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NEW 3.8% Tax on Some Real Estate Investment
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Beginning January 1, 2013, a new 3.8 percent tax on some investment income will take effect. Since this new tax will affect some real estate transactions, it is important to understand the tax and how it could impact your investment strategy. It’s a complicated tax, and it will affect every buyer or seller differently. Understand that this tax WILL NOT be imposed on all real estate transactions, a common misconception. Rather, when the legislation becomes effective in 2013, it may impose a 3.8% tax on some (but not all) income from interest, dividends, rents (less expenses) and capital gains (less capital losses). The tax will fall only on individuals with an adjusted gross income (AGI) above $200,000 and couples filing a joint return with more than $250,000 AGI.
New Tax Rate: New Tax Rate:
Applies to: Individuals with adjusted gross income (AGI) above $200,000 AND Couples filing a joint return with more than $250,000 AGI
Types of Income: Interest, dividends, rents (less expenses), capital gains (less capital losses)
Formula: The new tax applies to the LESSER of (a) Investment income amount, (b) Excess of AGI over the $200,000, or (c) $250,000 amount |
New IRS 1099 Requirements for Landlords!
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Starting in 2011, there is a new tax requirements for landlords. All landlords who receive $600 or more in rent for the year must send a 1099 to all service providers that the landlord paid $600 or more during the year, such as plumbers, carpenters, yard services, and repair people. The new requirement applies to owners of both residential and commercial property. Prior to 2011, this requirement had only applied to those involved in full-time property management, but now the requirement covers all types of landlords. Landlords will need to gather federal tax ID numbers from service providers in order to file the 1099s. Failure to file the 1099s with the IRS can result in fines of $50 per 1099 not filed with the IRS. In 2012, these requirements will expand to cover providers of good to landlords. NAR actively opposed this change in the law and is working with others to have this requirement repealed or otherwise modified. Congress took this action in order to assure that income paid to contractors can be verified through a section 1099. |
Condominium Financing
The Federal Housing Administration (FHA) released an implementation schedule and Project Approval and Processing Guide to update existing guidance and provide increased flexibility for FHA condominium financing.
In the new guidance, FHA requires that 50 percent of units be owner-occupied but FHA will reduce this to 30 percent for new construction. At least 30 percent of units must be sold prior to endorsement of any mortgage by FHA. This pre-sale requirement is not applicable to existing projects or non-gut rehabilitation projects.
One of the more notable changes is in the calculation of delinquent homeownership association (HOA) dues. Previously, FHA permitted no more than 15 percent of units to be in arrears but this did not include bank-owned foreclosures. The new guidance states that the calculation includes all units - occupied, investor, bank-owned, and vacant). FHA did not increase the maximum permitted investor ownership of units or commercial space requirements.
FHA Mortgage Requirements
The Federal Housing Administration (FHA) mortgage has been popular because its minimum down payment is 3.5%, whereas most conventional loans require a much higher down payment. But FHA’s shrinking funds and its ability to handle increasing defaults have caused the agency to change the regulations.
The following changes have been implemented for FHA lending:
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Upfront mortgage insurance premiums decreases from 2.25% to 1.00%.
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The 0.55% annual premium increased to 0.85% for mortgages with loan-to-value ratios up to and including 95%, and to 0.90% for loan-to-value ratios above 95%.
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Borrowers must have a credit score of at least 580 to qualify.
With the fees going up on FHA-backed loans, borrowers who are in the high LTV space, are advised to compare against alternative conventional loans with Mortgage Insurance (MI), particularly high-FICO score borrowers.
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Lead Paint Renovation and Repair Rule
The Environmental Protection Agency has issued a rule that requires renovation and repair contractors to be certified to work with lead paint hazards if they will work on a residential property built before 1978 in which lead-based paint will be disturbed. The Department of Housing and Urban Development (HUD) estimates that this could be as many as 35 million homes.
The rule also applies to places where children under six spend large amounts of time, such as child care centers and schools. The certified contractor must provide the occupants (owner or tenant) with a new information booklet and must follow lead safe work practices.
EXEMPTIONS to this rule include:
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Homeowner occupants or tenant occupants who do the work themselves (without certification).
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A residence where there are no children under 6 and no pregnant women as regular residents is a possible exemption.
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If the area disturbed is less than 6 square feet indoors (NOTE: window replacement on these homes is never exempt);
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If the area disturbed is less than 20 square feet outdoors;
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If a qualified lead test specialist certifies that no lead paint will be disturbed.as well.
You can get it at: Renovate Right Brochure/English or Renovate Right Brochure/Spanish.
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The Partner Network Office Locations
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