2013 Fiscal Ciff Hanger Fiasco - How Did Affect Real Estate and Home Owners

At the last minute possible, our wonderful, selfless legislators agreed upon a bill that turned the "Fiscal Cliff" into a "Fiscal Speedbump". Below is a summary on the status of the final bill from the folks at National Association of Realtors.

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 is a summary of real estate related provisions in the bill.

1.    Real Estate Tax Extenders
         - Mortgage Cancellation Relief is extended for one year to January 1, 2014. That's good news for home sellers that need to do a short sale.
         -  Deduction for Mortgage Insurance Premiums for filers making below $110,000 is extended through 2013 and made retroactive to cover 2012
         - 15 year straight-line cost recovery for qualified leasehold improvements on commercial properties is extended through 2013 and made retroactive to cover 2012.
         - 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.
2.    Return of the “Pease” limitations on itemized deductions for high income filers Under the agreement, the so called “Pease Limitations” that reduce the value of itemized deductions are permanently repealed for most taxpayers, but will be re-instituted for high income filers.
      These limitations will only apply to individuals earning more than $250,000 and joint filers earning above $300,000. The thresholds have been increased and are indexed for inflation so will rise over time. Under the formula, filers gradually lose the value of their total itemized deductions up to a total of a 20% reduction.
      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 starting in 2003 and were completely eliminated in 2010-2012. NAR has never had an official position on Pease limitations.
        The good news is that the re-institution of these limits has far less impact on the mortgage interest deduction than a hard dollar deduction cap, percentage deduction cap, or reduction of the amount of MID that can be claimed.
3.    Capital GainsCapital 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.
4.    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.

Cash for Caulking

Obama Proposes Cash for Caulking

A program has been proposed by President Obama on Tuesday that would reimburse home owners for installing windows, energy-efficient appliances, and insulation.

Under what has been dubbed “Cash for Caulking”, home owners would get a 50 percent rebate on energy-efficient air conditioners, heating systems, washing machines and dryers, refrigerators, replacement windows, insulation and other energy-saving improvements up to $12,000. This equates to a household that spends $24,000 could get $12,000 back.Most likely there would be no income restrictions.

The director at the American Council for an Energy-Efficient Economy, Steve Nadel, who is helping to create the legislation, says they are considering having contractors and/or retailers pay part of the cost upfront to reduce the need for home owners to come up with lots of cash.

First Time Home Buyer Tax Credit a Hit!

$8000 Tax Credit is a Hit With First Time Home Buyers!

Preliminary figures from the Internal Revenue Service suggest that 1.4 million home buyers are taking advantage of the $8000 tax credit that the government is giving to people to purchase their first home, and claiming it on their 2008 tax return. It looks like the program will meet and most likely surpass the goal set by lawmakers of providing 2 million home buyers with the credit. The tax credit expires on November 30, 2009.

A first time buyer buyer is defined by the IRS as someone who has not owned a primary home in the last 3 years. Someone who owns a vacation home or income property may still qualify for the tax credit.

IRS Form 5405 will allow qualifying buyers to claim the credit on either their 2008 (through an amendment) or 2009 tax returns, so many people purchasing homes this year won't be claiming the credit until next year. The credit is equal to 10 percent of the purchase price of the home, and is capped at $8,000 for homes purchased this year.

On the North Shore of Massachusetts we are seeing a incredible increase in activity from home buyers, with properties under agreement up 32% over last month. The driving force is the bottoming of home prices combined with mortgage interest rates in the 4's and the fact that the $8000 tax incentive will be gone before you know it.

Smart home sellers are placing their properties on the market now, knowing that after November 30th most home buyers will have already made their purchase and will be living in their new home with their $8000 tax credit check in hand. If you have a home on the market after November 30, 2009 - Good Luck! It will be a tough sell unless you have a home that is not something that a first time home buyer would purchase. That would mean most properties priced above $400,000. The most active properties are those that are priced below $325,000.

Jim Armstrong

http://www.armstrongfield.com/

http://www.salemmasscondos.com/

http://www.northshorefinerhomes.com/

SALES UP, PRICES DOWN
IN ESSEX COUNTY MASSACHUSETTS

December 2008 total home sales in Essex County increased by 4.9% over December 2007, led by the sale of multi-family homes which went up by 172%! The sale of bank owned properties drove down the price of multi unit buildings by 33% to an average of $184,800 driving investors and savvy, bargain-hunting home buyers to the closing table. The glut of foreclosed homes has pushed down prices, and distress sales now make up well over half the market in some towns such as Lynn and Lawrence. Other towns, including Newburyport, Marblehead, Danvers & Hamilton, have had relatively few foreclosures and therefore homes prices haven't dropped as sharply.

Single family sales were relatively flat over the same period, despite a 17% drop in prices over 2007. But that is actually good news for sellers of single family homes, which for the most part in 2008 experienced declining sales numbers. But toward the end of the year sales have been coming back. Could the lure of a $7500 first time homebuyer tax credit be tied to this rise?

The home buyers that we have talked to have not indicated that the tax credit was the driving force that made them step up to the home buying plate. What was the driving force was the lure of getting a bargain-priced home at the bottom, or near bottom, of the real esate market. The second motivating factor was the availability of mortgage money at rates below 6.0%.

Jim Armstrong
http://www.armstrongfield.com
978-394-6736

Still Waiting to Buy a Home?

6 Reasons Why Now is the Ideal Time to Jump!

1. The number of homes available on the market is dropping significantly.


2. Home prices are lower than they have been in the last 3 years, but seem to be bottoming out.


3. Interest Rates are still historically at their lowest.


4. The Home Sellers are very motivated.


5. You can deduct your mortgage interest (plus other costs) on your tax return, something you can't do with rent.


6. There is a limited time $7500 tax credit for first-time homebuyers.

Many potential homebuyers have been sitting on the sidelines waiting for the real estate market to bottom out. It's not a bad plan, as long as you have perfect timing. The experts can't even agree among themselves as to whether prices have reached the floor, so trying to time the market can be tricky. Though there are plenty of people who are buying properties right now, it will be nothing like it the rush there will be once prices start to rise again and everyone decides to jump into the mosh pit of buyers making offers!

OK, so there will be more competition in the next 6 to 12 months, but you want to make sure that you don't overpay for a home that you may be able to get for less in 6 months. So if you wait, you will get a better deal, right?

Not necessarily. First of all the inventory (number of properties on the market) has gone down considerably in the last few months, giving you less choices. When supply goes down, demand goes up. When demand goes up, prices tend to rise. It's a basic law of economics. Compared to last year, there are 23% fewer property on the market today, and the number of sold listings are up. The good news for you is that the median on-market home price is down 5.8% compared to October 2007 (for Essex County). But with selection dropping, can it be long before the market turns around?
Mortgage rates are still historically low (take it from someone who paid 14% in the early 90's), with rates hovering around the 6% mark. But rates are extremely volatile, especially with the shape of the financial market and everything that is happening with Wall Street lately. A couple of weeks ago the rates dipped into the 5%'s, but that only lasted a week before jumping up to 6.5% (they have settled a little since). It is likely that rates will trend up, according to most experts. With each jump in interest, you will be paying more in your monthly payment, which would negate any (potential) savings you would make by waiting to buy.

Another reason to buy now is that you are losing all your potential tax benefit of home ownership. You are able to deduct all of your mortgage interest, PMI & closing costs when you buy a home. This would result in a significant tax savings for you. On a $250,000 mortgage that could mean $4600 in tax savings, or about $380 per month over renting. Try out the Rent vs. Buy and Tax Savings calculators here.

One of the recent incentives initiated by the Feds is the First-Time Homebuyer Tax Credit. It gives a 1st time buyer up to a $7,500 credit on your taxes when you buy any home purchased between April 9, 2008 and July 1, 2009. This is not a deduction, this is an actual credit. So if you owed $6,000 in taxes next year, not only would you not have to pay them, the IRS would give you an additional $1,500 refund. If you don't owe any taxes and you are expecting a refund, then the $7,500 would be added to your refund. How cool is that? The caveat is that this is really a refundable credit, so it would be repaid, but only at the rate of around $500 per year starting in 2011. It is basically a no interest loan payable over 15 years. Everyone should take advantage of this credit! Go here for some FAQ on this credit.
One thing I want to point out about what you hear in the media. All real estate conditions are local. What is happening in another part of the country has no bearing on what's the market is like here in Massachusetts, and especially the North Shore.

*All mortgage calculations and tax savings are estimates and are examples for informational purposes only. Please contact your financial, tax or mortgage advisor for more information.