,000
Taxable Gain (added to AGI):               $25,000 ($525,000-$500,000)
New AGI:                                            $350,000 ($325,000+$25,000)

Excess of AGI over $250,000:              $100,000 ($350,000-$250,000)
Lesser Amount (table):                         $25,000.00

Tax Due:                                              $950.00 ($25,000x0.038)

* If John and Mary had a gain of less than $500,000 on the sale of their residence, none of that gain would be subject to the 3.8% tax.  Whether they paid the 3.8% tax would depend on other components of their AGI.

Example 2:  Income Sources Including Real Estate Investment Income

Hank has a "day job" from which he earns $85,000 a year.  He owns several small apartment units and receives gross rents of $130,000.  He also has expenses related to that income.

The tax applies as follows:

AGI Before Rents:                              $85,000

Gross Rents:                                       $130,000
Expenses (appreciation; debt service):  $110,000
Net Rents:                                           $20,000
New AGI:                                            $105,000 ($85,000+net rents)

Excess of AGI over $200,000:             $0
Lesser Amount (table):                        $0

Tax Due:                                             $0

* Even if Hank's combined gross rents and day job earnings exceed $200,000, he would not be subject to the 3.8% tax because his investment income includes net, not gross, rents.

Back from the Abyss

I haven't posted much on this blog recently due to a glut of closings.  Rates have been very low for the past few months and because of this I've been extremely busy doing refinance closings.  I did post links to two articles on Facebook today, but also thought it'd be a good idea to post these articles over here as well.

Also, I promise that I'll try and update the blog a bit more regularly this year...:-)

Happy Reading!!!!!

Washington Post article on Bank Owend/REO Properties

WSJ article regarding the positive outlook for the coming year.

Louisville is a Top 10 Market for Real Estate Investors

Check out this article from the Wall Street Journal.

WSJ

Foreclosures Under Review

It seems some lenders have not necessarily been above board with their foreclosure processes.  Several revelations concerning these processes have come to light over the past couple weeks prompting the Office of the Comptroller of the Currency to order several large lenders to review their procedures.  Both GMAC and JP Morgan Chase have halted pending foreclosures, while the following lenders have been contacted and ordered to review their foreclosure procedures:  Bank of America, Citibank, HSBC, PNC Bank, US Bank and Wells Fargo.  Below is a link the an article providing discussing the situation in greater detail.

The Washington Post

Status Report

Currently, both the housing market and the economy as a whole are stuck in a rut.  Click on the link below for a detailed explanation of where we are currently on a national level.  Keep in mind, Bloomberg is a national publication and the Louisville area has seemed much more steady, not experiencing the deep troughs that has plagued the national market during the entire recession.

Bloomberg

Short Sale Process Getting Quicker

Check out this link:  American Land Title Association News

It appears that short sale approval turnaround time has shown a marked improvement recently.  A year ago the process was estimated to take, on average, at least three months.  The same process can now be completed in thirty days.  Some will argue that the time frame had nowhere to go but up, but for those of us still practicing in this market, this is very good news as it appears short sales are with us for the near future.

Rates Still Low

It has been a while since I've updated the blog and for that, I apologize. The good news is that the reason I've been unable to update is that it has turned into a fairly busy summer. Rates have remained low and we've seen an influx of refinance transactions. Sales transactions continue to remain steady as well. Please read the attached blurb from Realtor Magazine Daily...rates are still extremely low and hopefully will remain that way throughout the fall and winter.

Rates Remain Low