Susan Halverson

Real Estate updates on Clermont FL Properties

Home selling tax tips for accidental landlords April 26, 2011

Real Estate Tax Talk
By Stephen Fishman
Inman News™

Share ThisDue 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).

Stephen Fishman is a tax expert, attorney and author who has published 18 books, including “Working for Yourself: Law & Taxes for Contractors, Freelancers and Consultants,” “Deduct It,” “Working as an Independent Contractor,” and “Working with Independent Contractors.” He welcomes your questions for this weekly column.

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Copyright 2011 Inman News

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Being upside-down with a “HARDSHIP”, you may qualify for a “SHORT SALE?” April 6, 2011

Currently, 25% of homeowners are upside-down on their loans.

Many of these homeowners have or will soon face adjustable interest rates that make it impossible to keep up with payments.
Others are experiencing hardships, like job loss or illness.
Some have to make a change due to job relocation or family reasons.
Still others are in a negative cash flow position on rental properties.
And others don’t see the point of making payments on a house that will never recover from the real estate bust.
Unless banks forgive a portion of those loans, however, homeowners are ‘under house arrest’ and cannot sell.

This is where homebuyers looking for a good deal come into the picture.

Because buyers must wait for bank approval, they’re only willing to purchase a Short Sale provided it’s at a discounted price. Depending on the condition of the house, Short Sale properties generally sell for about 10% less than comparable ‘non-distressed’ houses.

This kind of discount makes your house that much more attractive to many homebuyers, who are usually investors and first-time homebuyers. Some buyers who currently own a home but want to move up or downsize are also willing to make the plunge, provided the right opportunity comes along.

 

Vacation- and investment-home shares hold even in 2010 April 1, 2011

WASHINGTON – March 30, 2011 – The market share of vacation- and investment-home sales held steady in 2010, although the sales volume declined with the overall market, according to the National Association of Realtors® (NAR).

NAR’s 2011 Investment and Vacation Home Buyers Survey, covering existing- and new-home transactions in 2010, shows vacation-home sales accounted for 10 percent of transactions last year while the portion of investment sales was 17 percent – both unchanged from 2009.

“Despite extraordinarily tight credit conditions for purchasing a second home, the market share for vacation and investment homes held steady,” says NAR Chief Economist Lawrence Yun. “A sizeable number of buyers made deals with all-cash offerings.”

All-cash purchases have become prevalent in the second-home market in recent years: 59 percent of investment buyers paid cash in 2010, as did 36 percent of vacation-home buyers.

With an overall decline in home sales during 2010, the volume of 543,000 vacation-home sales was down 1.8 percent from 553,000 in 2009. Investment purchases fell 7.8 percent to 867,000 in 2010 from 940,000 the previous year. Primary residence sales declined 5.6 percent to 3.81 million from 4.04 million in 2009.

Foreclosure or trustee sales accounted for 17 percent of investment purchases and 11 percent of vacation-home sales in 2010, compared with 5 percent of primary purchases.

“Second home buyers purchased more distressed homes at discount than did buyers of primary residences,” Yun says.

The median vacation-home price was $150,000 in 2010, down 11.2 percent from $169,000 in 2009, while the median investment-home price was $94,000, which is 10.5 percent below the $105,000 median in 2009. By contrast, the median primary residence price declined a relatively modest 4.5 percent to $176,700 last year from $185,000 in 2009.

The typical vacation-home buyer in 2010 was 49 years old, had a median household income of $99,500 and purchased a property that was a median distance of 375 miles from his or her primary residence; 31 percent of vacation homes were within 100 miles and 41 percent were more than 500 miles.

Investment-home buyers had a median age of 45, earned $87,600 and bought a home that was fairly close to their primary residence – a median distance of 19 miles.

“The fall in home prices has opened opportunities for more families to enter the second-home market – the median income of investment buyers today is lower than it’s been in recent years,” Yun says. While the median income of vacation-home buyers in 2010 is slightly above 2007 when it was $99,100, the median income of an investment-home buyer is 5.7 percent below $92,900 in 2007.

“Even if purchases are delayed due to economic circumstances, the underlying long-term demand – the desire for purchasing second homes – remains because people in their 30s and 40s will reach the prime age for buying and will drive the second-home market in coming decades as conditions permit,” Yun says.

Currently, 40.7 million people in the U.S. are ages 50-59 – a group that dominated sales in the first part of the past decade and established records for second-home sales. An additional 43.8 million people are now in the primary buying demographic of 40-49 years old, while another 40.4 million are 30-39.

Lifestyle factors continue to be the primary motivation for vacation-home buyers, with the desire for rental income driving investment purchases. Vacation homes were more likely to be located in a rural area, while investment homes were more likely to be in a suburban location.

“Vacation-home buyers want the property for their own personal use, with 84 percent saying the primary reason for buying was to use for vacations or as a family retreat,” Yun says. “Rental income generation was the primary motive for investment buyers. At the same time, nearly half indicated they sought to diversify their investments or saw a good investment opportunity.”

Thirty-four percent of vacation-home buyers said they plan to use the property as a primary residence in the future, as did 10 percent of investment buyers.

Twenty-one percent of investment buyers and 14 percent of vacation buyers purchased the property for a family member, friend or relative to use. “Some of these buyers purchase a home for their son or daughter to use while attending school,” Yun says.

Vacation-home buyers plan to keep their property for a median of 13 years while investment buyers plan to hold their property for a median of 10 years.

Thirty-six percent of vacation homes purchased in 2010 were in the South, 27 percent in the West, 19 percent in the Northeast and 15 percent in the Midwest; 3 percent were located outside the U.S.

The distribution of investment properties differed from vacation homes: 32 percent were in the South, 24 percent in the West, 21 percent in the Northeast and 20 percent in the Midwest; 3 percent were purchased outside the U.S.

NAR’s analysis of U.S. Census Bureau data shows there are 7.9 million vacation homes and 41.6 million investment units in the U.S., compared with 74.8 million owner-occupied homes.

NAR’s 2011 Investment and Vacation Home Buyers Survey, conducted in March 2011, includes answers from 1,895 usable responses about home purchases during 2010. The survey controlled for age and income, based on information from the larger 2010 NAR Profile of Home Buyers and Sellers, to limit any biases in the characteristics of respondents.

NAR sells the report for $19.95 to NAR members and $149.95 for non-members.
The 2011 Investment and Vacation Home Buyers Survey can be ordered by calling (800) 874-6500, or online at http://www.realtor.org/prodser.nsf/Research.