Home Selling Tax Tips for Accidental Landlords

I read an article today that I felt was worth passing along as many home sellers are now becoming landlords.  In this article Stephen Fishman, a real estate Tax Expert and Attorney shares some thoughts:

Stephen Fishman:

Due to the precipitous decline in the housing market over the past few years, many homeowners who would otherwise sell their homes are renting them out. This may be because prices are too low, or because they have to move before they can sell due to a job change.

Such accidental landlords should understand that if they rent out their homes too long before they sell them, they could lose the biggest tax break available for most people: the home sale exclusion.

Homeowners who qualify for the home sale exclusion 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 and file a joint return. Of course, this exclusion is useful only for homeowners who have equity in their homes, not the millions who are "under water" and will receive no profit if they sell their homes.

To qualify for the exclusion, a homeowner must satisfy the ownership and use tests. This means that during the 5-year period ending on the date of the sale, the homeowner must have:

• owned the home for at least 2 years (the ownership test), and
• lived in the home as a primary residence for at least 2 years (the use test).

However, the homeowner need not be living in the house at the time it is sold. The two years of ownership and use may occur anytime during the five years before the date of the sale.

This means that a homeowner can move out of the house for up to three years and still qualify for the exclusion. Moreover, a homeowner can rent out a home and count that time as ownership time.

This rule has a very practical application: A homeowner may rent out a home for up to three years prior to the sale and still qualify for the exclusion. However, the exclusion works a bit different for homeowners who have rented out their homes.

They cannot exclude from their income the part of their gain equal to the depreciation they claimed (or could have claimed) while renting the home. Moreover, if the home is rental property at the time of the sale, the sale must be reported to the Internal Revenue Service on Form 4797: Sales of Business Property.

Example: Connie purchases a house on Feb. 1, 2007, and lives in it for two full years. She then moves to another state to take a new job. Rather than sell the house in a down market, she elects to rent it out.

If she sells the house by Feb. 1, 2012, she'll qualify for the $250,000 home sale exclusion because she owned and used the house as her principal home for two years during the five-year period before the sale. If she waits even one more day to sell, she will get no exclusion at all.

Thus, accidental landlords who have equity in their homes need to sell them before the three-year rental period expires, or they'll lose the home sale exclusion. If they can't or don't want to sell, they would have to move back into the home to preserve the exclusion.

Homeowners who don't qualify for the exclusion will have to pay a 15 percent capital gains tax on their gain from the sale (assuming the home was owned for at least one year).

Spring Tips for a Healthy Lawn

Not really sure if it Spring is truly here as in the past week we actually had snow in various parts of the midwest but according to the calendar its Spring! That being said, I continue to get visits weekly now from many companies vying for my business to help make my average lawn beautiful.  I'm sure this happens by you as well and for those not willing to spend the big bucks for one of these companies then hopefully the following tips will be of help.

The best lawn care tip you can get is to start with a solid plan.

1. Do you need to plant grass? Do some research on the best seed for your area, where to buy it cheap, and when it"s available. Depending on where you live, you"ll plant either cool season or warm season grass.

Cool season grass, planted in northern areas, is usually best planted in early fall, but if you missed planting then, plant it in the spring when soil temperatures reach 50 F.

Warm season grass needs soil temps of 70F to thrive and is the choice for southern plantings. Don"t make the mistake of thinking you can plant warm season grass in the upper Midwest. Warm season grasses are bred to thrive in southern climates and are not winter hardy in the north.

2. Of course, you"ll keep new grass plantings moist, but once grass reaches a height of three inches, water it deeply once a week.

A healthy lawn needs about an inch of water a week. When watering, remember to consider recent rainfalls. Shallow watering techniques keep grass from sinking the deep roots that your lawn needs to compete with deep-rooted weeds.

3. Do you already have a lawn? Aerate it in the spring while it"s still moist and before the spring rains are done.

Aerating your lawn in the springtime gives microbes and other small life forms a breath of fresh air after winter. Aeration also makes new paths for drainage and keeps your lawn from becoming saturated.

4. A lot is written about lawn fertilizer and the big question is why? Grass is the most efficient user of nitrogen on earth!

Feed your soil with nutrient rich compost and let your lawn get its nutrients the natural way. The more chemicals you use, the more you disturb the natural biological processes that convert organic matter into nutrients and the microbes and other small organisms that take natural care of your lawn.

5. Mow your grass high. A 2 ½ to 3-inch high cut makes your lawn look fuller, feel softer, and helps keep it healthy. Taller grass shades pesky weed seeds and keeps them from getting established. In addition, a taller lawn is better able to absorb sunshine and better able to retain moisture, the two main contributors to a healthy lawn.

6. Enjoy your lawn. After all, isn"t that your main reason for having a yard?

HAPPY GOOD FRIDAY FOR THOSE THAT READ THIS TODAY!

Advice from Warren Buffett on the Real Estate Market

Warren Buffett, the man the myth the legend.  Commonly known as the worlds number one investor.  A man that despite his means, lives a very humble life.  Meeting him, you'd never know he was a billionare and known as the Oracle of Omaha.  His wisdom and investing strategies are such that when he speaks, Wall Street listens.  Well with his influence over the masses it sure would be nice to hear his thoughts on the housing market wouldn't it?  Well here he shares some tips for us all to buy into and learn from if you feel his advice is warranted, which i do :)

1. The Basic Premise of Home Ownership -- That Homes Increase In Value Over Time -- Is Sound

Last spring, the Congressional Financial Crisis Inquiry Commission called Buffett in for an interview. He was asked to explain some of his bubble-era investment decisions, as well as to give his take on what in the heck had happened to the economy. In the process, Buffett expressed his belief that the housing bubble was inflated by an irrational, widespread belief that home prices would only ever go up -- an extreme corruption of a generally valid premise. "It's a totally sound premise that houses will become worth more over time because the dollar becomes worth less," Buffett declared.

The sound premise, Buffett explained, got distorted and eventually caused the housing crisis when Americans started buying multiple homes to cash in on what they assumed was guaranteed appreciation, taking out "liar's loans," buying homes with no down payment and with unaffordable monthly payments -- and lenders let them -- all because of the assumption that prices could never go down.


Clearly, this assumption was wrong. As Buffett said in an earlier shareholder's letter: "A pin lies in wait for every bubble."


2. Buy Low (And Now Would Be a Good Time for That)


Buffett writes a letter to Berkshire Hathaway's shareholders every year that is chock-full of his review of the company's fortunes (literally) over the preceding year, his analysis of the stock market and the economy in general, and his smart, plain English tips on life and money and on life.


In last month's annual shareholder letter, Buffett addressed the industry-leading 2010 performance of one of his company's holdings, which sells and finances manufactured homes. During that discussion, the money maven declared that now would be a sensible time to buy a home, in light of record-high affordability: "Home ownership makes sense for most Americans, particularly at today's lower prices and bargain interest rates."

And Buffett didn't stop there. He pointed out his own tenure as a homeowner as an example. "All things considered, the third-best investment I ever made was the purchase of my home, though I would have made far more money had I instead rented and used the purchase money to buy stocks," he wrote. Then, to clarify for the readers who'd want to know what numbers one and two were, Buffett elaborated: "The two best investments were wedding rings."


3. But Don't Wait Too Long To Take Advantage of Low Prices


Buffett wrote a 2008 Op-Ed in the New York Times, explaining that buying while prices are low is stressful, because economic markets are volatile and impossible to predict in the short term, even for him. So, when conditions make an investment -- in stocks or in a home -- particularly advantageous, Buffett says not to hesitate too long. Painting a vivid verbal image to illustrate the likelihood that market prices "will move higher, perhaps substantially so, well before either sentiment or the economy turns up," Buffett warned: "if you wait for the robins, Spring will be over."

4. The Smart Way to Own a Home Has Three Elements


Those elements are: fixed mortgage, affordable payments and long-term hold. Detailing why his manufactured housing holding has done so much better than the rest of the real estate market, Buffett pointed out that "[o]ur approach was simply to get a meaningful down-payment and gear fixed monthly payments to a sensible percentage of income. This policy kept [the company] solvent and also kept buyers in their homes." And that was the ultimate difference between smart home-buying and the home-buying that led to the real estate bubble and the foreclosure crisis.


"If home buyers throughout the country had behaved like our buyers, America would not have had the crisis that it did."


 In the stock world, Buffett has been quoted as advising investors to "only buy something that you'd be perfectly happy to hold if the market shut down for 10 years." Well known for practicing what he preaches, we can presume a long-term hold strategy would also be an integral part of Buffett's advisory to homeowners, too. Despite his net worth of somewhere around $50 billion, according to the latest Forbes tally, Buffett still lives in the 5-bedroom Nebraska home he bought 52 years ago for $31,500.

5. Buying Your "Dream Home" May Lead to Nightmares


In the 2010 shareholder letter, after he pointed out the right way to own a home, Buffett went on to caution Americans against the wrong way. When dream homes are bought for ever-escalating prices, using rapidly adjusting mortgage payments and unsustainable monthly costs vis-a-vis the homeowners' income, the dream can go bad quickly. Buffett warned, "a house can be a nightmare if the buyer's eyes are bigger than his wallet and if a lender -- often protected by a government guarantee -- facilitates his fantasy. Our country's social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford."

I can't agree more with Mr. Buffet that now is a wonderful time to buy and that timing the market perfectly may not be feasible.  If you are currently renting or thinking about moving into a larger home, the opportunities that we are seeing daily are amazing and shouldn't be ignored. 

If you find this blog useful or beneficial, please as always forward to any friends or family that may also benefit.  Thanks and have a wonderful day! :) Ben

Tips to Prepare Your Grill for Spring & Summer

Well here we are, roughly two days in from what we calendarize as the 1st day of spring! I must say, yesterday sure felt like it as we had some sunshine and temparatures that rose as high as the low 60's! Felt like spring to me and when this weather warms up, we so often rush to start our grills and that wonderful smell of grilled food floods our senses and sends neighbors outside to do the same.

In our haste, have you ever thought what should be done to the grill in order to ensure that its ready for another full season of grilling? Well, here is your "HOW TO" guide when it comes to grill preparation.

Step 1) Turn the grill on and close the lid and get it super hot and burn off the gunk left from the previous year. Let it run for a good 10-15 minutes and as it heats up, old food and residue will burn off the grill making it easier to scrape the remains.

Step 2) Scrub the grates - Remove the charred residue from the grates with a semi-flexible stainless steel brush. If the grates undersides are greasy, remove them and wipe them down with a wet, soapy sponge. Once your finished with the above, be sure to rinse the grates and them dry them off.

Step 3) Attack the Burners - Pricier grills often have burner protectors - V shaped metal guarding the gas jets from food dripping. Remove the protectors, and use a putty knife or something similar to scrape the grease off. If this isn't doing the trick, get some hot soapy water and scrub away. Then as above, rinse and dry.

Step 4) Attack the Burners Part II - Clean the burners with a stainless steel brush using a side to side motion, not a length wise motion. Are the gas jets open or clogged? If clogged, use a thin wire, a close hanger may work to poke a hole through the center of each one. If the holes are rusted, its time to replace the burners. Now remove the burners in prepartion for the next step.

Step 5) Hit the Walls of the grill, also known as the cook box. You want to remove carbonized grease so it doesn't affect the taste of the food. If scraping it off isn't working, agian revert to dish soap and water.

Step 6) Clean it up - Make that grill sparkle on the outside as well. Rub it down and wipe away grease with a dedicated stainless steel cleaner and semi-soft sponge. Warm water works too!

Hope the above useful tips help you make the most of the upcoming grilling season. Now if only we can have mother nature cooperate so that the weather continues to improve then we'll all soon be enjoying the smell of those neighbors grill as well as your own filling the air with that sweet smell that only a grill creates :)

Happy Spring and as always, if you know anyone that you feel would benefit from my blog or find this useful, please feel free to share, thank you! Ben

10 Tax Deductions for Realtors or Brokerages

I wanted to pass along this wonderful article. If your like me and in this business, then more now than ever its vital to keep each and every penny earned as the business is far from that one would compare to "easy money". Hope this article comes to you as useful as it came to me!

10 tax deductions: in time for the April 18 deadlineReal Estate Tax Talk
By Stephen FishmanInman News™
March 18, 2011

Your tax return is due by April 18, 2011 (the deadline was extended three days this year because of weekends and holidays).

If you haven't filed yet, make sure you haven't forgotten the following 10 tax deductions, which are often overlooked by real estate agents and brokers.

1. Business clothing with logos: You can deduct clothing you buy for business use only if it can't be used for ordinary street wear. This means you can't deduct a regular business suit. However, you may deduct the cost of a sport jacket, coat or other clothing item with a company logo on it.

2. Car expenses if you take standard mileage rate: If, like most small businesspeople, you use the standard mileage rate to deduct your car expenses, you get to deduct 50 cents for every business mile you drove in 2010. You don't get to separately deduct the cost of gas, insurance, depreciation and similar items because these are all included in the standard mileage rate.
However, you can still deduct certain expenses, including the interest you pay on a loan for your business car, parking and tolls. However, you can't deduct the cost of parking tickets.

. Home telephone expenses: You get no deduction for a single phone in your home; but you may deduct the cost of long-distance phone calls and special phone services you use for business such as call waiting or message center. You may deduct the full cost of a second phone line you use at home for business, including a cell phone.

4. Business gifts: Gifts you purchase for clients are deductible as a business expense, but the deduction is limited to $25 per person per year. However, the $25 limit applies only to gifts to individuals.
It doesn't apply if you give a gift to an entire company, unless the gift was intended for a particular person or group of people within the company. Such companywide gifts are deductible in any amount, as long as it is reasonable.

5. Continuing-education courses: You can't deduct the education expenses you incur to qualify for a new business or profession. For example, you can't deduct the cost of studying for your real estate license.
However, you can deduct the cost of continuing-education courses you must take each year to maintain your license. Education that improves your knowledge and skills as a real estate professional is also deductible -- for example, you can deduct the cost of a webinar on how to use social media to find sales prospects.

6. Tax-preparation fees: You can deduct the cost of hiring a tax professional to prepare your business tax return. If the same tax pro prepares your personal and business return, you can deduct only the cost of preparing the business portion. Make sure that you get an itemized bill showing the portion of the tax preparation fee allocated to your business.

7. ATM fees, credit card fees, and interest: You can deduct ATM fees, credit card fees and other bank charges you paid during 2010 for all your business accounts.

8. Subscriptions: Real estate-related magazines and trade publications are deductible. You can also deduct the cost of subscribing to an online real estate news service.

9. Greeting cards: Greeting cards you send to clients and sales prospects are a deductible advertising expense.

10. Websites: You can deduct the cost of designing and maintaining a website you use for business. You can also deduct your Internet hosting fees and the cost of obtaining a domain name for your business.

Make a Home Investment in 2011

Location, location, location. In the latter half of 2011 that adage should come back into vogue. But first, more declines. C'mon, you're thinking, you've been hearing for months that prices have been more or less stable nationwide. True, but the still-soft job market, the foreclosure crisis, and the absence of incentives such as the homebuyers tax credit will push down the median home price another 5% or so next year, according to Moody's and Fiserv, before it stabilizes by late 2011 or early 2012.

Individual markets, though, will start diverging from the downtrend by summer. About one-quarter of the nation's 384 metro areas should see higher prices by year-end, and half will see drops of less than 3%.

Certainly, conditions will favor anyone in the market to buy a new home -- or homeowners looking to refinance. Today's record low mortgage rates, averaging 4.2% for a 30-year fixed term, are expected to remain low at least through the first half of the year.

Even if the economy picks up steam in the latter half of 2011, rates are unlikely to climb higher than 5%, says Amy Crews Cutts, deputy chief economist at Freddie Mac.

On top of that, assuming that banks can solve their issues with poorly documented foreclosures, home seizures will revert back to record highs, creating competition for sellers and keeping a lid on home values.

The combination of low prices, cheap mortgages, and a slowly improving job market should gradually entice buyers back to the market, setting the stage for prices to stabilize.

Demand, though, won't be strong enough for values to rise substantially, largely because the weak labor market is depressing new household formation as family and friends opt to live together, and recent graduates return to their childhood bedrooms, says Patrick Newport of IHS Global Insight.
Only about 350,000 households are forming a year, vs. 1.3 million typically. "All you hear about is foreclosures and the supply problem," says Michael Castleman Sr., CEO of housing research firm Metrostudy. "But the bigger problem is demand."

Wildcards: Foreclosures. If the investigations into robo-signed seizure documents and other issues turn up more problems for banks, foreclosures could be halted indefinitely. That would prop up prices in the short run but weigh them down over the long run.

Jobs. Housing demand could rise if the labor market picks up faster than expected. In that case, prices would firm up earlier in the year.

What to Watch: Signs of an improving market: three straight months of rising sales and a decreasing inventory of homes (a six-month supply is considered healthy; today it's 11 months). A local agent or realtor's association can supply you with that data.

Action Plan: Buyers. Don't try to time the market perfectly. Even if prices fall a bit more in your area, mortgage rates could rise later in the year, offsetting the drop. Initially bid about 10% below what comparable homes have sold for over the past three months; go even lower if the area is rife with foreclosures.

By contrast, if well-priced houses in your desired area are receiving multiple offers -- your agent will know -- bid close to list price. But don't engage in a bidding war, plenty more homes will be coming onto the market.

Until your house keys are in hand, don't change your financial profile don't buy a car, take a new job, or pay a loan late. Increasingly lenders are re-pulling credit reports and reconfirming jobs just before closing,

Action Plan: Sellers. Hang on a few more years until the market recovers. Can't hold off? Then try to unload fast.

Prices will be falling in most areas for the next several months and, depending on your location, the foreclosure slowdown in place may temporarily reduce your competition, advises Ellen Klein, a realtor in Rockaway, N.J.

Wherever you are, pricing your home right is key. Buyers typically put an upper limit on their search in increments of $25,000 or $50,000. If your house is priced at $365,000, shoppers who cut their search at $350,000 may never see your home.

Best idea: Slightly underprice your house. More often than not you'll attract numerous buyers who bid up the price, and you'll end up getting fair value in much less time.

Action Plan: Investors. Assuming foreclosures have slowed where you are, hold off until a few months after they ramp up again. Until then, inventory will be limited, and that will set a floor under prices. When you're ready to make your move, paying in cash will better the odds of a winning bid, says Foreman.

Action Plan: Owners. One word: refinance -- even if you just did it a few years ago, urges Keith Gumbinger of HSH.com, a mortgage information publisher.

If you can shave at least one point off your rate and plan to stay in your home for at least four years, a refi makes sense. On a two-year-old $300,000 loan at 6.5%, refinancing will save you $465 a month and $120,000 in interest.

Or go with a 15-year loan, which averages 3.7%. Your payment will jump $225, but you'll own your home 13 years earlier and save $253,000 in interest.

Underwater or have little equity? You may be able to refinance through a federal program known as HARP (for details go to makinghomeaffordable.gov). Have funds to spare? A cash-in refi, in which you put in enough to reach 10% or 20% equity, will let you nab those record low rates.

Flaws in Obama's Mortgage Reform Plan?

Attached is a great article to help you understand better the administrations mortage reform plan and potential flaws in it.

Scaling back housing finance: Fallout feared

Flaws in Obama's mortgage reform plan
By Jack GuttentagInman News™
March 07, 2011
Editor's note: This is Part 1 of a multipart series.

The document the administration recently sent to Congress outlining its game plan for housing finance has both scale-down and ramp-up thrusts. The scale-down thrust, comprising most of the report, involves shrinking the federal government's involvement in the market.
The ramp-up thrust would create a new federal program designed to support the private market. This article is about the scale-down.

Backdrop
The point of departure for this proposal is a post-crisis housing finance system in which only about 10 percent of all new home loans are strictly private. The remaining 90 percent are either acquired by Fannie Mae or Freddie Mac, or insured by the Federal Housing Administration (FHA).

Further, qualification requirements set by the strictly private market are far more restrictive than they were before the crisis, which is the reason their market share is now so low. Before the crisis, risk-based pricing was widely practiced, making loans available over a wide range of risks.

Today, only a sliver of risk-based pricing remains. For the most part, risk-based pricing has been replaced by risk cutoffs. At many lenders, borrowers with a credit score of 800 have to put 20 percent down, and borrowers who put 40 percent down still need a 700 score to qualify. Some lenders will go to 10 percent at 680, but limit the loan size.

Fannie Mae and Freddie Mac have tightened their requirements, but by much less than the strictly private sector. The agencies today will accept a credit score of 620 at 20 percent down, and 680 at 5 percent down. However, risk-based pricing is extensive and many borrowers with mediocre credit, small down payments or both, choose to opt out.

The average down payment on new loans is about 35 percent, and the average FICO is about 765. The agencies have also tightened their documentation and appraisal requirements significantly.
FHA has the most liberal requirements, which are little changed from what they were before the crisis. FHA accepts 3 percent down with a credit score of 580, though many lenders require higher scores so that they won't be tarred with originating too many loans that default. FHA has also increased its insurance premiums.

What scale-down means
The crux of the Obama administration's scale-down plan is a gradual phaseout of Fannie Mae and Freddie Mac, combined with a reduction in the scope of FHA operations. The ultimate goal seems to be a system in which the strictly private market would account for about 85 percent of the traffic, and FHA would have about 15 percent.

The report suggests a number of ways of accomplishing this, including reductions in the maximum qualifying loan size at all three agencies, and increases in insurance charges. The first reduces the number of borrowers who qualify, while the second forces price increases by the agencies that would make the strictly private market more price-competitive.

Implications and consequences
The volume of risky loans, already down sharply from the post-crisis tightening of qualification requirements, will shrink further as the scale-down proceeds. Because a large proportion of risky mortgages are generated by disadvantaged groups, this approach constitutes a reversal of what had been public policy for at least four decades, which was to encourage homeownership among such groups.

Sometime this year, the regulatory agencies will promulgate new rules implementing provisions of the Dodd-Frank bill that require them to define "qualified residential mortgage" (QRM).
These are low-risk loans that exempt originators from having to assume 5 percent of the risk of loss. The split in the market following implementation of this rule will further disadvantage weaker borrowers, since non-QRM loans will carry a higher price if they are available at all.

Softening the blow
The report recognizes the need to go slow and cautiously, but offers no concrete ideas on how to soften the blow. Here are two.

1. The administration ought to set up a task force to determine whether the existing regulatory structure, including the bank examination process, is unduly constraining the strictly private market. If government wants lenders to expand into the space vacated by Fannie, Freddie and FHA, government ought to make sure that it has not itself constructed roadblocks to such expansion.
2. FHA should extend its tentative steps toward risk-based pricing to a comprehensive system in which the insurance premium on every loan reflects the risk of loss to FHA of that loan. This will help keep FHA financially sound, reduce concerns if FHA is pressed to expand into some of the space vacated by Fannie and Freddie, and neutralize political pressures to liberalize terms unduly.

Thanks to Guy Cecala of Inside Mortgage Finance.

Next week: The ramp-up proposal.

Well, please feel free to share your thoughts and insight on the above. Also, please share this and any articles of mine that you feel may benefit friends or family! Thank you and have a wonderful day! Ben