Step 1: Application

The information below is meant as a guide only. Always check with your local tax specialist for current laws and guidelines.

Almost everything you own and use for personal purposes, pleasure or investment is a capital asset. Your main home or investment property is no exception. When you sell a capital asset, such as your home, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is capital gains or capital loss. While you must report all capital gains, you may deduct only your capital losses on investment property, not personal property.

What are short-term vs. long-term capital gains and losses?

Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gains or loss is long-term. If you hold it one year or less, your capital gains or loss is short-term.

What is the basis and how is it determined?

You need to know your basis in your home to calculate any gain or loss when you sell it. Your basis is determined by how you acquired your home. If you purchased or built it, your basis is your initial cost. If you acquired it in some other way (inheritance, gift, etc), you must know its adjusted basis to the donor just before it was given to you. You also must know its fair market value (FMV) at the time title was transferred. For more information, log onto www.irs.gov and search for publication 551 (Basis of Assets).

What are the current capital gains rates?

The maximum tax rate on net capital gain (i.e., net long-term capital gain reduced by any net short-term capital loss) is now 15%. Gains that would otherwise be taxed at a regular rate of 10% or 15% are now 5% for property sold or otherwise disposed of after May 5, 2003 (and installment sale payments received after that date.) The reduced rate applies for both the regular tax and the alternative minimum tax. The higher rates that apply to un-recaptured section 1250 gain, collectibles gain, and section 1202 gain have not changed.

If I make a profit from selling my home, do I get to keep any of it tax-free?

As a single homeowner, you can exclude up to $250,000 of capital gains. If you are married f ling separately, each of you can exclude up to $250,000. If you are married filing jointly, together you can exclude up to $500,000 of capital gains.

Is this a one-time exclusion?

The exclusion is allowed each time you sell or exchange your principal residence, as often as every two years. And you are not required to reinvest your proceeds in a new residence to claim the exclusion.

What is the ownership and usage criteria for claiming the exclusion?

To be eligible, you must have owned and lived in your home as your primary residence for a combined period of at least two of the last five years prior to selling or exchanging your principle residence.

What is real estate depreciation recapture?

Depreciation is the decrease in the value of property over the time the property is used. Depreciation recapture is when a property used for business purposes is sold at a gain; if accelerated depreciation has been claimed, you may be required to pay tax at ordinary income rates to the extent of the excess accelerated depreciation.

We own a rental property. If we live in it as our main home for two years, can we sell it and not pay capital gains tax?

You may be able to exclude your allowed amount of capital gains from the sale of your main home that you have also used for business or rental property if you meet the ownership and use criteria outlined in the above paragraph. However, if you took depreciation on your home used for business or rental property, you cannot exclude the part of your gain equal to the depreciation taken or allowable for the periods after May 1997. If you can prove that the depreciation taken was less than the amount allowable, the amount you cannot exclude is the lesser of the two figures. Refer to publication 523 on www.irs.gov for more information. Additional information on capital gains and losses may be found on www.irs.gov. or you may contact your local tax specialist.

Brought to you by Randy Charlton with Keller Williams Realty

Property Tax Defined
Property tax is a tax administered by local government districts. Tax rates vary from county to county and are based on a predetermined percentage of an annually assessed value of each individual property. Property taxes are paid in biannual installments.

Paying Property Taxes On Your New Home
Paying your first year of property taxes can be tricky, depending on when you close escrow on your new home. If your property is in escrow, and the sellers have just paid property taxes, then your agent should request proof of payment. Because it can take up to six weeks for a property tax payment to post, the preliminary title report may show that property taxes are still due. Proof of property tax payment by the seller will allow escrow to close successfully without a potential tax hold.

If you purchased your property between January and October, your property tax bill may be forwarded to the seller’s new address. If you do not receive your property tax bill by the middle of October, contact your County Tax Collector and request that a duplicate tax bill be sent to you. You are still obligated to pay your first property tax installment by the November 1st due date, even if you have not received a tax bill from the County.

If you close escrow near December 10th, and the seller has not yet paid property taxes, then the seller will need to make a check payable to the Tax Collector and forward it to the escrow holder. The escrow holder will see that the title company forwards it to the County. If the check does not clear by the escrow close date, then a hold may be required.

What Is an Impound Account?
An impound account is a convenient way for borrowers to ensure that their property tax and insurance payments are paid in a timely manner. Your lender can set up an impound account which will allow them to collect property tax and hazard insurance payments from you on a monthly basis. The impound payment is collected with your monthly mortgage principal and interest payment and is calculated by taking your yearly tax and annual insurance payment and amortizing it over 12 months, along with a mandatory pad of at least two additional months worth of payments for each. The lender will pay the County Tax Collector and the insurance company directly by drawing the property tax and the insurance premium from the account when the property tax installments are due (November and February) and when the insurance premium is due.

 Brought to you by Randy Charlton with Keller Williams Realty

1. Pricing Your Home Right
Your agent can research comparable sales in your area and advise you of the appropriate price range for your property.

2. Be Flexible on Financing Terms
Have your agent explain what financing options are available. Flexibility on financing terms may secure a better selling price.

3. Time It Right
Ask a real estate professional to determine whether the market cycle is poised to net you the most money.

4. Make Your Property Accessible to Buyers
Lock boxes are a great way to make your home most accessible to agents for showing. Appointment-only showings are the most restrictive. If your lifestyle is not compatible with frequent showings, your agent will help you determine a solution to suit your needs. Remember, the easier a home is to show, the better the odds are of getting the deal you want.

5. Use The Latest Marketing Technology
Make sure your agent utilizes the latest technology, such as Internet sites that cater to homebuyers. In some areas, cable access advertising is popular. Others use 800-number interactive voice response systems. A good agent will know where you can get the best exposure.

6. Stage Your Property Correctly
Put some items in storage, create more light, play music or otherwise improve the ambience. Your agent can offer helpful advice to create the right first impression.

7. Remember That Selling Property Is Not Seasonal
Don’t base selling decisions on the seasons. Property sells year round.

8. Re-evaluate The Marketing Plan
Re-evaluate your agent’s marketing plan every 10 days. Make needed adjustments based on the current market and buyers.

9. Analyze Why You Aren’t Getting Offers
Eighty percent of all buyer activity comes from the signs and MLS listings. So, if you aren’t getting any offers and are flexible with showing your home, it may be time to re-evaluate your price, not necessarily your agent.

10. First impressions Are Golden
Sales have been blown by unkept lawns, cluttered closets, unpainted front doors, hard-to-work locks, blown light bulbs, bad colors, stains, unlit areas and foul smells. Spend time on the little things. Double up on your gardening. Keep things cleaner than usual. Take serious control of your pets during this time period.

11. Make The Right Kind Of Repairs
Before making improvements prior to listing, consult a real estate professional. Some upgrades will not yield any real increase in value, while others may increase property value substantially. Ask for low cost solutions to minor repairs that will yield the best profits.

12. Give The Sales Process Enough Time
Homes may take 3-6 months to sell in any market. Estimate how much time you have before you need to sell and then plan ahead to allow extra time. You don’t want to be forced to accept a disappointing offer.

13. Screen Prospects Adequately
One of the best reasons for hiring a realtor is his/her ability to pre-qualify a prospect financially so that you don’t lose valuable negotiation time. Your agent may discover when a prospect has an ulterior motive for shopping homes, other than purchasing.

14. Believe That You Can Make A Difference
The top agents in the industry report that their sellers are responsible for at least one out of ten sales. You can network your business and personal friends, you can hand out flyers and you can keep the house in move-in condition. Your realtor should be ready to hand you all sorts of assignments to make the team effort successful.

15. Test The Market
Never put your property on the market unless you really want a sale! Get ready for a professional sales push when you list with a great agent. If your plan harbors some indecision, resolve it before you list because success is every great realtor’s objective!

Brought to you by Randy Charlton with Keller Williams Realty

Buying Foreclosure REOs

Forget about chasing down short sales and dealing with lenders who don't want to deal. Instead, I suggest going straight to the source, which is often the very same lenders who refused to deal but now must. These are lenders who have taken back a home in foreclosure.

Regardless of government-sponsored voluntary bail-out programs designed to help home owners in foreclosure -- the programs which are rightfully called "too little, too late and too voluntary" by The New York Times -- foreclosures will continue to rise throughout 2008. This means more banks will end up owning properties, which is bad news for sellers in default and bad news for the banks but could mean good news for first-time home buyers and investors.

The deals are out there. But don't make the mistake of thinking the bank is going to hand you a home on a silver platter. Banks hire lawyers to draw purchase contracts that favor the bank. And banks hire hard-nosed negotiators. Make sure you hire a real estate agent versed in dealing with REOs, an agent who will represent your interests over the bank's ... Be sure to contact Randy Charlton with Keller Williams Realty at 909-938-9568 or visit my website at www.TeamCharlton.com.

Below is an article recently posted online addressing the purposed increase in current conforming loan amounts. If successfully passed, this measure along with the recent reduction in interest rates, will be exactly what is needed to stimulate the real estate activity in our area.

If you ever have any questions, please feel free in giving me a call at 909.938.9568.

- Randy

Wanted to share with you one of my all time favorite quotes.

We all go through tough times in life, but it's the people who can pick themselves up and dust themselves off that seem to find success. Now when I say success I do not mean just financial ... I mean career success, relationalship success, athletic success and so on.

So when you come up against obsticles in life, please remember the below quote.

"I've missed more than 9,000 shots in my career. I've lost more than 300 games. 26 times I've been trusted to take the game-winning shot and missed. I've failed over and over in my life ... and that is why I succeed."
                                                                        - Michael Jordan