|Spring, the traditional time for cleaning and other home maintenance, is approaching. These checklists will help get you started.
RECENT COURT CASE PROVIDES INSIGHTS
A 2013 Tax Court decision, Adams v. Commissioner, T.C. Memo 2013-7,
demonstrates the importance of a taxpayer receiving fair market rent when desiring
to obtain the tax deferral benefits of a 1031 exchange.
In Adams, the taxpayer exchanged into a replacement property that was rented to the taxpayer’s son and family. The IRS challenged this exchange and claimed the property was considered a “family home” since the actual rent paid from the son to his father was considered slightly below market rent.
However, in Adams, the replacement property was in poor condition at the time of
the taxpayer’s exchange. The taxpayer’s son had experience as a contractor and
personally made extensive repairs to the property, and the son paid for the materials needed to perform the repairs. In addition, the taxpayer’s son lived in the property for the next four years and continued to maintain and repair the property, picking up the costs of these repairs out-of-pocket.
The Tax Court determined that the rent received from the son, plus the value of the improvements made by the son, constituted fair market rent. Consequently, the
Court ruled there was no bargain rent. This case highlights the importance of
receiving fair market rent when renting a property to a family member.
REVENUE PROCEDURE 2008-16
Revenue Procedure 2008-16 addresses a safe harbor for vacation homes held for
investment and whether or not a dwelling unit qualifies as property held for
productive use in a trade or business or for investment under Section 1031 of the
Internal Revenue Code. In Revenue Procedure 2008-16, it is noted that the dwelling unit must be rented “at a fair rental.” Later in this Revenue Procedure, in Section 4, Fair Rental is specifically defined, “For the purposes of this revenue procedure, whether a dwelling unit is rented at a fair rental is determined based on all the facts and circumstances that exist when the rental agreement is entered into. All rights and obligations of the parties to the rental agreement are taking into account.”
The definition in this Revenue Procedure indicates that the IRS will look at all the facts and circumstances of a particular exchange to ascertain whether or not fair market rent was received.
PLANNING CONSIDERATIONS WHEN RENTING TO A FAMILY MEMBER
1. Rent at a price that is comparable to other similar rental properties in the market.
2. The taxpayer should enter into a rental or lease agreement in the same manner
they would with any tenant of an investment property. If a longer term rental,
make sure the relationship is solely that of a landlord and tenant, the rent
received is appropriate to the local market, and the terms of the rental agreement
strictly construe the rights and responsibilities of the parties as a landlord and
Some key negotiating tactics can help put you in a prime purchasing position.
Buying a home isn’t as simple as forking over a check for the list price. Real estate contracts are not “one size fits all” documents and negotiations over contract terms can become intense. Stick to the following negotiation tips to get the most out of your home purchase.
While most of the paragraphs in the Colorado Contract to Purchase are pre-printed.. Colorado Real Estate Law and/or the result of previous law suits – - – - -
- – - – many parts are negotiable and you need a buyers agent to help you through the process and paperwork. In Colorado Springs and the PIkes Peak Region, your agent is paid by the sellers real estate broker and therefore FREE to you!
1. Learn as much as you can about the seller
Understanding the seller’s motivations can be key to a successful real estate transaction. Is the seller just throwing his home on the market out of curiosity? Or is the family desperate to sell and move before a new school year begins?
If you know how urgent a homeowner is to sell, you’ll be in a better position to negotiate. Turn to your real estate agent for valuable insight into the seller’s motives. Crafty real estate agents can consult with the seller’s agent to deduce how crucial a sale is. The best real estate agents draft offers that financially reflect a seller’s motivations.
Your buyer’s agent will find out as much as she can about the seller’s motivation and pass that information along to you. If you are working with an agent in Colorado without a buyer’s agency agreement, the agent CAN NOT tell you this information as it is deemed sellers confidential information.
2. Make a solid offer and show that you’re pre-approved
If you’re grasping for the house of your dreams, you don’t want to risk irritating the seller. It’s usually not a good idea to make a low ball offer or one with lots of outlandish contingencies. An insulting offer can result in a seller’s refusal to negotiate. Keep yourself in the game by presenting a respectable first offer.
Don’t forget to show the seller that you’re pre-approved for a mortgage. Pre-approved buyers are seen as serious and preferential buyers. Talk to a lender who specializes in VA loans early in the process.
Your buyers agent will prepare your offer based on any price you are willing to offer however, she will also show you comparable sales that support show you the true market value of the home you are making an offer on.
The real estate market in Colorado Springs has taken a turn toward a seller’s market and sellers are no longer taking low ball offers. Many of the trashed foreclosures have been purchased and rehabilitated and are now sporting new carpet, paint, appliances and much more in some cases. The listed prices are close to the true market value.
Your appraiser will use recently sold houses in the same neighborhood, same floor plan, near the same square footage with similar amenities to determine the appraised value which is all the lender with lend you on the house anyway. It is hard to offer “too much”.
3. Have options and be flexible
If you approach negotiations with the attitude that you MUST have a home, you’re probably not going to get the best deal possible. The most powerful buyers have lots of housing options in mind and aren’t ever desperate to purchase. Even if you’ve decided to make an offer on a home, continue your home search. Always have a back-up plan in place and don’t make financial compromises that you’ll later regret.
The buyers agent who is truly looking out for your best interests will never rush you and should not ‘push’ you into buying a home. A buyers agent is tasked with helping you find the best possible house in your pre-approved price range and to negotiate the best possible price and terms to meet your needs.
4. Don’t start a war
While in the midst of heated negotiations, it’s easy to see the seller as the enemy.Priorities can quickly shift from landing a great home to defeating the seller. Don’t turn negotiations into a ferocious battle. Keep a level head and remember that both parties are trying to reach the common goal of a successful real estate transaction.
You’re probably not going to have all of your concessions met. But that doesn’t mean that you’ve lost. If you’ve landed a great home for your family at a good price, you’ve won a great future as a new homeowner.
Your buyers agent will negotiate with the sellers agent with the end goal to get you the best price and terms while at the same time keeping the situation civil and mutually beneficial to both parties. After all, the seller wants to sell, and you want to buy, so the third party negotiators (agents) help you reach that end goal.
Let me help you find your dream home. I can set up a website that will filter out all the homes for sale in the Pikes Peak Region that do not fit your criteria.
I also have an ap for your smart phone that will actually let you drive into a neighborhood, open the ap and see all the houses for sale, what they are selling for and the amenities all right on your phone in the comfort of your car and never having to call and talk to the seller’s agent (who is the broker working for the seller on the sign). If it is a house you are interested in, you can text me or call me right from the ap and I can give you full details!
To sign up for the website I mentioned above go to: Free find my new home!
You may call me, text me or email me too! Judy Music, REALTOR, 719-351 6400 JudyMusic@JudyMusicREALTORS.com.
HAPPY HOUSE HUNTING!
On January 1 both the Senate and House passed H.R. 8, legislation to avert the “fiscal cliff.” The bill will be signed shortly by President Barack Obama.
Below are a summary of real estate related provisions in the bill.
Real Estate Tax Extenders.
Mortgage Cancellation Relief is extended for one year to January 1, 2014
Deduction for Mortgage Insurance Premiums for filers making below $110,000 is extended through 2013 and made retroactive to cover 2012
Leasehold Improvements: 15 year straight-line cost recovery for qualified leasehold improvements on commercial properties is extended through 2013 and made retroactive to cover 2012.
Energy Efficiency Tax Credit: The 10% tax credit (up to $500) for homeowners for energy improvements to existing homes is extended through 2013 and made retroactive to cover 2012.
Permanent Repeal of Pease Limitations for 99% of Taxpayers
Under the agreement so called “Pease Limitations” that reduce the value of itemized deductions are permanently repealed for most taxpayers but will be reinstituted for high income filers. These limitations will only apply to individuals earning more than $250,000 and joint filers earning above $300,000. These thresholds have been increased and are indexed for inflation and will rise over time. Under the formula, the amount of adjusted gross income above the threshold is multiplied by 3%. That amount is then used to reduce the total value of the filer’s itemized deductions. The total amount of reduction cannot exceed 80% of the filer’s itemized deductions.
These limits were first enacted in 1990 (named for the Ohio Congressman Don Pease who came up with the idea) and continued throughout the Clinton years. They were gradually phased out as a result of the 2001 tax cuts and were completely eliminated in 2010-2012. Had we gone over the fiscal cliff, Pease limitations would have been reinstituted on all filers starting at $174,450 of adjusted gross income.
Capital Gains rate stays at 15% for those the top rate of $400,000 individual and $450,000 joint return. After that, any gains above those amounts will be taxed at 20%. The 250/500k exclusion for sale of principle residence remains in place.
Estate Tax The first $5 million dollars in individual estates and $10 million for family estates are now exempted from the estate tax. After that the rate will be 40 percent, up from 35 percent. The exemption amounts are indexed for inflation.
Estate Tax The first $5 million dollars in individual estates and $10 million for family estates are now exempted from the estate tax. After that the rate will be 40 percent, up from 35 percent. The exemption amounts are indexed for inflation.
Thank you to the NATIONAL ASSOCIATION OF REALTORS for this news brief.,
Thank-You NAR President Elect Steve Brown for sending this to me…
The Senate approved a fiscal cliff bill 89-8 early this morning.
The $ 450K threshold would kick in higher tax rates [from 35 to 39.6%] for married households [ $400K for single].
Mortgage debt forgiveness is extended for two years.
A Clinton Administration limitation on itemized deductions returns. Called the Pease limitations, it is a very complicated phasing out of all itemized deducts for those whose incomes are above $250K for married households and singles earning more that $200K. This provision is indexed for inflation. While it affects personal exemptions and all itemized deductions it is less onerous than a cap on deductions.
Short Sales…love em or hate em…they are here to stay!
The Bush tax rates for those earning less than $250K are permanent. An ATM fix is also permanent. Estate taxes are liberalized.
The House is in session today, but it is uncertain if it will vote on the Senate bill.
With the housing market bottoming in 2012, economists and other experts are becoming increasingly optimistic about the U.S. housing market in 2013.
From John Burns Real Estate Consulting: “Assuming our leaders in DC come to some sort of agreement that keeps the economy growing and interest rates low, which seems like the most reasonable assumption, here is what will happen,”
- Investors: Investors and, yes, even flippers will continue to grow in numbers as they realize housing is the best risk-adjusted return on their money.
- Boomerang buyers: Foreclosed homeowners, who are currently renting homes, will come back in droves. In Phoenix, they are paying $1,300 in rent for a home whose mortgage payment would be $1,000. That situation is not sustainable. The Federal Housing Administration and Department of Veterans Affairs have low down payment programs with insurance premiums that push rates near 5.0%. Those payments are still very affordable.
- Entry-level buyers: First-time homeowners, who have been sitting on the sidelines waiting for a sign of the bottom, will hear about price increases in their desired neighborhood and rush to become homeowners.
- Move-down buyers: Empty nesters and retirees, who have plenty of equity in their existing home, will buy a home that is more suitable to their current lifestyle, which may or may not include adult children as well as their aging parents.
- Moveup buyers: The price appreciation that occurred in the last year has already lifted 1 million underwater homeowners above water with future price appreciation to lift them even more.
All good signs.
First-Time Home Buyers Missing Out on Housing Recovery
By David Francis | U.S.News & World Report LP – Mon, Dec 10, 2012 11:29 AM EST
As the housing market continues to show improved signs of strength, many first-time home buyers are failing to benefit from the broader recovery.
The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, released last week, found that first-time home buyers were purchasing only 34.7 percent of the homes sold in October. That’s down from 37.1 percent in September, and is the lowest percentage ever recorded by the survey.
This decline surfaces as purchases of non-distressed homes–houses that are not in foreclosure–have increased dramatically in 2012. The report shows that the vast majority of the homes being sold are regular purchases–accounting for 64.7 percent of all houses sold in October, up from 55.7 percent in February. The increase is a sign of strength in the housing market, as fewer people are buying homes in foreclosure.
But according to the survey, first-time buyers are the only group that has not purchased more non-distressed properties in the last five months. Meanwhile, current homeowners are picking up an increasing number of properties, purchasing 54.4 percent of all homes in October, up from 50 percent in June.
[In Pictures: 10 Ways Your Home Can Pay You Money]
Thomas Popik, research director for Campbell Surveys, says these trends in the disparity of who is purchasing homes are due in part to increasingly tough mortgage standards by banks. But the real obstacle for first-time buyers is the Federal Housing Authority (FHA), according to Popik. At the depths of the housing crisis, the FHA loosened lending standards in an attempt to kick-start a housing recovery. Now that the recovery has begun, standards for FHA mortgages that require a 3.5 percent down payment are tightening.
“The basic problem is that about half of owner-occupant homebuyers rely on low down payment loans. FHA is now under significant financial pressure,” Popik says. “They’ve tightened their underwriting, and weeded out a lot the lenders that have poor lending practices.” He adds that, in the process, FHA has restrained access for first-time buyers who can’t make the traditional 20 percent down payment.
Lack of access to mortgages for first-time buyers has broad consequences. Without these buyers, the housing recovery will be difficult to sustain. It also robs first-time buyers, many of whom are young (the National Association of Realtors estimates an average age of 31 for first-time buyers) of the opportunity to cash in on the recovery and build wealth.
Behind the FHA’s tightening. As the housing market failed to gain traction following the explosion of the real estate bubble, the Obama administration decided to loosen standards for home loans–giving borrowers who would not qualify for a typical bank loan a chance to enter the housing market. At the same time, FHA extended lifelines to underwater homeowners, allowing them to refinance mortgages to keep their homes and avoid foreclosure.
These programs required FHA to take on large amounts of debt, Popik says: “FHA really picked up these low down payment loans in the second half of 2008 and 2009, even going into 2010 and 2011.”
To service this debt, FHA had to rely on people who wouldn’t have been able to qualify for a traditional loan and people who had homes that were underwater. As payments on these loans have slipped in recent years, FHA now finds itself $16.3 billion short in its insurance fund.
This has forced FHA to tighten lending standards, limiting loan options for many first-time buyers, says Tim Ralph, portfolio manager and chief operating officer at Biltmore Capital Advisors. FHA is now “looking for three years of steady income, understanding what’s outside of your income in terms of debt, and you investment portfolio,” Ralph says. “Rates might be at 2.75 percent, but that’s not happening for someone with a 650 credit score who can’t put 10 percent down. If there’s a slight downturn in the housing market, this buyer would be immediately underwater.”
According to Robert Simons, a professor of urban planning at Cleveland State University, FHA is now behaving like the big banks by avoiding borrowers who give the slightest hint that they might not be able to keep up with payments.
“Their taste for risk is complicated by how their overall portfolio is doing,” Simons says, referring to the $16.3 billion shortfall. “If they have a lot of defaults, they will continue to have an unacceptable level of capital.”
Changing attitudes toward housing. Simons says first-time buyers might be avoiding the housing market because of the hangover from the housing crisis. He says they are turned off by the unpredictability of the investment. “People are disillusioned. They don’t see appreciation like they once did,” he says. “There’s a false hope of growing wealth in a house. People are being more selective about where they buy.”
Simons also believes the culture of foreclosure that persisted throughout the crisis has negatively influenced attitudes toward the housing market. “People who went through it themselves, or know people who went through it, are definitely turned off. People who defaulted will not buy quickly,” he says.
We generally think of the holiday season as causing explosions of bad (if sweet) sweaters, creating waistline expansion and snowballing into bank account shrinkage. But there are loads of less obvious implications of the holidays – both good and bad – in every area of life.
For example, I recently read that household energy use spikes almost 39 percent in December (bad), due to holiday lighting (good) and baking (good) and all the extra time we run the furnace for our holiday guests (good).
Depression and alcohol use go up, but so does charitable giving. Stress goes up, but so do acts of kindness.
What if we applied that same, balanced eye to understanding the effects the holidays are likely to have on your local real estate market and – by translation – on your personal real estate endeavors at this time of year?
Let’s do just that – here are a few holiday market impacts you should factor into your plans and expectations:
1. Your home’s online marketing becomes uber-important. Let’s face it – buyers are busy around the holidays. And even where the weather is relatively mild, like here in California, they would rather not spend their warm-and-fuzzy holiday moments traipsing in and out of the rain to view homes that aren’t worth it. Further, the holiday season is the time of year in which buyers are the most likely to visit friends and family member’s homes in neighborhoods they’re not familiar with.
That means two things about holiday home buyers:
- they are more severe than at other times of year when it comes to weeding out properties they might want to see in person, based on their online listings, and
- they are more likely to rely on smartphone apps to explore neighborhoods that are new to them – and to investigate the homes for sale in these new areas.
All this has important implications for sellers: it’s more important now than ever that your home ‘shows’ beautifully online (with ample, accurate photos), and that it is priced and described in a way which makes it appeal to buyers as a good value for the money, compared with the other homes that are likely to come up in the same internet search as yours.
Collaborate with your agent to make sure that you’re both happy with how your home is being reflected online, both on its own and by comparison with other listings that your target buyers are likely to peruse. Fortunately, if you can get the listing to a place where you feel great about how your home is listed on Trulia.com, it will automatically show up the same way on the very popular Trulia mobile apps.
2. Wet weather surfaces property problems. Home inspectors can and do a whole lot to help buyers avoid post-closing surprises in property condition. Wet weather helps inspectors, buyers and sellers, for that matter, see things they otherwise wouldn’t. Roof leaks, drainage issues, flood-prone basements and pump problems are all evident in inclement weather in a way they simply are not in the summer time.
Seeing and selling a home when the weather is bad lets all parties involved be certain that everyone is on the same page about the home’s condition before closing, or that needed repairs are negotiated and/or completed on a timeline that makes sense for everyone involved.
3. Competition falls. If you’re a buyer who has been frustrated by multiple offers all year, you’re in luck. Because of holiday season weather, parties, dinners, travels and the like, there are a number of buyers out there who flat out press pause on their house hunts until the New Year. That means that if you go contrarian and stay in the game, you’re less likely to run into as many multiple offer scenarios this time of year.
And this competition-reducing impact also happens on the seller side: if you’ve had a hard time getting your home seen amidst a crowded field of similar listings earlier this year, the holidays create a great opportunity to position your home as a standout. Some sellers will slow down on showings during the holidays, and a few will even put their listings on hold until 2013. So the sellers who keep their homes on the market and keep them priced, staged and marketed aggressively over the next month have a better chance than at any other time of year of attracting buyers to come see and make an offer on their homes.
4. Motivation spikes. When less motivated folks of both persuasions put their plans on hold until New Year’s, net motivation levels on both sides automatically go up. That leaves only the people who are truly ready and committed to make a move still actively in the game.
But some members of this already highly-motivated population will see the year’s end as a psychological closure mark, and get even more serious about house hunting, Open Houses and even negotiating in order to be done with as much of the work of the home buying or selling process as possible before the end of the year (even though escrow won’t close until 2013).
When everyone active in the marketplace is highly motivated, it’s good for all sides. Sellers will only have their holidays disrupted by buyers who are serious about making offers, and buyers might find sellers more receptive to their offers than they did earlier in the year. Additionally, both parties may find that negotiations are a bit less likely to get stuck on small, nitpicks and more likely to be furthered by a spirit of collaboration and cooperation now than at any time of year.
That’s just what happens when everyone involved is ready and highly motivated to move forward.
5. Halls are decked. In many areas, homes and neighborhoods are decked to the nines at this time of the year — decorated, lit and shown off to their very best advantage. This is the case, not only aesthetically, but also in terms of social and community events. This is a great time of year for buyers to evaluate how developed an area’s offerings are in terms of social, recreational and cultural events – or not.
Almost every town’s or neighborhood’s news outlets and blogs are running a steady calendar of local events at this time of year. If you’re in the process of vetting an area to see whether it might be a good fit, or are trying to get a better sense of the neighborhood flavor of a few different districts around town, compare them against each other. Consider showing up to a few holiday-time local events to feel the area and your prospective future neighbors out.
6. Willpower wanes. Behavioral economists have called out a phenomenon called ego depletion, based on findings that if you are hungry, tired or have depleted your willpower by exercising it to, say, stay on a diet or spending plan, you are more likely to splurge or make an impulsive decision in another area. This is a critical insight for buyers, who may be trying to keep strict controls on their holiday indulgences in food, drink and gift shopping, causing them to have less self-control – neuropsychologically speaking – when it’s time to make conservative financial decisions about what to offer or spend for their home.
Take care to avoid house hunting – online or off – at the end of a long, holiday festivity-laden day or week, when you’re already tired or hungry. In fact, so long as your agent lets the listing agent know that you’re preparing an offer (just to make sure the home doesn’t get snatched out from under you), it’s not a bad idea to do a pre-offer check-in with your mortgage pro, before submitting it, or even to sleep on your offer price and terms before you send the offer out in the morning.
These six items will help you prioritize the features, elements, and amenities you’re looking for in your new home. There are some that you must have, and there are some that you would like have if price allows, and there are probably some on the checklist that you had not even thought about until now.
Knowing ahead of time how much you can afford and what you are able to spend immediately enables us to narrow down the vast market of homes to about 10 percent of what’s currently on the market.
2. Type of property
Are you looking for a house, town home, condo, co-op, or multi-unit home?
3. Condition of property
New or old? How much sweat equity do you want to put into the property? Do you want to pay a little less and invest time and money to improve the house yourself, or do you want to buy a house that’s ready to move into?
The must-have is essential in your new home. For example: “We have a newborn baby, so we must have a two-bedroom house.”
A nice-to-have may get nixed out of the mix if price becomes an issue. For example: “We have a newborn baby, so we would like to have a three-bedroom house to have an extra room for guests or for a home office.” That third bedroom is not a must-have and you could (or may have to) live without it to get into a house you can afford.
Determining nice-to-haves vs. should-haves
Knowing your must-haves vs. should-haves is a key element to house shopping. It will help us sort through all the properties on the market quickly and easily, helping us focus on those that are in your price range and worth your time and energy to view and inspect.
Of course you will amend your must-haves and nice-to-haves. As you begin to preview houses, you will have to make some compromises on your list. Separating your must-haves from your nice-to-haves lets you decide where you can compromise to meet your budget.
Where do you want to live? If you’re like most home buyers, you have a basic idea of where you want to live. Proximity to family, friends and/or work plays a significant part in where you ultimately want to put down roots. However, there is a lot of leeway within these parameters – neighborhoods and communities within the same distance often vary quite a lot.
About the Author
Michael Corbett is Trulia’s real estate and lifestyle expert. He hosts NBC’s EXTRA’s Mansions and Millionaires.
In additional to his regular segments on ABC’s The View and Fox News, he is a national best selling author with three
critically acclaimed real estate books: Find It, Fix It, FLIP IT!; Ready, Set, SOLD! and Before You BUY