The Homeowner and Homebuyer Protection Act is supposed to protect potential home buyers?  Does it protect them or limit their ability to buy a home? 

Read the full bill here:  NC Senate Bill 1015

1. Existing Home Owners May now Qualify:  If you have owned and used the same residence as your principal residence for any five consecutive years out of the eight years prior to purchase, a new credit of 10% of the purchase price up to $6,500 is available for residences purchased after November 6, 2009.
2. New Home Owners still have up to $8,000 credit available (up to 10% of the purchase price) if they have not owned a home within the past 3 years.
3. Increased AGI (adjusted gross income) limitations apply to purchases after November 6, 2009:  The credit phases out as modified AGI goes from $125,000 to $145,000 (previously $75,000 to $95,000) or from $225,000 to $245,000 (previously $150,000 to $175,000) for individuals filing jointly.
4. The purchase price of the residence can be up to $800,000.
5. The home must be “purchased” through written binding contract before May 1, 2010 and closing must occur before July 1, 2010.
6. No credit is allowed for individuals aged 18 or younger or anyone who may be claimed as a dependent on another return.
7. Homes cannot be acquired from related parties including: your spouse, ancestors (parents, grandparents, etc) or lineal descendants (children, grandchildren, etc),  corporation or partnership in which you own more than 50%.
8. The signed HUD or settlement statement must be attached with the return and the return must be paper filed (no e-filing option).

If the home was purchased before December 1, 2009, an amended 2008 return can be filed to process the credit now or you can wait until the 2009 tax return is prepared.  If the closing was on or after December 1, 2009, the credit must be applied for on the 2009 return.

Keep in mind that the income limitations can be manipulated a bit for married couples or in cases where there are more than one unmarried people buying a home.  If you are over the income limitation jointly, you may still be able to qualify for the credit by filing separately.  If the lower earning spouse still qualifies for the credit based on income, you may still be able to take advantage of the credit by filing separately.  Careful analysis is necessary to determine which method of filing (jointly or separately) yields the lowest overall tax liability.

This credit does not have to be prorated based on the ownership of the home.  Therefore, if unmarried individuals are purchasing a home and one qualifies but the other does not, the full credit may still be available on the lower earner’s tax return.

Realtors and anyone selling a home should also be aware of these credit uses.  Through our niche of working with real estate investors, we have successfully assisted several investors with contract for deed and seller financing arrangements with people who might not otherwise be able to purchase a home on their own.  In a follow up post, I will describe some creative methods of using this home buyer credit for down payment financing methods.

Legislative Alert
Please call, email, write your Senators Today!
Tell them we need them to vote against HR 1728 Sec 101(3)(E)
Let’s Not Lose Owner Financing!

June 5, 2009
From: Dyches Boddiford , www.Assets101.com

Pete Fortunato recently brought this Bill to my attention.  It has already passed the House of Representations and has been sent to the Senate. If it passes in its current form, it will restrict owner financing to once every 36 months (HR 1728 Sec 101(3)(E)). While this may not be much of a problem when we get owner financing from sellers, it severely restricts our ability to sell with owner financing.

Though the bill mainly deals with amendments to Truth-in-Lending for mortgage brokers and banks, this one section could reap havoc. This could limit not only your sales where you take back a mortgage, but your lease-options and land contracts as well.

Click here for the latest version of the Bill.  All owner carryback financing should be exempted from this bill. As one commentator noted, if this is left as is, it is a taking of private property rights. We can wait for someone else to fight it, but as for me, I am contacting my Senators today to let him know what I think. I suggest you do the same.

You can find and contact your Senators here.  Keep it short and to the point, but let them know your thoughts! Pass this eBrief along to your investor friends.

Good investing until next time,

Dyches Boddiford

________________________________________
Copyright 2009, The Oaks Group, Inc. All Rights Reserved.
Reproduction of this material without written permission is prohibited.
Minutemen

To start, every property owner who rents a residential property would be required to apply for and obtain a license for renting property in the county.  The fee structure for this "business license" has not yet been decided, but any additional fee required to rent a piece of property should be considered a "tax."  This new tax could be based on rental income amounts or the number of properties rented or a fixed fee.  The proposed draft of this ordinance says that the "Rental registration fees shall be established annually, and shall be sufficient to enable the City of Charlotte to recover all costs associated with implementing and managing this ordinance."  This is still up in the air, but any additional tax for a rental property, would need to be added to the rent and would result in higher rent overall in our community.

The purpose of this license is to "minimize and control the adverse effects caused by illegal activities occurring on and in these properties" according to their current draft of the ordinance.  They want to make sure that the city is able to contact the property owners in "order to address disorder calls, health and safety code violations and statutory violations, as well as to implement remedial action programs."  So, although you may own a rental property and pay the real estate taxes that fund the police department to protect your interests, it appears that the city would like you to be responsible for your tenant's actions by getting in the middle of their potential illegal actions like domestic violence, drug dealings, etc.  I don't think this is an optimal situation and could create more problems than it solves.

Through some complex formulas, the policy will be tracking to see if your property is above average for crime calls.  If it is identified as being a high risk, you may be subject to setting a Remedial Action Plan with the police department.  This plan is required and if not agreed upon and completed with a specified period of time, the owner of the property risks having their license to rent revoked.

Then what happens?  Does the property go into foreclosure because you won't be able to rent it anymore?  Rental property owners are doing a service to the community by allowing those who are unable to purchase a home to have a place to live at an affordable rate.  Many of these rental properties are barely covering or do not cover their expenses.  Additional taxes and regulations would deter investors from purchasing real estate in Mecklenburg County and will increase the price of fair housing for those who are already unable to purchase a home.

I personally do not support this ordinance.  I am also a member of the board of directors of the Metrolina Real Estate Investors Association and the board opposes this ordinance and thinks it would have an unfair and detrimental effect for its membership. It appears this issue will be up for a vote in April or May at this point.  I strongly urge you to consider this ordinance and vocalize your concerns to the Charlotte City Council. Pass this information along to others as well since this potential ordinance has not received the media attention it deserves. 

If you would like more information about this ordinance and the details, feel free to comment or contact me.

Donna Bordeaux is a Certified Public Accountant and Personal Financial Specialist with Bordeaux & Bordeaux, CPAs, PA in Lake Wylie, SC (a suburb of Charlotte, NC).  For further information about Donna or her firm, please visit www.yourcpapartners.com.

In our continuing effort to help businesses re-assess and re-invent, we suggest that you review your sales to decide if you are getting a good return on your rental investment.  Here are a few suggestions to keep your rent under control:

1.  If you are in a long term lease and the traffic generated is not supporting the rent you pay, consider meeting with your landlord to review rates or re-negotiate the terms of your lease.  Be prepared for the meeting though. Review current comparable lease rates and come prepared to show your landlord the current market conditions.  Take properly prepared financial statements with you and maybe even your CPA.  Explain what effects the current market is having on your ability to pay the current rental rates.  If you are dealing with a larger property management company, this may be a futile exercise, but it cannot hurt.  Your landlord would probably rather have you paying some rent, rather than have an empty space that they have to advertise to rent.  They may even have to give a new tenant upfit allowances and free rent for a few months anyhow.  Why wouldn't they offer this to you?

2.  Consider moving your business to a home office or utilize an office suite service on a per-use basis.  If you are a sales organization without a lot of retail foot traffic, this may help you increase your bottom line and still provide quality services to your customers.  What would happen if you invested the money spent on rent on a top notch website that creates traffic and sales for you?  Could your work be easier and could you expand the reach of your business to more customers?

3.  Is there an opportunity to share office or retail space with a complimentary vendor?  For example, maybe a financial planner may consider an office sharing arrangement with an accountant or a vendor selling art could partner to show their art in offices or restaurants.

Be creative.  If you don't, your competition may make their operation more lean and put you out of business.  You cannot sit back and wait for things to happen to you — control your own destiny and look at the opportunities that are out there.

Donna Bordeaux is a Certified Public Accountant and Personal Financial Specialist with Bordeaux & Bordeaux, CPAs, PA in Lake Wylie, SC (a suburb of Charlotte, NC).  For further information about Donna or her firm, please visit www.yourcpapartners.com.

The report concludes that significant obstacles are standing in the way of improving tax compliance by owners or rental real estate and cites that the fact that taxpayers may not fully understand the complex rules governing the reporting of rental real estate activities.

Opportunities that the government sees to improve compliance by individual taxpayers include improving existing information reporting requirements and requiring taxpayers to provide a greater detail of information on their tax returns.

Many of our clients own rental real estate and will be effected by any additional administrative tasks that they must perform in order to stay in compliance. We will keep you up to date if any of these recommendations actually become a requirement.

You can read the full government report here.

After 2008, some homesellers who don’t use their properties as principal residences for their entire ownership period may wind up paying more of a tax bill than they would under current rules (or pay tax when none would be owed currently). The tax break affected is the homesale exclusion, which generally allows up to $250,000 of homesale profit to be tax-free if a home was owned and used by the seller as a principal residence (i.e., main home) for at least 2 of the 5 years before the sale. In general, the tax-free break can only be used once every 2 years. The tax-free profit amount is up to $500,000 for married taxpayers filing jointly for the year of sale if several conditions are met. Because of the “principal residence” requirement, vacation or second homes normally don’t qualify for the exclusion. However, in what some saw as a loophole, the law permitted taxpayers to convert their second home to their principal residence, live in It for two years, sell it, and take the full $250,000/$500,000 exclusion available for principal residences, even though portions of their gains were attributable to periods when the property was used as a vacation or second home, not a principal residence.

For sales after 2008, the homesale exclusion will be reduced proportionately for the period of time a home wasn’t used as a principal residence. The prime example is a vacation home that is turned into a principal residence by its owners, but the new rule also can hit individuals who use a property as a main home for a while, rent it out for a period of time, and then move back in. There are, however, a number of exceptions. For starters, pre-2009 periods of non-principal-residence use don’t count, and neither do periods of temporary absence totaling no more than 2 years due to health or employment changes (or certain unforeseen circumstances), or up to 10 years of absence for qualifying members of the military or certain government employees. Finally, non-principal-residence use doesn’t count if it occurs (1) in the five years preceding the sale, but (2) after you permanently stop using the home as a main home.

The new law closes that “loophole” by requiring homeowners to pay taxes on gains made from the sale of a second home to reflect the portion of time the home was not used as a principal residence (e.g, vacation or rental property). The amount taxed will be based on the portion of the time during which the taxpayer owned the home that the house was used as a vacation home or rented out. The rest of the gain remains eligible for the up-to-$500,000 exclusion, as long as the two-out-of-five year usage and ownership tests are met. The new law in effect reduces the exclusion based on the ratio of years of use as a principal residence to the total time of ownership. For example, if a taxpayer owned a vacation home for ten years, but lived in it as a principal residence only for the final two years prior to sale, the maximum available exclusion would be reduced by four-fifths. Accordingly, a $400,000 gain on the sale that would be eligible for the full exclusion under pre-Act law would be reduced by four-fifths, to $80,000.

The good news for current owners of second homes is that the new law is not retroactive. The tightening applies only to sales after 2008. Plus, any periods of personal or rental use before 2009 are ignored for purposes of the provision. Also, the new law doesn’t change the rule that allows homeowners to take advantage of the homesale exclusion every two years. Taxpayers can still “home hop” with full tax exclusion if they only own one home at a time. Moreover, the taxpayer still qualifies for capital gain treatment on the amount of gain that cannot be excluded. As you can see, the new rule is quite complex and down the road will cause big headaches for some homesellers unless they’re careful and get an expert’s advice.   Call us if you would like to sort out your situation and see what effect this law change will have for you.

The results are interesting, but I would like to see a more complete picture. Some of the states do not have income taxes, some have high tourism taxes, the gas taxes all very by state. I would like to see a breakdown of total tax obligations split among the states. Odds are the result would be remarkably similar.

Median Real Estates Tax