If you are a homeowner hoping to sell real-estate in the near future, it’s likely that you’ve heard a thing or two about the new 3.8% Medicare tax being placed upon certain real-estate transactions. You might have even heard this slice of legislation functions as a net sales tax, applying to all homeowners completing sales transactions within the United States. That is the general conclusion when a public audience sees the number 3.8%, along with the word tax and real-estate transactions. However, for 97% of all Americans, it’s time to breathe easier: this tax doesn’t even apply to you. And for that top 3%, hang in there because it’s really not nearly as bad as it seems.

This new chunk of legislation that has been passed down through the recently passed Patient Protection Affordable Care Act (PPACA) does not call for a 3.8% sales tax on all real-estate sales. Instead, it institutes a 3.8% Medicare tax on investment income for high income households that cross a lesser of two thresholds. In fact, this tax only applies to individuals with incomes of over $200,000 and combined households with incomes of over $250,000 (so $125,000 for married taxpayers filing separate tax returns). According to the latest government statistics, this clause excludes about 97% of all tax American payers. And on top of all this, no one will have to pay the tax unless the overall profit of selling the house exceeds $250,000 per individual ($500,000 per couple). So let’s say you purchase your house for $300,000. You would need to sell the house for over $800,000 just for the tax to apply!

So for that top 3% of taxpayers with incomes over the $200,000/$250,000 limit barrier who manage to spin off their property for a profit greater than $500,000: do you really still have to pay a 3.8% tax on your real-estate sales? The answer is no. And the explanation for this is complicated (like all legislation), but not incomprehensible.

The bill implementing this new tax is long, esoteric, and (quite frankly) boring. It uses phrases like “which will generally impose a 3.8% tax on the lesser of ‘net investment income’ or the excess of modified adjusted gross income over a ‘threshold amount.’” And we wonder why everyone began to panic about a 3.8% sales tax on home sales…

So in short, what is this tax about? As said above, the tax does not apply to an overwhelming majority of American taxpayers. And even for those elite few in the top 3% of family incomes, unless a couple is selling their house for a profit over $500,000 ($250,000 per individual) their transaction still won’t apply. And, to reiterate, even for those that are required to pay this tax, it is still far from a sales tax on the overall sale of your house.

First of all, the tax formula processes two possible alternatives for taxation, and then charges the option that costs least to the taxpayer. The first option involves the direct sale price of your house. The way it would work is  if you sell a house for a greater margin of profit than the said limit, the government will take the total profit of the sale, subtract the sales “threshold” ($500,000 for couples, $250,000 for individuals), and then place the 3.8% tax on the remaining amount of profit. So, if you’re interested in seeing the math worked out, let’s propose a scenario. A family buys a house for $250,000 and then some time later sells it again for $800,000. The total profit of this transaction is $550,000, thus exceeding the $500,000 dollar threshold and being subject to the 3.8% Medicare tax. Now, you would take the profit of $550,000 and subtract the $500,000 threshold to get $50,000. This is the number that would then be subjected to the 3.8% Medicare tax, amounting to a total $1,900. That’s a lot better than the $30,400 tax that might have been applied as an overall sales tax.

But to give the taxpayer options, there is a second possible route the tax could take. If the overall tax of your home ends up totaling to an excessive amount (say you bought a home for $300,000 and sold it for $1,000,000, incurring a 3.8% tax on $200,000 of profit), the tax would then apply to the amount by which the couple’s taxable income now exceeds the income threshold level (for couples, $250,000). Say after the sale, the couple’s taxable income becomes $350,000. This exceeds the $250,000 threshold by $100,000, and thus that $100,000 excess become applicable to the 3.8% tax (a total of $3,800) since it is less than the $200,000 of taxable profit from the sale of the hypothetical couple’s house.

So to close, if this all seems overly confusing and complicated to you, take comfortin the prospect that the odds are ever in your favor (there’s a greater than 97% chance this tax doesn’t apply to you). But, if after following up with the numbers and discovering your income is in the taxable range and the price you’re hoping to sell your house for exceeds a profit of $500,000, at least know that only a fraction of that total is likely to be taxed and it is going to be the lesser of two options.

And remember, I am “only” a real estate agent – not a tax accountant. So, GO GET TAX ADVICE TOO!

Thanks!

PS -  Susan Hilton is Bryan College Station,
Texas’ real estate specialist in foreclosure sales and real estate
agent career building so if you need help –
CALL!             979-219-3970

Photo credit: cohdra from morguefile.com

Returns: Real Estate vs. Stocks, Bonds and Mutual Funds.

• a.) Stocks: Only 40% of stocks pay a dividend and in the 10 years starting in 2000 the stocks in the S&P 500 paid an average dividend of 1.82%. During that same time, those same stocks have seen a 30% decrease in equity.
• b.) Bonds: During the 10 year period starting in 2000 bonds have yielded an average of 4.46% according to figures released by the Federal Reserve. Bonds returns are fixed by the interest rate and do not appreciate in value and can fail.
• c.) Mutual Funds: Often under perform the general market, does not pay dividends and you hand control of your money over to someone else.
• d.) Real Estate: In the 10 year span beginning, in 2000, real estate has increased in equity by 30.14%. This does not include appreciation in value, cash flow or the tax advantages that come with investing in real estate. Investment property allows you to be in control of your own money as opposed to the other investment vehicles.

Tax Benefits: What other investment allows you to make money, and the IRS allows you to keep more of it due to generous tax deductions ? Some of those expenses are advertising, depreciation, maintenance, insurance, interest, losses and repairs. Another top real estate investment vehicle is the 1031 exchange which allows you to avoid capital gains tax through the exchange of like-kind properties. To complete a 1031 exchange, a qualified intermediary will need to be used but, it is well worth the effort.
Leverage: With what other investment will a lender allow you to put 20% down and use the investment to secure the balance of the loan? Do you think that your lender would lend you money to buy $100,000 worth of Apple stock if you put $20,000 down? The great advantage of investing in real estate is that it allows you to build equity in a property, sell it and then use the equity and leverage to buy a larger cash flow property. A continuation of this process is what allows you to build wealth.

With the interest rates at an all time low and some nice properties on the market, the time to invest in real estate has never been better. Using a conservative analysis to calculate cash flow and not basing your decision on an increase in equity will improve your chances of being successful in the real estate investment market. For more information or help in finding a property call David Whitener at 979-587-9979.

David Whitener, REALTOR® – I never forget you have a choice

This partnership has produced the absolute best portfolio of Class A Student rental housing in Aggieland (College Station TX) AND some of the Best Real Estate investment opportunities on the planet!

Aggies, Check out www.aggieleasing.com

Investors, Check out some of these cash flow scenarios: www.barrackstownhomes.com

Call us anytime on our new hotline at 888-567-5757 or Text us at 313-Gig-Em-Ag

Thanks & Gig-Em’

Airline Tickets – Plan in advance and visit discount websites to see if there are better deals. While these sites might charge you a service fee ($5 or so), they can easily combine flight segments from different airlines easily to give you a great deal. (bonus – get even more savings by finding promo codes before you book a trip).

Connecting Flights – You might think connecting sucks but it sure saves you a good chunk of money doing it. Consider the pros and cons and don’t write it off right away.

Always Look into Round Trip Tickets – Sometimes, one way tickets are so expensive that the round trip ticket is cheaper. Just don’t use the return trip. (I know it’s weird but I’ve seen it myself)

Fly during the slowest days of the week – Tuesday and Wednesday are the slowest flying days of the week for business travel so demand is low, and so are the fares.

Fly during the slowest time of the year

Travelers who are serious about seeking cheap fares should travel only during the slowest time of year.   That rules out holidays, as well as spring, summer and winter.  What’s left? Fall.  Traveling anytime between Labor Day and Thanksgiving should give you the best deals.

Now that you know how to get where you want to go on less $$…how about coming to College Station, TX to check out our real estate?  For information contact Linda Stribling at 979-575-0580 or email linda@century21bcs.com

Home owners recoup large percent of their initial cost on specific home improvements

according to HGTV’s Curb Appeal.  Their REALTOR offered advice on which home improvements would bring the best bang for their buck.  So when the young couple stepped up to the closing table Steve and Linda walked away with a profit in their pocket.  Thanks to their sweat equity and the REALTOR’s remodeling knowledge the sellers recouped most of their monetary investment from the upgrades they performed.  Which projects return the highest value for the cost?

Remodeling Magazine surveyed appraisers and REALTORS last summer on remodeling projects and the values that they hold in 80 markets.  Home Tech Information Systems analyzed the data and factored in regional pricing differences.  The results were published in the January 2010 REALTOR Magazine on page 21.  There were three categories of home improvements – additions, remodeling and replacements.

For those of us in the south and central United States, replacing your front entry door offers the best return on your investment.  The cost for a 20-guage steel door is $1043 – materials and installation.  The resale value of the new front door is $2496!  That’s 239% of your cost recouped…a huge perceived value.

The second best bang for your buck is an attic bedroom addition.  The general job cost is $41,000 a large price tag.  The perceived value is $40k, or 97% return on your money for the add-on.  You certainly can’t receive that matching dollar in your IRA or CD.

Another high return in construction is changing the exterior finish.  By replacing siding, you can regain 86% of your initial cost.  Further down the restoration list, a kitchen or bathroom remodel will bring 82 and 81% back to you.

This is fabulous information for home sellers or others who are staying put in their existing home for another year.  The perceived value from the buyer translates into dollars for the seller on the Settlement Statement.  They see a turn-key home that has been well-maintained and spruced up.  And buyers are willing to pay for it.

For an interactive job cost analysis featuring 80 various markets, click on the Remodeling Magazine Report.

What has worked for you?  Tell me which home improvement projects have given you leverage at the closing table below in our comments section!

Happy Sprucing,

Cindy Seaton, REALTOR

Property Tax Assessment

you do? Make sure that your tax value is decreasing, as well. Brazos County mails out estimates for the year 2009 in June. That’s four months away, you exclaim. Yes, plenty of time to investigate your property’s current market value and to prepare your tax appeal, I say.

Your case for a request to lower the property’s value is not simply based on your feelings about higher taxes. You’ve heard Benjamin Franklin say it – in this world nothing is certain but death and taxes. So don’t be shocked to find yourself in a recession and asked to pay higher property taxes this year.

There are several options when appealing your tax value. One is to hire representation. You could pay a licensed property tax consultant to analyze the tax records, perform an appraisal of your property, and represent you before the county appraisal district review board.

Another option is for you to do the research yourself and represent yourself at the hearing. As a property owner, you will still need an appraisal from an expert to enter evidence in your hearing. Kelly Seaton with Verdad Valuation Services
can provide you with that appraisal.

You may view your county tax information at the appraisal district, 1673 Briarcrest Drive. Request to see your complete record. Note the comparable properties on the record card. See why the tax district thinks your property is worth more.

When you file for your appeal, pay attention to the deadlines and remember to show up for your hearing! Take all of your documentation from the appraisal and your notes. You may want to practice your testimony ahead of the scheduled hearing. The burden of proof is on the property owner – you have to give facts as to why your property is not worth the assessed amount. Facts, not feelings.

If at any point in the process you have questions call your REALTOR for advice and information. Hopefully a bit of research and persistence will decrease your property tax value and possibly your monthly mortgage.

Kind regards,

Cindy Seaton, REALTOR

P.S. Some lenders may only credit your tax escrow for future increases(reserves the bank holds to pay your annual tax bill) and keep your monthly payments the same. Reserve the celebration until you know all the deets from your mortgage company.

1. What percentage of all Texas homes are financed by subprime loans?

a. 1% b. 8% c. 17% d. 33%

2. True or False? Average interest rates for a 30-year fixed mortgage are about what they were 5 years ago.

3. T or F? In 2007, homes priced $500k+ represented a higher percentage of the total homes sold in Texas than any previous year.

4. Of 44 Texas markets, how many had lower median sales prices from January-June 2008 compared to the same period in 2007?

a. none b. 11 c. 22 d. 33

5. How many Texas markets had more home sales in June 2008 than June 2007?

a. 22 b. 9 c. 3 d. none

6. In CNBC’s 2008 ranking of state economies, Texas came in:

a. 1st b. 5th c. 9th d. last

7. T or F? The statewide average sales price in June 2008 was lower than in June 2007 and June 2006.

8. Home many Texas properties had a foreclosure filing in July 2008?

a. 1 in every 252 properties b. 1 in 388 c. 1 in 519 d. 1 in 891

How’d you score?

1. b

2. True. The average rate for a 30 year fixed mortgage was 6.34% on 08-08-2003, and 6.52% on 08-08-08

3. True

4. b

5. c Lubbock and Texarkana had 1% higher home sales; Victoria was up 13%

6. a. Texas was also ranked first in business climate.

7. False. The average 2008 price was $2,300 higher than June 2007 and $9,000 higher than June 2006.

8. d. Texas was ranked 22nd. Nevada had the highest rate at 1 in 106.

So the next time you hear urban legends about the state of our economy, provide them with the facts! It is our responsibility to convey truth to our friends and clients.

Happy New Year!

Cindy Seaton, REALTOR

Kelly Seaton

Kelly Seaton says plenty. It’s still a reliable tool to know when a buyer presents the seller with a low-ball offer or when it’s a good deal.

“In June and July when business is booming, sales data was plentiful. Last months sales were a good indicator of a property’s present value,” Seaton said. “When there is a sudden shift in market, this is not necessarily the case. More research needs to done to quantify the stability of an area’s market.”

Who should use an appraiser? Usually, Verdad Valuation sees banks and lenders as their client. Seaton also sees home owners as clients, who just want to get an idea of value on their home pre-sales, before they even become a seller. Or an independent FSBO may try to protect himself from a bad deal, seeking the opinion of an independent third party.

Great technology platforms enable Verdad Valuation to research legal land descriptions or soil types even before setting foot on the property.  “So many resources are available to us through Google Earth and the U.S. Department of Agriculture that help appraisers to examine the real estate from many facets,” Seaton said.

From local residential to rural land appraisal, Verdad taps into 20 years of experience working with industry greats like Reagan Magee of Promise Land Real Estate. Seaton is happy to open his own business  and begin serving customers.  Check out Verdad’s website for details about his work and interesting industry myths about appraisers.

Merry Christmas,

Cindy Seaton, REALTOR

Increase in home value

For people living in areas where their home value has risen, the value could actually exceed the amount of principal owned on the mortgage.  In this situation the lender is under no legal obligation to remove the Private Mortgage Insurance.  Usually if the home owner has been prompt on their monthly payments and is not an exceptional risk, the lender will agree to remove the extra fees.

The hardest thing for most home owners to know is just when does their home equity rise above this magical 20%?  A certified, licensed Appraiser like Verdad Valuation can help.  Owner and appraiser, Kelly Seaton, says that it is his job to know the market dynamics of this area.

He said, “I know when property values have risen or declined.  Together we can find the current value of your home and remove the PMI payments.  Faced with our data, most mortgage companies will eliminate the PMI with little trouble.  The savings from dropping the PMI pays for my appraisal fee within a matter of months. Then, you can enjoy the savings on your mortgage from that point on.”

Verdad Valuation has more information like this at their website.

Merry Christmas,

Cindy Seaton, REALTOR

Appraisals from Seaton

“Having a recent appraisal of your home can be very useful at the negotiating table,” said Kelly Seaton, owner of Verdad Valuation Services. When interested parties see an appraisal, an inspection, a survey, or a map of the home, these serve as additional tools that cut down on the time it takes to close.

Seaton says Verdad Valuation can complete a residential appraisal in as little as one day if necessary, where a narrative appraisal for a rural property could take one week. It all depends on how much sales data is available and how much time is necessary to adequately research the survey, title, and sales of comparable properties.

In addition to answering questions like “how much is my house worth”, Seaton suggests a few other things to consider prior to listing your home. Certain upgrades and remodels may improve the curb appeal, but it may not increase the property value enough to justify your time and expense. You can call him for consultation on which improvements bring the best bang for your buck.

Verdad Valuation steps in and helps make those decisions with you. “While your Century 21 Realtor is detail-oriented and forward-thinking, an appraiser has no vested interest in what amount your home sells for,” Seaton said. “An appraiser’s fees are based on time to complete the report, not a percentage of the sales price.”

Visit Verdad’s website at www.verdadvaluation.com for more details on property values.

Happy Fall,

Cindy Seaton, REALTOR