You can almost tell how old someone is, or how recently they’ve sold their primary residence, by their working knowledge of the Capital Gains Laws.
[To put you "in the know," in this blog post I'm going to share with you a bit of history and the latest tax-law twist; the closing of a loophole, so to speak, but one which could come with a bite for some of our second home owners.]
My dad is in his eighties and although still an active real estate investor, hasn’t changed his primary residence recently. Thus he was arguing, when I recently had my home for sale, that I’d have to use the profits from the sale of my home to buy another, more expensive, house within the next two years, if I didn’t want to pay capital gains tax on the profit. Or that I could wait until I turned 55 to sell my home, at which time I could take a one-time tax-free gain of up to $125,000.
This is a test: How many of you still believe this too?
Well in 1997 the Tax Payer Relief Act changed the law from how my dad (and maybe you) had known it. Starting in May of that year, if you’d lived in your home two out of the previous five years from the date of sale(regardless of whether you’d owned the house 15 yrs, 7 yrs, 4 yrs, or 2), you could exclude up to $250,000 if single, and $500,000 if married filing jointly, of your profit, from your taxable income. Not bad making, say, $300,000 in tax-free money, huh?
I, being an avid fan of making money in real estate, sold two primary homes in Steamboat Springs over the past three years, pocketed the profits from each, and didn’t pay a cent in Capital Gains Tax. (My dad demanded that I send him – snail-mail- a hard copy of the law.) Test: How many of you have done this too?
My husband, son and I happened to have lived in our two homes for all the years we owned them (seven years in one and three in the other). But, according to the Tax Relief Act of 1997, we didn’t have to have lived in them the whole time to keep 100% of the profit. Remember, the law said we only had to have lived in them for two of the previous five years, meaning we could have bought them as a second home or a rental investment property, and only moved in the last two years before the sale.
Now introduce Section 3092 of Housing Assistance Tax Act of 2008 (H.R. 3221). Test: Have you heard of this one? If so, you must be a tax advisor!
To be able claim 100% of your eligible profit now, it has to start out being your primary residence for two years (the first two years of the five years before the sale,at which point you can rent it if you’d like, for the next three years. But not the other way around. Starting January 1st, 2009, the clock, so to speak, starts ticking.
Example: Let’s say you and your husband bought a great ski-in, ski-out condo here in Steamboat on January 1st, 2009, for $500,000. Since you’re only going to use it four weeks a year, until you move out here, you put it in a rental pool to make enough income to pay your HOA dues. On January 1st, 2011 you take it off the rental pool and begin using it as your primary home. Your mother gets ill and you move out on January 1st, 2013 to take care of her back east, and sell the condo for $800,000 on January 1st, 2014.
Until this recent change in the law your entire $300,000 profit would have been eligible for capital gains tax exclusion, because you lived in it as your primary residence for two of the previous five calendar years.
But with the new law, you have to start out with it being your primary residence for two years before you can rent it to someone, if you want to keep 100% of your tax exclusion. So in the example above, the period 2009-2010 will be considered a non-qualifying period because the condo didn’t start out as your primary residence! The year 2013, after you moved out but before you sold it, is a qualifying use; you weren’t there and you could have rented it even. So, those first two rental years (2/5 or 40%) are counted as non-qualifying use, and the next three years (3/5 or 60%) are considered qualifying use.
Of the $300,000 profit, you will now have to pay taxes on 40% of it ($120,000; the non-qualifying time because you were renting it)! Ouch! You can still exclude from taxes 60% of the profit ($180,000; the qualifying time).
(FYI:The law states that they won’t go prior to January 1st, 2009, for the pro-rationing, so as long as you lived in the house for two out of the past five years you are okay.)
This law is meant to close the loophole which was allowing someone to buy a vacation home, put it in the rental pool or even leave it empty for however many years, move into it for two years, then sell it and not pay a cent on the profit. Now they’ll have to pay taxes on at least some of their profit.
Bottomline:
1. If you’ve been planning all these years on using the loophole to your advantage, you’d better move into that vacation home now, because the clock is ticking and you’ve already lost 6 months!
2. If you want to buy an investment property, consider living in it for the first two years and rent it for the next three.
3. Most importantly: When it comes to real estate, always consult with your tax accountant.
And if you’re thinking of buying real estate in Steamboat Springs, come talk to us!
I recently had the pleasure to accompany Doug Labor, who recently received his pilot’s license, on a flight around Routt County. The Colorado blue, cloudless morning afforded us an incredible view of all the landmarks of the Yampa Valley. On takeoff we headed south toward the Flat Tops Wilderness area. Off to the west you could clearly see Yampa Valley Regional Airport’s runway and just beyond the town of Hayden. As we approached the Flat Tops we were climbing to over 13,000 feetand still would have needed more to clear the snow covered peaks. On the way we could peer down at the towns of Oak Creek, Phippsburg and Yampa peacefully existing among their natural settings.
With the wet spring that we have endured it certainly has everything lush and green. I was surprised to see as many hidden lakes as we did. We proceeded to turn and head north east over Lynx Pass and the Stagecoach area and could see people enjoying the water activities at the Stagecoach State Park. Beyond the reservoir you could see the Yampa River meandering through Pleasant Valley on its way to Lake Catamount. As we passed the lake we could see the Rabbit Ears that gave the pass its name and began to approach the Steamboat Ski Area and Mount Werner. The city of Steamboat Springs lay at her feet aligned with the Yampa flowing through its midst. We passed by both the Walton Creek and Fish Creek drainage areas and could make out the waterfalls glistening in the sun. The Mount Zirkel Wilderness area was still holding its snow and we wondered how far up Buffalo pass one could go before snow blocked the way. Off to the right of the plane was a large canyon situated between the Fish Creek area and Seed House road. I made a mental note to see where this area is on the map and see if there is any access into the canyon.
On the horizon Hahn’s Peak kept getting larger as we approached. Pearl Lake with its still waters was now below us and as we circled Hahn’s Peak and the town of the same name we could clearly see into Wyoming just past Hog and Whiskey Parks. Heading south west once again Steamboat Lake appeared as did the Bears Ears and Sand Mountain in all of its glory.
Not everything was perfect however. It was clear that the Pine Beetle infestation is taking and will continue to take a tremendous toll from our lovely forests for decades to come. Of course in the middle of it all was the Sleeping Giant that you could see from almost any other place in the valley. I thought of the old Ute Indian legend that this sentry would rise up and protect the valley from any evil that might befall it. Even from the air this majestic figure gave me the sense of comfort knowing that all is well.
When we landed I thought about the past two hours and came away with the same conclusion that I have formulated from visiting all these areas by foot or car in the past. Routt County sure has a lot of “pretty”!
Last night, I attended the Steamboat Springs Parks and Recreation Work Session meeting, because they were discussing their conceptual plans for Rita Valentine Park.I personally have a vested interest in the outcome of the proposed development, because my property backs up to the M & H Property.However, I’m concerned that most of the general public is not aware that this planning process is taking place at this time.
For those of you unfamiliar with Rita Valentine Park (RVP), the property was gifted to the city of Steamboat in 1985, it consists of 45 acres and abuts the M & H Property, which has 30 acres.This undeveloped 75 acre parcel of land is currently being used by the public and considered by many to be valuable open space.The current trails allow hikers, bikers, dog walkers, snow shoers and skiers access to a beautiful, untouched area in the heart of Steamboat Springs.It is also invaluable to wildlife migrating around the Steamboat area.
The city hired a team of consultants to analyze our park and recreation system with the current needs and desires of the public, as well as predict the future needs of the community as our population increases. Based on information collected in various ways, including a public survey and a public work shop, the consultants devised a conceptual plan that would take place over the course of the next 10+ years.Now, the Parks and Recreation committee is trying to take that conceptual plan and modify it with the public input they are receiving.
At this time, they are planning on recommending that the M & H property be designated as permanent open space. 24 of the acres within RVP will be developed “naturally”, leaving 16 acres for more aggressive development.Although this conceptual plan has not been finalized, this plan evolves from potential passive recreation areas to active recreation, with the possibility of a skate park, climbing wall, and even an indoor facility, such as a swimming pool.
Because most of the public isn’t even aware that this committee is in the process of making these plans, the committee hasn’t received a lot of input from others who use it, but don’t live in the neighborhood.And since most of the participants in the workshop and meetings are homeowners in the area, the committee isn’t putting a lot of weight on their opinions, because this is a public park for the entire community.If you are interested in the conceptual design, please go to this link:
The proposed development of Rita Valentine Park is a very controversial and even emotional issue for many people in the community.Those who knew Rita Valentine claim that her intent was for that parcel to remain open space in perpetuity.It’s a shame that it wasn’t deeded that way, because then we wouldn’t even be talking about this issue.However, it was, and now is the time for the community to come together to voice their opinions, before it’s too late.
“Mustang Sally better slow that Mustang down!”Yes it’s time again for the 21st annual Ford Mustang Roundup. This weekend the streets of Steamboat Springs will be filled with 450 Mustangs of every year and model. A variety of events occur throughout the weekend but my personal favorite takes place on Saturday June 20th when Lincoln Avenue will be closed to traffic from 10:00 a.m. to 3:00 p.m. between 5th and 10th street allowing the Mustangs to show off their shine and grandeur. Strolling down the road seeing all of the classic and modern Mustangs and conversing with the owners is always an annual favorite.
Another Father’s Day favorite event is hiking up to the top of the Gondola and enjoying their tremendous brunch. From there my wife, Janet, and I will be joining our friends for our weekly “Sunday” round of golf. The winner is proudly presented with the winner’s jacket ala the Master’s tournament. Our jacket is passed on week to week and each winner is responsible in adding something to the jacket. The jacket itself is a rather hideous blue with gold piping. If you are looking to finance you may want to take a fresh look at FHA (Federal Housing Administration) programs. The FHA was created in 1934 and used extensively during the 40’s to help finance military housing and homes for returning veterans and their families. FHA funding has fallen out of favor in the past few years for a variety of reasons, one of which was a complaint that FHA appraisal guidelines were too stringent and the appraisers were too picky. The focus has shifted away from “picky” items like cracked windows and leaky faucets. The FHA is now concentrating on the overall valuation of the property. With the changes and streamlined features that the FHA has made there may be an opportunity to get better terms and better pricing then conventional loans. For more information on FHA programs go to: www.fha.gov.Happy Fathers day to all of you deserving Dad’s!
My husband watches Wall Street’s Opening Bell on the television every morning. As the trading day opens, his laptop opens. And he stays glued to the market’s gyrations for a good part of the remainder of the day. The Dow’s graph is created moment by moment and with a click of the mouse he can see back 3 months, 1 year or ten.
Following the local Steamboat Springs, Colorado’s real estate market is not so immediate. Yes, through our MLS system we can follow on a daily basis the individual properties that have sold, been withdrawn from the market, had their price reduced or just been listed, but to get a graph we have to wait until the middle of the following month.
So today we received from Bruce Carta at the Land Title Guarantee Company the stats for May 2009, year-to-date, and comparisons going back to 2004. And here’s the skinny…
Year –to-date the dollar sales volume is at 30.77% from 2008 (ouch), which was already down at only 49% of our previous, albeit banner, year 2007 (double ouch). The super ouch is that this year’s year-to-date sales volume is at only 54% of 2004! And that’s as far back as the data goes.
And what about the # of real estate sales in Steamboat Springs (vs. $ of sales)?Equally miserable. L Year-to-date, including an unusual blip of 234 timeshare sales, we’ve had 382 sales (only 148 non-timeshare sales!). 2008 year-to-date had 572 sales, 2007 had 1094, 2006 had 1543 (whew!), 2005 had 960 and 2004 had 617!
How many properties are currently for sale? Roughly 1213 residential units (not including timeshares), 834 land parcels and 595 Commercial listings.
At this rate it will take us seven years to dispose of all of this real estate! And that’s if no new listings come on the market!
I don’t know enough about the intricacies of the stock market. Are there ever stocks that just sit there and take forever to get bought, at whatever the price? Or does the price just have to get low enough for someone to finally buy? Of course stock investors don’t have to deal with finicky mortgage lenders. Hmm…
I am pleased to announce an amazing purchase that I assisted a client with that closed last Friday. Their purchase was for a new, 4,000 square foot, four bedroom, four plus bath townhome. The construction quality hard to beat in any market. Listed for $2,628,630, we were able to negotiate a purchase price for slightly under $2m. I am very happy for my clients, for it is a quality property in a highly sought after project in Steamboat.
This purchase was not an easy one to consummate. My clients visited Steamboat in January and we looked at numerous properties. After returning home, they decided to concentrate their efforts on Cimarron, which is another townhome project that had a number of resales listed. We made concurrent offers on several that were for sale. None, however, came down to a price we thought reflective of the current market.
We then set our sights on a couple of other projects, and looked hard at two developments that also met their interests. The one they decided to focus on this time had a variety of developer and resale properties for sale. We made offers first on the developer inventory. We got very creative in our offers, but the developer did not go as far as we had liked. We then focused on the properties for resale within the project. We got close, but not close enough. After taking a step back, we decided to reapproach the developer, and after over thrity offers and counter offers, a deal was struck!
We thought the hard work was over, only to find out the new lending environment created some additional surprises. This created the need for a contract extension, which the developer was willing to grant. After jumping through a couple of high and narrow hoops, my clients were able to close and are now happy owners.
I share this with you to show you that oppurtinities do exist in today’s market, but it does take a certain amount of will and determination to find them. These clients had the desire to make something happen, and their tenacity provided that opportunity, which I applaud. After their first stay in their brand new townhome, I’m sure they will be very excited and pleased with what all of their hard work has provided.
As exclusive buyer brokers, we offer dedicated service to help you locate the best buy that meets your needs, then assist in helping you negotiate the lowest price and best terms! Ask any of our clients, and I am sure they will agree.
Sunshine! That precious commodity that we enjoy so often in Steamboat Springs has finally returned.For how long we are not certain but I can assure you that most locals will be out enjoying the sunshine while it lasts. June is, after all, supposed to be the driest month for Steamboat according to the weather service. My 33 years of occupancy disputes this theory as I believe September to be the driest month. So what is this eerie and unaccustomed sight of cloudy mornings and dark wet afternoons and evenings? The meteorologists claim that we are a victim of two massive storm fronts that don’t seem to be moving.One is anchored near the Aleutian Islands and another squatting off the coast of Greenland.
Whatever the reason I can tell you it is the main topic of conversation at coffee shops and grocery stores and all the other social gathering places. We are so accustomed to waking up to sun in the morning and not having to worry about rain that many of us don’t even own an umbrella.
Maybe the Sun is beginning to shine on the national economy also. International markets are showing positive signs as are the American Stock and Bond markets. Unemployment figures are declining and home sales are up.
Conversing with Colleagues in various parts of the country there seems to be a lot of people taking advantage of the $8,000.00 first time home buyers tax credit. What many people don’t understand is that a “First Time Home Buyer” is considered someone who has not had ownership interest in a home for 3 years or more.
Getting back to my weather theme today my analogy for Real Estate purchasing in the Steamboat Springs, Colorado area is akin to the perfect storm. We have great inventory, anxious sellers, historically low interest rates, Federal Tax credits and prices that reflect the market of two to four years past. Mix all of these ingredients together and you have the makings of a Buyer’s Tornado. The time and climate is right to take advantage of these ingredients. Now go out and enjoy the Sunshine!
Many of us here in Steamboat are wondering what happened to our summer?With a strange weather pattern affecting western Colorado over the last few weeks, with cooler weather and intermittent rain showers, it feels more like fall than summer.However, the truth is, we’ve only received .72 inches of rain this month, according to an article today in the Steamboat Pilot, which is half of the average amount we typically receive in June, our driest month of the year.The upside is that we’ve been able to conserve water by not having to water our lawns!
If you are interested in conservation and energy efficiency, the Housing Economic Recovery Act of 2008 amended the Energy Policy Act of 1992 by increasing the maximum dollar amount that can be added to an FHA insured mortgage for energy efficient improvements, which are known as Energy Efficient Mortgages (EEMs).The base FHA maximum mortgage amount limit is calculated on the value of the home, however, the mortgage loan amount for an EEM can be increased by the cost of effective energy improvements, which is great news for those of you who would like to make your home a little “greener”. According to HUD’s website, the maximum amount of the portion of the EEM for energy improvements is the lesser of 5% of:
* the value of the property, or
* 115% of the median area price of a single family dwelling, or
* 150% of the conforming Freddie Mac limit.
For more information on the EEM, please contact a local lender, or you can call FHA’s Resource Center at 1-800-CALL-FHA (1-800-225-5342).
After a mixed bag of weekend weather with a beautiful day on Saturday, followed by a rain / sun / rain / sun pattern on Sunday (but good weather to run the Steamboat Marathon), it is a little hard getting back into the work week today.
With all of this turmoil in the real estate industry, one segment that is probably the most turbulent is the mortgage market. If there is one piece of advice I can give a Steamboat Springs real estate buyer right now, it’s to get the leg work done as early as possible with your lender to make sure there are no surprises once you have found a property and are ready to make an offer. I have seen a couple of road blocks come up, and have heard about many more nighmares from lenders. Underwriters are getting very particular about who they approve, and getting pre approved from your lender will help make the offer and purchase process much smoother.
The Steamboat Springs real estate market appears to be picking up a little over the past month. I’ll be writing my monthly newsletter shortly to give you an update, so be looking in your email box soon for the latest update.
Welcome to Marathon Weekend! This Sunday, June 7th will see the 28th annual Steamboat Springs Marathon which is our unofficial kick off to summer. There will be 500 Marathon runners along with 1000 half marathoners and untold number of 10k runners. Time and time again people proclaim that this is one of their favorite runs. Almost all 50 states will be represented as well as various countries.
The full marathon course begins at Hahn’s Peak Village while the half marathon begins simultaneously at Moon Hill Meadows. The 10k begins in front of the Court House where all the runners will cross the finish line in front of fans and family. As you can imagine the logistics are quite an undertaking. The Transportation component alone of hauling 1,500 participants beginning at 6:00 a.m. is quite a feat. Getting the right runners into the correct bus and getting those buses to deliver the runners then get quickly out of the way. It is amazingly well orchestrated and quite a show in itself.
There was an interesting article regarding Steamboat Real Estate and the fact that price is and should not always be the bottom line factor. The author points out that we are sitting on historically low interest rates that are artificial and won’t last. Chad James points out that “For anyone who was waiting for prices to drop even more, a 1.00% increase in your interest rate would bring a higher monthly principal and interest payment on a home, even if the price of that same home had fallen an additional 10% in value. If you’re waiting for home prices to fall even lower, be aware that while holding out for a lower price may help you win the battle, you could lose the war in terms of monthly payments and overall affordability. With the Federal Reserve scheduled to end its buying of mortgage-backed securities this year, rates only stand to go higher for those that wait. In fact, interest rates are already on the rise and could go higher from here”.
