The new 3.8% Real Estate Tax (that isn't really a Real Estate Tax - but it can be - depending - maybe)

The New Real Estate Tax (which isn’t really a real estate tax)

The big question I have been getting lately from some clients who are thinking about selling their homes has been “How much is that new Real-Estate-Health-Care-Tax going to cost me when I sell my home?” The most correct answer I can give them is “I don’t know”.

Wow – that was helpful, huh? And you thought I was just another uneducated sales person.  Now just sign this contract here and we can….oh, you were hoping for a bit more information than that? Okay, well in order to make my broker, my attorney and my accountant happy, first let me say that I am not a CPA, an accountant, an attorney or in any other manner representing that I am licensed or qualified to dispense income tax advice. The information here is soley for example and educational purposes. I recommend and advise that you consult any and all professionals to get advice on taxes, tax filing and payment of income taxes. Also, I would highly advise that you do not look up when a pack of seagulls is flying overhead, do not go outside when it is raining while only wearing socks, be aware that hot coffee is hot and should be treated as such, and, politicians don’t always lie – only when their lips are moving.  There, now that the ‘fine’ print is taken care of, let’s move on to seriously answering this question.

First off, this is being called a “Real Estate Tax” on the internet and elsewhere (even in my blog title - seriously, who writes this stuff?); that is a misleading statement. The tax itself is imposed (when applicable) on some income from interest, dividends, rents (less expenses) and capital gains (less capital losses). This income or gain can be derived from Real Estate; however, it can also be derived from other sources such as stocks, securities, or the sale of non Real Estate assets. So, if the Real Estate in question produces income or gains through the leasing or sale of said Real Estate, then that income may be subject to the 3.8% tax. However, there are also other factors that help determine if this is the case

Secondly, when determining whether or not any of the above income or gains is subject to this new tax, you must also look at the Adjusted Gross Income (AGI) of the filer (or filers). This tax does not apply to anyone who is single and has an AGI of less than $200,000 or married and filling jointly with an AGI of $250,000.

Now that we have established that this only applies to certain types of income or gains, and we have established that it only applies to single filers above $200,000 or married joint-filers above $250,000, we are still not quite done. There is a formula that is used to determine just how much of this income is actually taxable. The tax applies to the lesser of: Investment income amount as a function of the amount above the AGI threshold. We should also not forget that if the gain is realized on the sale of a primary residence, then a certain amount of that gain may also not be taxable depending on your individual circumstances.

Whereas (I love that word, don’t you? I never miss a chance to use it) we have established when the tax does and does not apply, I can absolutely and affirmatively answer that question for my clients with a clear and defined “I don’t know”. In most cases, this is not going to affect the sale of your home if you are realizing a gain of less than $250,000 or $500,000 depending on your familial status (note where that said a ‘gain’ – not the total sale price – big difference)

If you would like more information on how this 3.8% tax could be applied with particular examples, the National Association of Realtors published a booklet on this topic. You can find it here: NAR3.8% Healthcare Tax Brochure.

I do hope you enjoyed this stroll through the exciting world of the tax code. I tried to make it a little less boring, but in the end, taxes are just not that funny. I always advise my clients to discuss these matters with an accountant or CPA that specialize in these types of transactions. I have a great referral database of professionals for my clients when these questions come up.

As always, please contact me with your Real Estate related questions at www.JasonGault.com. Happy Selling!

Bad Real Estate Market? Not Anymore!

    Welcome to 2013! I hope everyone had a great holiday season and has started 2013 off with a bang; Real Estate in my area sure has after all. Right now you might be saying “Wait, what's that? Is this guy trying to tell me that Real Estate has turned the corner? He must be a real estate agent, because everyone I know says it is terrible.”

    I hear that a lot too. It’s on the news every night; it’s on the radio every day. For awhile in my area there was another broker who advertised on the radio you could buy “twice the home for half the price” if you called them and used their ‘system’. Here is the great thing about the Real Estate sales: Every single transfer or sale is recorded by the county register of deeds. These records are also public information. You can learn a lot by studying this information. For example, although I primarily serve Genesee, Lapeer, Livingston and Oakland Counties the largest percentage of my business happens in Oakland County. I study the trends in this county more than any of the others I serve. Here is what happened in Oakland County from Jan.1^st, 2012 through Dec 31^st, 2012

· Total sales volume rose from 17,868 to 18,705 units. This continued the year-over-year trend of increasing sales numbers.

· The Average Sold Price jumped 13.5% from $133,479 to $154,258 (That is a big price increase with relatively stable volume – that is huge! This can also indicate other trends: 1. Bank owned and foreclosed properties are not as dominant a force in the market any longer; 2. Buyers may have to compete with other buyers when writing offers, often having to pay more than asking price; 3. The balance of sellers and buyers is returning to a symbiotic level, leading to more market stability and consumer confidence).

· The average days on the market dropped 14.8% from 88 to 75. (This is an indicator that inventory levels are continuing to fall. In many local markets, well maintained homes that were priced appropriately sold in a matter of hours with multiple offers.)

    Hmmm…so 2011 was better than 2010 (it was, I did that homework too – I will send it to you if you would like me too, send me an email request I will happily pass it along). In 2012 your home would have sold 15% sooner and for 14% more than the previous year. Sounds like things are getting better, doesn’t it?

    Here is the best part: This information came directly from Oakland County Public records. I didn’t have to make it up or create any fancy marketing slogans. All I did have to do was do my homework. It wasn’t glamorous or fun; it was time-consuming and tedious. It was necessary though. The truth of the matter is this: success in selling Real Estate, like many other areas in life, typically comes down to doing your homework.

    Do I make nice brochures, signs, internet ads, Facebook postings, videos, tweets, blogs, posts, status updates, email drips and postcards? Yes I do. Do I hold open houses and broker tours? Yes I do. But I do my homework first. And the grades are in – Real Estate is back!

    Please feel free to share this blog with family, friends, people you like or even that obnoxious co-worker who keeps saying how bad everything is in the Real Estate Market. The only thing better then knowing good news is sharing it!

(You can find me at www.JasonGault.com)

The Mortgage Interest Deduction and You!

Taxes.

   Just the very word can send chills down your back. However, do not fret! There are many advantages to being a homeowner when it comes to tax time, especially if you have a home mortgage.

    The good news is that if you have a home mortgage, you may be eligible to claim a tax deduction for the interest you have paid on loan for the past year. You may also qualify for tax deductions for certain types of home improvements, PMI insurance payments, any home office space (if used for your business) and property taxes paid. This can be a complicated process, so the best advice I can offer is that you should consult with a CPA or other tax professional to ensure that the deductions claimed are legitimate. Also, many self-filers commonly leave 'money-on-the-table' as they may overlook prepaid expenses which could also be deductible in the first year of home ownership.

   One good source of information is a recently published interview with tax expert Abe Schneier, a senior technical manager with the American Institute of CPAs. Abe covers a wide range of topics from Interest Deductions to Capital Improvements and the importance of planning ahead. That article can be found here: House Logic Interviews Abe Schneier.

   There are also some great resources on the web to help estimate these deductions as you progress throughout the tax year. Once such site is Bankrate. They have a variety of finance related calculators covering every imaginable loan type. They also have a interesting calculator that will help you calculate your Mortgage Interest Deduction. For those of your who are financially oriented, it will also what the net effect of this deduction had on your actual APR for that year. In a nut shell, you can brag to your friends that your interest rate was lower (and they will think you are some kind of financial savant for figuring that out). Who doesn't like that? You can find that calculator here: Bankrate Mortgage Tax Deduction Calculator.

   I hope this helped a little and saves you a few dollars at Tax time. For any Real Estate related questions, please visit me at my website: Jason's Real Estate Site.