Archive for the ‘Inman News’ Category

New Medicare Tax Creates Incentives for Home Sales – Reprint from Inman News 7/12/2012

With so many people already part of Medicare or soon to be part of Medicare this is important information. 

By Stephen Fishman
The Patient Protection And Affordable Care Act (“Obamacare“) will affect everyone in the United States one way or another. But some people will be affected more than others. Among these are high-income taxpayers. Starting in 2013, they will be subject to a brand new Medicare tax on their “unearned income.”

Who is subject to the tax?

Starting in 2013, a 3.8 percent Medicare contributions tax will be imposed on the lesser of (1) the taxpayer’s net investment income, or (2) any excess of modified adjusted gross income (MAGI) over $200,000 ($250,000 for married taxpayers filing jointly). Thus, all single taxpayers with MAGI over $200,000 and married taxpayers with MAGI over $250,000 will be subject to this tax. This is a small proportion of the population, but a significant one for the real estate industry.

What income is taxed?

The tax applies only to investment income. This includes:

  • gross income from interest, dividends, annuities, royalties, and rents other than those derived from an active business
  • the net gain earned from the sale or other disposition of investment and other non-business property, and
  • any other gain from a passive trade or business.

This includes just about any income not derived from an active business or from employee compensation.

Example: Sue and Sam, a married couple filing jointly, have a MAGI of $300,000 in 2013 which includes $100,000 of net investment income. Their MAGI is $50,000 over the $250,000 threshold, thus they must pay the 3.8 percent tax on $50,000 of their investment income. This results in a $1,900 tax.

Can the tax apply to the profit earned on home sales?

Yes. But, in the case of the sale of a principal residence that qualifies for the special tax exclusion on such income, it would apply only if the net gain from the sale exceeds the $500,000 exclusion for joint filers or $250,000 for singles, and then only to the extent that taxpayer’s income exceeds the $200,000/$250,000 MAGI threshold.

Example: Lucy purchased a home in San Francisco in 1995 for $250,000. She sells it in 2013 for $750,000. She also earned $100,000 in employee wages in 2013. She earned a $500,000 profit on the sale of her home ($750,000 – $250,000 = $500,000). She qualifies for the $250,000 home sale exclusion, so she is left with $250,000 of net investment income from the sale. This, added to her wages, gives her a MAGI of $350,000 — $100,000 over the Medicare tax threshold. Therefore, she must pay $3,800 in extra Medicare taxes (3.8 percent x $100,000 = $3,800).

This new tax gives homeowners who have very substantial equity in their homes a strong incentive to sell them in 2012 before the new tax takes effect.

8 Things to Know About Buying A Home Today – Reprint from Inman News (Lowes)

This article was written by Dian Hymer, a real estate broker with more than 30 years’ experience, is a nationally syndicated real estate columnist and author of “House Hunting: The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide.”.

The home-sale market is showing signs of life. More buyers are confident now than they were a year ago that now might be a good time to buy. Interest rates are near all-time lows and home prices in some areas are back to 2002-2003 levels.

Some analysts are finally suggesting that we may be headed for recovery. If you have a secure job, plan to stay put and feel this is the right time for you to buy a home, consider the following.

In most places in the country, home prices are still declining. It has only been recently that the market picked up and it’s too soon to know if this will result in a sustainable increase in prices.

The recent home sales in areas around California’s Silicon Valley defy the norm. Significant job growth in the area combined with a low inventory of good homes for sale has resulted in multiple offers with buyers bidding the price up sometimes hundreds of thousands of dollars over the asking price.

In other high-demand, low-inventory areas, you may find yourself bidding against other buyers, perhaps even more than once. This doesn’t necessarily mean that the price will be bid up significantly over the asking price. This will vary from one listing to the next depending on property location, condition and price.

It’s important to research the local community where you want to buy. Find out what homes are selling for, if multiple offers are common and if listings are selling for more than the asking price. This will help you make a realistic offer that might be accepted when you find a home you’d really like to buy. It helps to work with an experienced local real estate agent.

Some sellers in high-demand niche markets intentionally list their home at a low price hoping to stimulate multiple offers. If you see such a listing and there are a lot of buyers wanting to make offers, you will be better able to know how high your offer would need to be to win the contest if you have done your due diligence.

HOUSE HUNTING TIP: Whether you’re anticipating competition or not, you should be preapproved for the mortgage you’ll need to complete the purchase before you write an offer. In competition, this will make a big difference, particularly if everyone else who is offering is preapproved. It also lets you know what you can afford. And, it puts you in a good bargaining position with the seller.

Buyers aren’t the only participants in the housing market that have heard the news that the market has improved. Some sellers are putting their homes on the market because they’ve been waiting for a better time to sell. This is good news for buyers looking in low-inventory markets.

You should expect that you will have to negotiate. Many of today’s sellers are selling for less than they paid. Even though the market has improved a bit, sellers may be disappointed with the current market value of their home. Be prepared to negotiate, not just the initial price, but after inspections are completed if items come up that you hadn’t anticipated.

Include realistic contingency time frames in your purchase contract for loan and appraisal approval if you’re applying for a mortgage. The recent uptick in the market means that lenders are suddenly overwhelmed.

In mid-March, buyers in Oakland, Calif., who were seeking approval for a jumbo loan were told they could close a transaction in 21 days. Not only could they not close in 21 days, it took more than 21 days for loan approval due to lender backlog.

THE CLOSING: Underwriters could require that additional conditions be met before you can be approved. Act quickly to avoid further delay.

Building a Pondless Water Feature – A Reprint from Inman News

Inman News is a newsletter produced for Lowe’s.  With spring coming and everyone trying to think of new ideas for their yard – why not build a pondless water feature?  Follow the instructions written by Paul Bianchina from Inman.

There’s nothing quite like the sound of water bubbling in  your backyard. A water feature can become an eye-catching landscaping feature,  or a cool and tranquil backdrop that also helps block unwanted traffic or  neighborhood noise.

A water feature can also be a great do-it-yourself project  that just about anyone can tackle.

The term “water feature” can mean different things  to different people. But if you want a stunning, low-maintenance option that’s  customized to your yard and your style, consider going “pondless.”

Also known as a “disappearing pond,” pondless  water features eliminate the open pond that requires periodic maintenance to  prevent algae and other problems, along with potential safety issues for small  children. Instead, they use a water reservoir, a recirculating pump, and some  type of rock or other feature that the water flows out of. The water filters  down through a rock base over the reservoir and disappears, to be recycled  endlessly.

The basic components

Pondless water features can be large or small, simple or  elaborate. Their design is pretty much limited only by your imagination,  ambition and budget. But they all share the same four basic design elements:

1. The reservoir:  This is simply a big, relatively shallow round or square box made of a tough,  high-impact resin. The box is solid on the bottom and sides to retain the  water, and is perforated or slotted on the top to hold the rock while allowing  the water to drain through. The top also has a removable plate to access the  pump. Reservoirs come in a few different sizes, depending on how much water you  want the system to process.

2. The pump: This  is a submersible, 110-volt electric pump specifically designed for these  applications. It sits inside the reservoir, with a filter on the inlet side to  filter out impurities, and a hose on the outlet side that’s routed to wherever  you want the water to come out. There are several different sizes available,  depending on the amount of flow desired.

3. The water outlet:  The water coming from the pump exits through some type of visible outlet, and  this is where your creativity can have free reign. Many water features utilize  a natural piece of basalt as the center piece of the design, which is drilled  to receive the hose coming from the pump. You can find basalt in many sizes and  shapes, and you can use one piece alone or a grouping of several pieces with  the water tumbling over all of them. Other options include decorative jugs,  vases of any size or shape, actual water fountains, cherubs and other garden  statues, pieces of discarded masonry, and many other objects.

4. Base rock:  Finally, you’ll want to cover the reservoir with a layer of rock that the water  flows over and disappears into. There are many different types, sizes and  colors of rock to choose from, depending on your personal preferences. You can  mix and match sizes and colors, as well as incorporating pieces of natural  wood, metal sculptures and other objects you might like.

Putting it all  together

Select an area for the water feature, and lay out the  general size and shape you want. Remember that the overall size of the rock  base can be the same size as the reservoir, or it can be substantially larger.

Next, you’ll need to excavate a hole for the reservoir  itself. The hole should be a little wider and a littler deeper than the  reservoir, to allow for leveling and backfilling. Place a layer of sand in the  bottom of the hole, which will make it easier to level the unit, and also  protects it from rocks. Check the level in all directions; pack some additional  sand into the hole around the base to stabilize it; and then backfill up to the  level of the top lip.

If you’re installing a heavy water feature such as a piece  of basalt, it’s typically installed next, directly on top of the reservoir for  stability. Be sure you have adequate help for lifting this into place; some  larger pieces will even require a forklift or other machinery. Route the hose  through the hole in the rock, and seal it with an approved sealant.

Install the pump in the reservoir and connect the hose.  Route the wire from the pump to an exterior-approved, GFCI-protected electrical  outlet, but don’t plug the pump yet. Make sure the inside of the reservoir is  clean, then fill it with clean water. Activate the pump and test all the  connections and the flow rate. If everything looks good, install the access  door on the top of the reservoir, then cover the top of the reservoir with the  base rock.


You can sometimes find small water feature kits, with a  reservoir, pump and all the other components, at home centers, warehouse stores  and other retailers. For larger pump and reservoir equipment, check with any  local retailer that handles landscaping supplies, including nurseries or  sprinkler dealers. They’ll either have the materials you need in stock or they  can easily order them for you. They can also work with you on the proper sizing  of the pump. You can also find what you need online; start with a search for  “disappearing water features,” and go from there.

For basalt and other rock, check with any local retailer of  rock supplies. They can also drill rock for you if you find a specific piece  that you like, and can assist you with delivery and placement. As far as the  electrical wiring’s concerned, consult with a licensed electrician to have the  proper GFCI outlet installed near the water feature’s location.

Just a comment – For those looking to sell their home this spring/summer, this would be a cool feature to have and gives a little WOW as the potential buyer drives up to your home.    Joan Parcewski

10 Home Maintenance Tips for Spring – A Reprint from Inman News – 4/10/2012

It’s spring and we all are thinking about all those things we now need to take care of both inside and outside the home.  This is a great list to start for all of us from Paul Bianchina from


The sun is peeking out and the plants are starting to blossom, so it must be about time for spring chores again. Here’s my annual spring checklist of important issues to tend to around the house.

1. Roofing repairs: If you suspect winter storms may have damaged your roof, it needs to be inspected. (If you’re not comfortable with the height or steepness of your roof, hire a licensed roofing contractor for the inspection.) Look for missing or loose shingles, including ridge-cap shingles.

Examine the condition of the flashings around chimneys, flue pipes, vent caps, and anyplace where the roof and walls intersect. Look for overhanging trees that could damage the roof in a wind storm, as well as buildups of leaves and other debris.

If you have roof damage in a number of areas, or if older shingles makes patching impractical, consider having the entire roof redone. Also, remember that if the shingles have been damaged by wind or by impact from falling tree limbs, the damage may be covered by your homeowners insurance.

2. Check gutters and downspouts: Look for areas where the fasteners may have pulled loose, and for any sags in the gutter run. Also, check for water stains that may indicate joints that have worked loose and are leaking. Clean leaves and debris to be ready for spring and summer rains.

3. Fences and gates: Fence posts are especially susceptible to groundwater saturation, and will loosen up and tilt if the soil around them gets soaked too deeply. Check fence posts in various areas by wiggling them to see how solidly embedded they are.

If any are loose, wait until the surrounding soil has dried out, then excavate around the bottom of the posts and pour additional concrete to stabilize them. Replace any posts that have rotted.

4. Clear yard debris: Inspect landscaping for damage, especially trees. If you see any cracked, leaning or otherwise dangerous conditions with any of your trees, have a licensed, insured tree company inspect and trim or remove them as needed.

Clean up leaves, needles, small limbs and other material that has accumulated. Do any spring pruning that’s necessary. Remove and dispose of all dead plant material so it won’t become a fire hazard as it dries.

5. Fans and air conditioners: Clean and check the operation of cooling fans, air conditioners and whole-house fans. Shut the power to the fan, remove the cover and wash with mild soapy water, then clean out dust from inside the fan with a shop vacuum — do not operate the fan with the cover removed.

Check outdoor central air conditioning units for damage or debris buildup, and clean or replace any filters. Check the roof or wall caps where the fan ducts terminate to make sure they are undamaged and well sealed. Check dampers for smooth operation.

6. Check and adjust sprinklers: Run each set of in-ground sprinklers through a cycle, and watch how and where the water is hitting. Adjust or replace any sprinklers that are hitting your siding, washing out loose soil areas, spraying over foundation vents, or in any other way wetting areas on and around your house that shouldn’t be getting wet.

7. Check vent blocks and faucet covers: As soon as you’re comfortable that the danger of winter freezing is over, remove foundation vent blocks or open vent covers to allow air circulation in the crawl space.

While removing the vent covers, check the grade level around the foundation vents. Winter weather can move soil and create buildups or grade problems that will allow groundwater to drain through the vents into the crawl space, so regrade as necessary. Remove outdoor faucet covers. Turn on the water supply to outdoor faucets if it’s been shut off.

8. Prepare yard tools: Replace broken or damaged handles, and clean and condition metal parts. Tighten fittings and fasteners, sharpen cutting tools and mower blades, and service engines and belts in lawn mowers and other power equipment.

9. Change furnace filters: Now is the time to replace furnace filters that have become choked with dust from the winter heating season. This is especially important if you have central air conditioning, or if you utilize your heating system’s fan to circulate air during the summer.

10. Check smoke detectors: Daylight Savings Time snuck up early again this year, and that’s usually the semi-annual reminder to check your smoke alarms. So if you haven’t already done it, now’s the time. Replace the batteries, clean the covers, and test the detector’s operation before it’s too late.

If you have gas-fired appliances in the house, add a carbon monoxide detector as well (or check the operation of your existing one). CO2 detectors are inexpensive and easy to install, and are available at most home centers and other retailers of electrical parts and supplies.

Tax Benefit for Couples Owning Separate Homes – A Reprint from Inman News 4/9/12

With everyone focused on filing their taxes, this article  from Inman New ( is perfectly timed with great information for everyone.   Remember that “Mortgage interest deduction available per residence, not per taxpayer”


Before the current, rather liberal, tax advantages for homeownership, many older people delayed or declined marriage or remarriage “for tax purposes.”

That’s because each individual over 55 was entitled to a one-time tax exclusion of $125,000 on the sale of a principal residence.

Because many former spouses entered into a new relationship already owning a home, they usually chose to sell one of them before returning to the altar. That way, they could obtain the $125,000 benefit twice; a married couple got it only once.

I thought about that “marriage penalty” recently when the U.S. Tax Court ruled that the cap on mortgage interest deductions applies in the same way to unmarried couples as it does to married couples, affirming a ruling by the Internal Revenue Service assessing a tax deficiency against a gay couple who jointly own two houses.

The court rejected the petitioners’ argument that Congress intended to impose a “marriage penalty” on married couples.

Under the Internal Revenue Code, mortgage interest is deductible from income, but not to the extent that it is attributable to an outstanding mortgage principal balance of more than $1 million. Similarly, interest payable on a home equity line of credit that is used to finance home improvements is deductible, but not to the extent that it is attributable to an outstanding loan balance of more than $100,000.

In this case, the same-sex couple jointly purchased houses in areas of Los Angeles and Palm Springs. They used the Palm Springs house for vacations and weekends and the L.A. home as their primary residence.

The outstanding mortgage principal balances for the two houses exceeded $2 million in 2006 and 2007, and the outstanding principal balance on a joint home equity loan exceeded $200,000.

In filing their federal income tax returns for 2006 and 2007, they each claimed interest deductions for interest attributable to a $1 million mortgage balance and $100,000 home equity loan balance, effectively asserting that each could use the full interest deduction allowance.

According to the case, the IRS sent both people deficiency notices, disallowing a substantial portion of their interest deductions. It maintained that the $1 million and $100,000 caps were applied per residence, not per taxpayer.

The IRS pointed out that a married couple jointly purchasing a house is subject to the $1 million and $100,000 cap, even when the married couple files their income tax returns separately (in which case, each can claim deductions only for interest attributable to half the capped amounts).

And, in a prior case, the IRS had taken the same position regarding unmarried different-sex couples who purchased houses jointly.

Which takes us back to the benefit of owning (not necessarily filing) separately especially when it comes to deducting mortgage interest on expensive homes.

The Taxpayer Relief Act of 1997 changed not only the one-time, $125,000 home-sale exclusion for persons over 55 years of age, but also the “rollover replacement rule.” Under the old law, a taxpayer could defer any gain on the sale of a principal residence by buying or building a home of equal or greater value within 24 months of the sale of the first home.

Tax on the gain was not eliminated, but merely “rolled over” into the new residence, reducing the tax basis of the new home.

The intent of the 1997 tax code, which replaced the “rollover” provision and $125,000 over-55 exclusion, was to allow most homeowners to sell their primary residence without tax — and not worry about keeping records. Taxpayers no longer can utilize parts of either portion.

In order to qualify for the $250,000 exclusion ($500,000 for married couples), taxpayers must have owned and used the property as a principal residence for two out of five years prior to the date of sale.

Second, they must not have used this same exclusion in the two-year period prior to the sale. So, the only limit on the number of times a taxpayer can claim this exclusion is once in any two-year period.

by Tom Kelly, Inman News

Tax Break for Owners Occupying A Rental Has Changed – Reprint from Inman News

The following was in today’s Inman News – written by Stephen Fishman – This is important information for those buying rental properties.

The question received was
Q. I bought a rental home three years go and have been renting it out ever since. If I move into the home now and live in it for two years and then sell it, will I qualify for the full $250,000 home-sale exclusion?

A. No. The maximum Section 121 exclusion you’ll qualify for is $100,000 (40 percent of the full $250,000 exclusion for single taxpayers).

One of the greatest boons in the tax code for the average person is the Section 121 home-sale exclusion. Homeowners who qualify for it don’t have to pay any income tax on up to $250,000 of the gain from the sale if they’re single, or up to $500,000 if they’re married filing jointly.

Qualifying for the Section 121 exclusion is simple: You just have use the home as your principal residence for at least two years of the prior five years before it’s sold.

As Section 121 was originally enacted in the 1990s, this meant that you could buy a house, rent it out for three years, live in it for two years, and then sell it and qualify for the entire Section 121 exclusion. Thus, you could avoid having to pay tax on up to $500,000 of otherwise taxable gain. And you could do this over and over again. However, those days are gone.

Section 121 was amended in 2008. For sales and exchanges after Dec. 31, 2008, gain from the sale or exchange of a principal residence allocated to periods of nonqualified use is not excluded from gross income. Nonqualified use means any period in 2009 or later where neither you nor your spouse (or your former spouse) used the property as a main home.

Example: You purchased a home on Jan. 1, 2009, and rented it out until Jan. 1, 2012, when you moved in and made it your main residence. You sell the home on Jan. 1, 2014 for a $100,000 gain. During the five years you owned the home there were three years of nonqualified use. Because three of five is 60 percent, only 40 percent of the $100,000 gain — $80,000 — can be excluded under Section 121.

However, nonqualified use does not include any portion of the five-year period in the two-out-of-five-year Section 121 exclusion that falls after the home is used as the principal residence of the taxpayer or spouse. In other words, if you live in the home and then rent it out, the periods of rental use after you lived in the home aren’t a nonqualified use and your Section 121 exclusion won’t be affected.

Stephen Fishman is a tax expert, attorney and author who has published 18 books, including “Working for Yourself: Law & Taxes for Contractors, Freelancers and Consultants,” “Deduct It,” “Working as an Independent Contractor,” and “Working with Independent Contractors.”

10 Things To Know About Mortgage Debt Forgiveness – A Reprint from Inman News 3/7/2012

This article was written by Stephen Fishman who is a tax expert, attorney and author who has published 18 books, including “Working for Yourself: Law & Taxes for Contractors, Freelancers and Consultants,” “Deduct It,” “Working as an Independent Contractor,” and “Working with Independent Contractors.” 

Anyone who has gone through foreclosure, refinancing or shortsales or will be should read this. 

10 things to know about mortgage debt forgiveness


Over the past several years, millions of homeowners have had billions of dollars in mortgage debt forgiven, either through foreclosure, refinancing or short sales. It’s important for real estate professionals and homeowners to understand that mortgage debt forgiveness has significant tax consequences.

Here are 10 things the Internal Revenue Service says you should know about mortgage debt forgiveness:

1. Normally, when a lender forgives a debt — that is, relieves the borrower from having to pay it back — the amount of the debt is taxable income to the borrower. Thus, a homeowner who had $100,000 in mortgage debt forgiven through a short sale would have to pay income tax on that $100,000, as an example.

Fortunately, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude from your taxable income up to $2 million of debt forgiven on your principal residence from 2007 through 2012. This means you don’t have to pay income tax on the forgiven debt.

2. The limit is $1 million for a married person filing a separate return.

3. You may exclude from your taxable income debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.

4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.

5. The Mortgage Forgiveness Debt Relief Act applies to home improvement mortgages you take out to substantially improve your principal residence — that is, they also qualify for the exclusion.

6. Second or third mortgages you used for purposes other than home improvement — for example, to pay off credit card debt — do not qualify for the exclusion.

7. If you qualify, claim the special exclusion by filling out Form 982: Reduction of Tax Attributes Due to Discharge of Indebtedness , and attach it to your federal income tax return for the tax year in which the debt was forgiven.

8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax-relief provision. In some cases, however, other tax-relief provisions — such as bankruptcy — may be applicable. IRS Form 982 provides more details about these provisions.

9. If your debt is reduced or eliminated, you normally will receive a year-end statement, Form 1099-C: Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.

10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

The IRS has created a highly useful Interactive Tax Assistant on its website that you can use to determine if your canceled debt is taxable. The tax assistant tool takes you through a series of questions and provides you with responses to tax law questions.

For more information about the Mortgage Forgiveness Debt Relief Act of 2007, see IRS Publication 4681: Canceled Debts, Foreclosures, Repossessions and Abandonments. You can get it from the IRS website at

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