A new 3.8% surtax, or “transfer tax,” that takes effect on January 1, 2013 could impact certain real estate transactions next year. There has been a lot of discussion about this new surtax and how health care could start to impact real estate, but understanding the facts will help put a lot of home owners at ease.
First of all, the tax is not likely to affect the majority of people who sell their homes in 2013. For those with an adjusted gross income of less than $200,000 as a single filer, or $250,000 for couples filing together, more than likely, you won’t be affected. And even if your income exceeds those levels, you may be able to get around the 3.8% surtax too, especially if your income is solely earned. Those with dividends, interest, net capital gains, and net rental income are those who need to worry the most, as that is who the new law is targeting.
There is one unique situation to be aware of though for home owners with an AGI above the $200,000 and $250,000 thresholds. If you fall into this bracket and sell your home for a substantial profit, you can still take advantage of the first $500,000 (joint filers) or $250,000 (single filers) in tax-free gains on the sale of your principal home. Any profit above these limits, however, could subject you to the 3.8% surtax.
The best way to determine if you’re liable for the 3.8% surtax is to speak with a tax professional regarding your specific situation, however, you can help yourself. One way to stay in front of this impending surtax is to keep a good paper trail. Keep any documentation or receipts regarding capital improvements, house expenses, settlement or closing costs, title insurance and legal fees, etc… that you pay out because these items increase your tax basis and help lower your capital gains.
To learn more about this topic, please visit: http://www.latimes.com/business/realestate/la-fi-harney-20120715,0,7914992.story
The Mortgage Debt Relief Act is something worth familiarizing yourself with in order to better understand your tax liability as it relates to forgiven debt. Right now, the program has been extended until December 31, 2012, but there is talk of extending it further to 2013. It’s a huge tax relief program for home owners who had part of their debt forgiven or canceled by a lender.
Under normal circumstances, when a borrower has forgiven or canceled debt, their lender will likely file Form 1099-C, which indicates a cancellation of debt and reports the amount to the IRS. The borrower is then required to include the canceled amount as income for tax purposes, which includes the amount of loan proceeds that they are no longer required to pay back to the lender.
But the Mortgage Debt Relief Act allows those taxpayers who underwent a mortgage restructuring, faced a foreclosure, or qualify for the relief to exclude income from the discharge of debt on their principal residence. The Debt Relief Act applies to debt forgiven from 2007 through 2012, and up to $2 million in debt is eligible for exclusion for married couples, or $1 million if married and filing separately. Also, if the total liabilities exceed the total assets and forgiven debt doesn’t qualify under this particular provision, it may qualify under the insolvency exclusion. The Debt Relief Act does not apply to losses on the sale or foreclosure of personal property.
The best course of action is to sit down with a financial or tax professional who can ensure you qualify for the Debt Relief Program because debt cancellation is not always taxable. These situations include indebtedness on a qualified principal residence, bankruptcy, insolvency, certain farm debts, and non-recourse loans. And even if there is forgiven debt that has been excluded from income, it still needs to be reported on Form 982 and attach to the borrower’s tax return. For an accurate accounting of how much debt was forgiven, the lender should provide a Form 1099-C and the amount will be listed in box 2.
For more information, please visit: http://www.irs.gov/individuals/article/0,,id=179414,00.html/
In an effort to establish better relationships between servicers and home owners, Fannie Mae is offering a new program called “Know Your Options Customer Care” for servicers. The customer care training program will benefit servicer call center employees who are on the front lines answering questions of concerned and often frustrated home owners.
“Know Your Options Customer Care” will feature training sessions and provide a script to better facilitate interaction with home owners. It will also offer a level of quality control, ensuring that all servicers are delivering consistent customer service. The program has been in development for about a year, and Fannie Mae has already implemented the program with 18 of its largest servicers.
The program aims to establish one central point of contact in the call center for each client to build a relationship between the servicer and the home owner. The hope is that foreclosure prevention options will be presented in a more clear and concise format so that home owners who are in jeopardy of losing their homes understand what avenues they have to explore. GSE is also taking other preventative steps to help consumers avoid foreclosures, including launching a new website with educational tools for home owners and reaching out to struggling home owners early. Other initiatives include reducing the timeline for short sales, and opening new Mortgage Help Centers in areas hardest hit.
Currently, servicers who have participated in the program have reported 20-30% increases in workouts. Adds Leslie Peeler, SVP of Fannie Mae’s National Servicing Organization, “What we’ve learned through the housing crisis is that if everybody takes the responsibility to work together and act early, then we can prevent foreclosures and keep families in their homes in many cases. We want our servicers to be trusted counselors to their customers, from attentively collecting documents to advising them of their options and guiding them through the process.”
Lofts, studios, condominiums and cottage-style single-family homes are excellent options for today’s price-sensitive homebuyers. Since they are traditionally smaller in square footage, challenges like lack of storage, limited functionality and privacy issues are common. Here are a few tips to help expand a homebuyer’s horizons:
- Consider custom built-ins which provide storage and art niches while taking up very little room
- Convert empty space like the hollow under the stairs into a powder bathroom or storage closet
- Leverage space for live/work functionality by installing a hideaway Murphy bed
- Purchase multi-functional furniture like sofa sectionals that can transform into a guest bed
- Use Japanese screens that provide “instant rooms” and afford privacy
With a touch of creativity and a little elbow grease, small homes can become big surprises.
To learn more about space saving ideas, visit http://www.styleathome.com/homes/small-spaces/25-space-saving-tips/a/952