New Limits On Home Sale Profit Exclusion

January 14, 2009

If you are one of the fortunate folks who own a second home or rental property, and were planning to take fullest advantage of the capital gains tax exclusion on sale of your primary residence, the Housing Assistance Act of 2008 included a change that could impact your tax on the gains.

monopolypoortaxThe existing law excludes $250,000 of the profit from taxation if you’re single, and $500,000 if you’re married, when you sell a primary residence you’ve lived in for at least two of the last five years. (Your primary residence is the place you live; the address you use on your drivers license; where you’re registered to vote, etc.) If, for example, you bought a property in Ocean City, rented it out for several years, and then moved into it as your primary residence for a couple of years, your free-of-tax profit when you sell it under the existing law would have included any increase in value during the whole time you owned it (up to the limits).

The new law modifies that rule – it limits your exclusion (your free-of-tax profit) to the time the home was your primary residence. You must prorate the total profit between the periods the property was not your primary residence, and the periods that it was.

Only the period after January 1, 2009 is relevant – the period it was not your primary residence before that date won’t be counted in determining the “non-residence” time. For example, if you bought a second home on January 1, 2007, rented or vacationed in it for three years, moved into it on January 1, 2010, then lived in it for 3 years until you sold it, you would have owned the home for 6 years, during which it was a rental or vacation home for 3 years, and your residence for 3 years. However, since only one of the rental years was after January 1, 2009, the numerator in your calculation would be one (the number of non-residence years after January 1, 2009), and your denominator would be 6 (the total number of years you owned the property). In other words, 1/6 of your gain would be taxable; if your total profit was $150,000, then $25,000 of that would be taxable. Under the previous law you would have been able to avoid tax on up to $250,000 ($500,000 if married).

The new law only applies where the period when the property was a rental or vacation home before it became your primary residence. It does not apply if it was your primary residence first, and then became a rental or vacation property. In this case, you could be out of the home for up to three years before you would lose the $250,000/$500,000 exclusion.

If you had been planning to move into your current rental or vacation property, you should consider doing it as soon as possible to minimize your eventual taxes.

I’m not a tax professional – consult yours to verify this and explain it further.

Kim Hannemann, Real Estate Consultant/Realtor®, Samson Realty
Cell: 703-861-9234 • Fax: 703-896-5055 • Email: KimTheAgent@gmail.com
It’s Good To Have A Friend In The Business®

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If you would like to discuss real estate questions, sell or buy a home in Northern Virginia – including Alexandria, Annandale, Arlington, Burke, Centreville, Chantilly, Clifton, Fairfax, Fairfax Station, Falls Church, Kingstowne, Lorton, McLean, Reston, Springfield, or Vienna – contact Kim today.

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IN and OUT For 2009

January 13, 2009

in_n_out1No, I’m not referring to the West Coast burger chain (which can’t match up with Five Guys). I’m talking about home buyers!

What’s IN

  1. Sidelined home buyers. Family or lifestyle additions or changes made in buyers’ households in the last three years are forcing those waiting out the market transition to finally get off the fence and say, it’s time for our family to buy the home that suits our new needs. 
  2. Home uplifts. Not a big renovation, but some new finishes that can work for stay-put home sellers. Not a “gut rehab to the studs” new kitchen, but new flooring, countertops and appliances. 
  3. Collaborative home pricing. The old days of home sellers configuring a home’s price are out. What’s new is that the seller with their agent will look at closed comparables, set a price, then the buyer and their agent agree or disagree, but in the end, a mortgage lender and their appraiser will set the price, as they are assuming the most risk in the transaction. 
  4. Balanced reporting by real estate and personal finance journalists. Consumers learned in 2008 that the ‘doom and gloom” residential real estate market headlines don’t apply to all markets. What’s been lost in the foreclosure hype is that there are still homes selling in short market times (in as little as 1 day), homes selling at full price and some selling with multiple contracts on the table. Existing home sales will be 5.02 million versus 5.652 million for 2007, a decrease of just over eleven percent, considerably less that the recent correction in the U.S. stock market – plus a realistic view that over five million people purchased a home despite the headlines in 2008. 
  5. Creative home seller financing. Exhausted home sellers are turning to self-financing to move properties. Installment sale contracts and lease to own are the most popular and effective ways for sellers to begin to receive income from a property that has languished on the market. 
  6. Real estate agent as a housing resource not salesperson. New-age real estate agents help consumers through the home sale or purchase process, which takes a skilled agent who is not driven by sales, but instead provides resources to help the consumer determine if they should buy or sell a home. Home ownership is not for everyone. Factors such as a job move in 3 years or less, marginal credit, or lack of interest in home maintenance can be reasons for a resource-driven agent to advise their client not to buy. 
  7. Architectural overhead garage doors. After years of bland vanilla garage doors, the architecture has permeated the door most people look at the most. Traditional styling has arrived with mullioned windows, faux wrought iron hinges and latches that provide the original non-overhead garage door look. Contemporary looks now include the adjacent siding applied over the door for a seamless look, much like the panels installed on refrigerator doors to complement cabinets in a kitchen. 
  8. Loveseats. A pair or trio is gaining acceptance as the functional way to rearrange a living or family room. Consumers appreciate the ease at which they can rearrange them, move an extra one to another room, or provide long-term furniture flexibility in future homes. Plus, they’re tired of sitting miles away from others on over-sized sectional sofas. 
  9. The master bed as a throne. With consumer spending down and more nesting at home, home owners are focusing on making their bed like an at-home luxury hotel experience. Posh linens, pillows and mattresses create a getaway without leaving home. 
  10. Older war-horse appliances. Collectable, working appliances from the 1940’s through the late 1980’s have found a new niche among homeowners who appreciate their rock-solid construction and durability. Harvest gold double ovens from the 1970’s (we had a great one in Almond) have been repainted a metallic red and go from boring to bold. A Coldspot refrigerator from the 1950’s refinished in sky blue perks up the butler’s pantry in a suburban home. And, the early 1960’s dryer that looks like it’s from a Jetson house – painted pink – punches up the in-unit laundry room in a condominium. 
  11. Dining chairs that don’t match. With consumers watching their non-essential spending closely and electing to stay home to entertain friends, many have found a quick pick-me-up for their dining room suite, mismatched pairs or single chairs. Feedback from friends and family has been favorable to this easy and cost-effective way to say welcome to my cutting edge table. 
  12. Obama-era paint colors. The President-elect will add a fresh, younger and forward-looking feel to residential interior paint decor in the spaces at The White House when he and future First Lady Michelle have a say. Look for parchment whites, cashmere yellows, bright optimistic blues and radiant golds. Depressing Bush-era colors such as plum, chocolate brown, rusty mustard and pale sage will happily be replaced by more optimistic colors in American homes.

What’s OUT

  1. Fixer-upper homes. With larger down payments required by mortgage lenders, and credit cards maxed out, home buyers want a home in move-in condition. The DIY days are on the wane as buyers want new kitchens and bathrooms from the get-go. 
  2. Foreclosure fluff. The foreclosure rate nationally in 2008 was just under 3 percent. In the Great Depression it was just over forty-percent. 
  3. Home buyers endless “circling” prospective short-list properties. Overly optimistic thinking by buyers to circle a preferred property indefinitely, often for months, waiting for further price reductions or to wear out long weary sellers. This practice has backfired for buyers who practice this style of pre-negotiating. They often lose their short-list dream home and frustrate savvy price-right sellers. Ditto the bottom-feeder buyers. 
  4. Home staging. A recently over-used low cost marketing band-aid for vacant or occupied homes with longer than normal market times. Buyers have said enough of the non-professional usage of assorted leftover props placed around a for-sale home to make it supposedly homey. Buyers say, market it as it is and clear out the tired silk flowers and stale potpourri. 
  5. Indoor-outdoor carpet. The staples of quick-fix home sellers for basements, balconies, screened porches and lanai’s, buyers have said enough. Many have told agents that inexpensive indoor-outdoor carpet is visual pollution and often masks flaws in a home. 
  6. Track lighting. Thought of by homeowners to be a quick way to get an art gallery look, many prospective buyers usually take them out and discount their appeal. As one Gen-X home buyer said, “Why do sellers install them when they don’t really have any interesting artwork or architectural features to spotlight? They bring undue attention to nothing.”

Thanks to Mark Nash. Originally published in Realty Times 12/31/2008


Good News for Countrywide Borrowers

January 13, 2009

From the Virginian-Pilot:

Countrywide Financial Corp. has agreed to cut interest rates and provide relief to more than 8,900 troubled Virginia homeowners to help prevent them from going into foreclosure, the state attorney general’s office announced Monday.

Virginia joined a nationwide settlement between state attorneys general and the home loan giant, which was acquired in July by Bank of America. Designed to help those most at risk of defaulting on their mortgages, the settlement will provide as much as $212.8 million of relief in Virginia, mostly in the form of loan modifications.

Some of those states had sued Countrywide for deceptive business practices, alleging the lender had misled consumers on the escalating nature of the loans. The institution agreed to provide $8.4 billion in loan modifications to as many as 397,000 homeowners across the country.

If you have a loan financed by Countrywide before 2008, read this article:

Mortgage giant offers relief in Virginia to buyers on brink


December Sales – A Sellers’ Market????

January 13, 2009

Here’s an update on December real estate sales in Fairfax and Arlington Counties; Falls Church, Fairfax and Alexandria Cities.

graph

The number of home sales (year over year) rose for the fifth consecutive month in December, while the number of homes on the market declined for the fifth month in a row. Pending sales (homes going under contract) rose for the ninth month in a row. We currently have an absorption rate (current inventory/monthly sales) of only 5 months.

Six months is the traditional supply figure for a “balanced” market, so that means . . . a seller’s market??!!

I guess the question is, what’s going to happen now? The winter is usually pretty slow in Northern Virginia real estate, but mortgage rates have been falling (around 5 % right now). The government has been buying mortgage-backed securities, trying to make sure rates stay down – and smart buyers are coming off the fence while sellers are still giving price and other concessions.

Median home sale prices in the area have fallen on the order of 20-25% since last year, to $340,000 – the same level as December 2003!

My own seat-of-the-pants view is that the next few months will be extraordinarily active. Sellers may soon realize that, also. I’ve seen several multiple-offer situations on attractive, well-priced properties.


Mortgage Scam

January 9, 2009

From Loudoun County agent Danilo Bogdanovic :

If you’re a homeowner who has an existing mortgage, beware. A mortgage scam going around the country has made it to Virginia.

The scam involves receiving a “hello” letter in the mail saying something like,

Dear (insert your full name here),

Your mortgage has been sold to (insert name of a reputable lender here). Beginning (the first of next month), please remit payment to the following address:

(insert name of reputable lender here), P.O. Box (XXX), (city, state and zip code)

The letter may seem valid and very real with further language such as,

Your terms and rate will not change whatsoever. The only thing that will change is the address where you sent your payment. If you have any questions, feel free to call (insert phone number here).

What may actually be happening is that you’re sending your mortgage payment to a scam artist that collects your check, cashes it and runs off with your money. Often times, the P.O. Box is forwarded to an overseas “boiler room” address that’s controlled by scam artists. You will not only lose your money, but your existing mortgage company will come after you for non-payment.

Your mortgage being sold to another lender or servicing company is not uncommon. But you should receive a “goodbye” letter from your existing lender before you receive a “hello” letter from the new lender/servicing company.

If you have not received a “goodbye” letter from your existing lender prior to receiving a “hello” letter, contact your existing lender to confirm that your loan has been sold before you send any payments to the new lender. You will need your loan number to confirm the change so have that ready before you call.

And don’t worry…you have up to 60 days after your loan has been sold to send payments to the original lender before having to send it to the new lender. That gives you plenty of time to contact your existing lender to confirm the change while continuing to pay your mortgage payment on time to your existing lender.

Note: Even if you have received a “goodbye” letter, it may be a good idea to verify your loan has been sold prior to sending a payment to the new lender/address.

And if you do find out that you’ve received a bogus letter that’s actually a scam, let your lender know immediately.

Book ’em, Danno.


Big Johnson Winners!

January 9, 2009

Kim’s Big Johnson College Bowl Mania is over and a winner has been declared!bigjohnson

If you peek at the final standings to see how you did, the PCT in the last column represents your position amongst the hordes who competed on ESPN. For instance, our winner did better than 98% of all contestants. Sad to say, our median score was in the lower half. In other words, as a group, we sucked. The only way to redeem ourselves is to resolve to do better next year!

Winning Maniac:  Fred Heggi (iPod Nano)

Second Place:  Dave Gerstner (Mrs. Hanes Cookies)

Also Beat Kim:  Jacob Beckland, Chris Hannemann, Erin Hayes, Eric Torrey, Chris Gruber, Pat Hayes, Donny Samson, Lon Pribble, and Ron Frazier (some kinda chocolate)

Other Notable Achievements

Most Winners:  Erin Hayes (23)

Most Efficient (most points per winner):  Scott Breunig

Least Efficient (fewest points per winner):  Christy Cunnington

Last Place:  Vicky Hannemann (who let Dad choose her point values randomly, and will never make that mistake again)

Once again, my sincere thanks to you for participating in this event. I hope you enjoyed the competition. Start planning for the Big Johnson College Basketball Spectacular, coming in March! It’s gonna be the biggest Big Johnson ever!

I hope you will recommend me me to your friends, neighbors, and colleagues when they need some advice from a good real estate consultant. I am much better at real estate than at predicting football games.

kimsig


Were You A Thunderbolt Kid?

January 5, 2009

thunderboltI was. That is, a child of the Fabulous Fifties. I just finished Bill Bryson’s The Life and Times of the Thunderbolt Kid, given to me at Christmas by my wife (after I had given it, unread, to our younger son last year) and it’s pretty much a reflection to which I can bear witness, when not choking on laughs:

Under the sink, my mother kept an enormous collection of jars, including one known as the toity jar. “Toity” in our house was the term for a pee, and throughout my early years the toity jar was called into service whenever a need to leave the house inconveniently coincided with a sudden need by someone – and when I say “someone,” I mean of course the youngest child: me – to pee.

“Oh, you’ll just have to go in the toity jar then,” my mother would say with just a hint of exasperation and a worried glance at the kitchen clock. It took me a long time to realize that the toity jar was not always – or even often – the same jar twice. Insofar as I thought about it at all, I suppose I guessed that the toity jar was routinely discarded and replaced with a fresh jar – we had hundreds after all.

So you can imagine my consternation, succeeded by varying degrees if dismay, when I went to the fridge one evening for a second helping of halved peaches and realized that we were all eating from a jar that had, only days before, held my urine. I recognized the jar at once because it had a Z-shaped strip of label adhering to it that uncannily resembled the mark of Zorro – a fact that I had cheerfully remarked upon as I had filled the jar with my precious bodily nectars, not that anyone had listened of course. Now here it was holding our dessert peaches. I couldn’t have been more surprised if I had just been handed a packet of photos showing my mother in flagrante with, let’s say, the guys at the gas station..

“Mom,” I said, coming to the dining room doorway and holding up my find, “this is the toity jar.”

“No honey,” she replied smoothily without looking up . The toity jar is a special jar.”

“What’s the toity jar?” asked my father with an amused air, spooning peach into his mouth. 

“It’s the jar I toity in,” I explained. “And this is it.”

“Billy toities in a jar?” said my father, with very slight difficulty, as he was no longer eating the peach half he had just taken in, but resting it on his tongue pending receipt of further information concerning its recent history.

“Just occasionally,” my mother said.

My father”s mystification was now nearly total, but his mouth was so full of unswallowed peach juice that he could not meaningfully speak. He asked, I believe, why I didn’t just go upstairs to the bathroom like a normal person. It was a fair question under the circumstances.

“Well, sometimes we are in a hurry,” my mother went on a touch uncomfortably. “So I keep a jar under the sink – a special jar.”

I reappeared from the fridge, cradling more jars – as many as I could carry. “I”m pretty sure I”ve used all these too,” I announced.

“That can”t be right,” my mother said, but there was a kind of question mark hanging off the edge of it. Then she added, perhaps a touch self-destructively, “Anyway, I always rinse all jars thoroughly before reuse.”

My father rose and walked to the kitchen, inclined over the waste bin and allowed the peach half to fall into it. “Perhaps a toity jar’s not such a good idea,” he suggested.

Our circumstances were a bit less upscale than the Brysons – my mom did not pull in a salary – but many of our memories are pretty close. Not surprising since we were both born in 1951.

Enjoy it.