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Top Ten Things You Need to Know About the 3.8% Tax

by Pat Wattam

Got this info sheet from the National Association of Realtors explaining the 3.8% Tax on Real Estate.  

 

1.  When you add up all of your income from every possible source, and that total is less than $200,000 ($250,000 on a joint tax return), you will NOT be subject to this tax.

2.  The 3.8% tax will NEVER be collected as a transfer tax on real estate of any type, so you'll NEVER pay this tax at the time that you purchase a home or other investment property.

3.  You'll NEVER pay this tax at settlement when you sell your home or investment property.  Any capital gain you realize at settlement is just one component of that year's gross income.

4.  If you sell your principal residence, you will still receive the full benefit of the $250,000 (single tax return)/$500,000 (married filing joint tax return) exclusion on the sale of that home.   If your capital gain is greater than these amounts, then you will include any gain above these amounts as income on your Form 1040 tax return.  Even then if your total income including this taxable portion of gain on your residence) is less than the $200,000/$250,000 amounts, you will NOT pay this tax.  If your total income is more than these amounts, a formula will protect some portion of your investment.  

5.  The tax applies to other types of investment income, not just real estate.  If your income is more than the $200,000/$250,000 amount, then tax formula will be applied to capital gains, interest income, dividend income and net rents (i.e., rents after expenses).

6.  The tax goes into effect in 2013.  If you have investment income in 2013, you won't pay the 3.8% tax until you file your 2013 Form 1040 tax return in 2014.  The 3.8% tax for any later year will be paid in the following calendar year when the tax returns are filed.

7.  In any particular year, if you have NO income from capital gains, rents, interest or dividends, you'll NEVER pay this tax, eve if you have millions of dollars of other types of income.

8.  The formula that determines the amount of the 3.8% tax due will ALWAYS protect $200,000 ($250,000 on a joint return) of your income from any burden of the 3.8% tax.  For example, if you are single and have a total of $201,000 income, the 38% tax would NEVER be imposed on more than $1000.

9.  It's true that investment income from rents on an investment property could be subject to the 3.8% tax.  BUT:  The only rental income that would be included in your gross income and therefore possibly subject to the tax is net rental income:  gross rents minus expenses like depreciation, interest, property tax, maintenance and utilities.

10.  The tax was enacted along with the health care legislation in 2010.  It was added to the package just hours before the final vote and without review.  NAR strongly opposed the tax at the time, and remains hopeful that it will not go into effect.  The tax will no doubt be debated during the upcoming tax reform debates in 2013.

 

That's NAR's take on it.  My first thought is that if you aren't making a profit on your rental income, you need to talk to us and let's get you a better rental property!!   And, don't forget to get out and vote in November!

 

 

Flood Map changes article provided by Andy Redpath of Baton Rouge Insurance Agency

 

Andy Redpath and I were chatting the other day, me grumbling about so many homes in Baton Rouge that are suddenly in a flood zone - homes that were NEVER in a flood zone before and how much it is costing my clients.  He gave me an example of two home owners, not in a flood zone, who thankfully had flood insurance, whose homes received 8 inches of water in the flash rain storm we had last week.  Here is the info he provided me on the floor map revisions:

 

"With the recent flood map revisions by FEMA, there are a lot of questions being asked by homeowners and new home buyers as how this might affect them. The first question is, are these revisions necessary and why are they being imposed on local parishes. The simple answer can be found with the fact that almost one in four flood claims every year are submitted by property owners that were not in a hazardous flood zone. In other words, they were not required by their mortgage company to purchase flood insurance, but they still flooded and were insured under a preferred flood policy. The good news is that anybody who has recently been determined to be in a hazardous zone can purchase a low cost preferred flood policy for two years before being subjected to the more costly standard rates. At that time they may wish to provide anelevation certificate, if favorable, to reduce their rates. For people who were not remapped to a hazardous zone, they still might wish to consider buying a preferred flood policy. $250,000 of dwelling coverage with $100,000 coverage on contents is only $365 annually.   It only takes an inch of water in your house to ruin your day."

 

For more information on homeowners insurance and flood policies contact the Baton Rouge Insurance Agency at 293-7350 or at www.bria.net.

Pull the Vines Off!

by Pat Wattam

This is a great video from Kevin Dinkel of Advantage Services.  Kevin explains why, particularly in the greater Baton Rouge area, it is so important to keep vines off your house. Lots of people who have homes in Baton Rouge and surrounding areas love the look of vines growing up their house - especially our older homes with lots of brick.   I know vines are a haven for bugs, but Kevin also explains that it help keeps the termites find a way into your house.  

Another tip I learned recently.  If you have a termite contract that has the station things all around the house, that coverage is NOT sufficient.  You must also have the perimeter treatment.  We found this out the hard way when termites were found in our door frame.  The termite company told us they had switched a few years ago and found that you need both systems to have the best barrier.  Wish they had told me that sooner!  Check and make sure you have the best coverage offered by your termite company!

Save Money!!!

by Pat Wattam

 

Save Money...Be Comfortable

Automatic thermostats can lower your monthly utility costs while conveniently regulating your comfort by adjusting temperatures on your heating and cooling systems. These can be particularly effective in homes with zoned systems where you live in one area during the day but sleep in a different zone.

 

There are programmable thermostats available at home improvement stores that can make the adjustments for specific times during the day and specific days of the week. They'll allow you to override the setting when needed without tampering with the programming. They'll even remind you to change your filter.

An exciting development is the Wi-Fi enabled thermostat that allows adjustments from any Internet connection such as computer or Smartphone. Imagine how convenient it can be to change your temperature from the car before you get home.

Reasonably priced under $100 for most models, it makes it easy to recapture the cost of the thermostat quickly. Most of the thermostats are designed for do-it-yourselfers; however, you can always have a heating and cooling professional install it for you.

Home Inventory Saves You Money

by Pat Wattam

 

Have You Backed Up Your Home?

Personal computers have been around long enough that everyone has experienced or knows someone who has lost their data due to a hard drive crash, accident or burglary. If they had a backup, the loss was inconvenient but not critical.

 

Do you have a backup for your personal belongings? Not that you need duplicates of all the items but do you have a journal listing of all the items with a description and their approximate values? That record becomes the backup that supports the claim for your insurance.

If a building sustains a total loss, the insurance company will usually pay the face amount of the policy. When it comes to personal property which might be 40% to 50% of the insured value of the dwelling, the insurance company is going to expect an accounting with receipts or at least, a relatively recent inventory.

The better your inventory, the less likely you'll have difficulty with the claim. Almost everyone has a digital camera that can take stills and probably even videos. The combination of the images as well as a written description will help you replace the belongings and serve as proof to the insurance company.

Once you've made the inventory, store it off site for safe keeping. Online storage in the "cloud" might be the best place to insure you'll always know where it is. Contact me for a free Home Inventory form; it's my way of helping you be a better homeowner.

Cold Weather for Warm-Blooded People

by The Pat Wattam Team

This past week has been a trying one in the sunny South.  Temps here in Baton Rouge plunged into the teens overnight.  Yeah, yeah, I know.  To you Minnesotans that might call for a heavy sweater, but here, that's some serious chill and maybe even some burst pipes.  Luckily we were able to get all our listing properly protected, including one vacant property on pier and beam that had exposed pipes. 

The simple solution here is to keep a trickle of water running.  Since the ground rarely freezes here that keeps +32 degree water in the pipes, so no freezing and no bursting.  It can run up the water bill though. 

If you're going to be gone during the time of a freeze and can't monitor the situation, then drain the system.  If you don't mind getting your hands a bit dirty you can shut off the water at the street meter using T-handle shutoff tool available at most home centers and hardware stores.  Just be aware that sometimes these street valves can be a "bear" to move.  If you're lucky, you will have a shutoff valve at the house connection.  No tools needed, just turn it off like a water faucet.  Then open the inside faucets and unscrew the drain plug outside.  It's just above the shutoff valve and looks like a tire valve stem cap.  If there is no drain plug or house shutoff valve, then open the outside faucets to drain and be sure to insulate the portion of the pipe bteween the ground and the faucet since it will still have water in it.

Do You Have a "Housing" Plan?

by The Pat Wattam Team

Most people have some kind of retirement plan, financial plan, business plan, career plan, etc.  But have many have a houseing plan?  By that, I mean, are you maximizing your financial future with your housing plan?

I met with some of my sellers last week who had been in the same house for over 20 years and the house is over 30 years old.  Unfortunately, over that time, their neighborhood had gone down a bit - it has capped off at what homes are worth, no matter how nice they are or how large they are, the neighborhood has a ceiling on prices.  Of course, since they have a larger home than most, and it's nicely updated, they will sell faster than other homes in the subdivision.  If they had sold that house at least 10 years ago, and bought in a newer subdiviision, that home would have increased in value more than their current home has, over the same time period.

You know, there is a reason that people move on average about every 6 years!  The plan I came up with for Roger and me was to move every 6 years, and kept buying a nicer home,  more poplular area each time, and now I'm in the part of the plan where we stay in this house for 15 years, and then the next house for 10-15, and then go to a condo or maybe retirement village.  The plan is to keep buying into an area that will give me the best appreciation.  I know, people like to have a paid off house, and so do I - I just don't mind moving!!!

I know there are some areas of the country where the buyer/seller would cringe at this idea due to the way their Market has crashed.  But historically, even in the wrost market back in the 80's, it took California only 9 years to go from peak to valley and back to peak.  In the 25 years I have been selling homes in the greater Baton Rouge Real Esate Market, this scenario works like a charm.   Make a plan for your future with your house!   if you need any advice with this idea, just give me a call anytime to discuss!

The announcement of the location of Entertainment Arts, Inc new sports video game global testing facility to the LSU South Campus on GSRI Road is expected to give a boost to south Baton Rouge home sales. The leading video game company will employ 220 permanent and part-time workers in its quality assurance center. State officials describe this move as a big moment in the state’s effort to establish the digital media industry in Louisiana. The success of this venture could lead to establishing an entire research park of digital media companies in the LSU and south Baton Rouge area.

Displaying blog entries 21-28 of 28

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Photo of Pat Wattam Real Estate
Pat Wattam
RE/MAX First, Independently Owned and Operated
4750 Sherwood Common
Baton Rouge LA 70816
Office Direct: 225-298-6900
Office Main: 225-291-1234
Fax: 225-295-1234

RE/MAX First
Each Office Independently Owned and Operated
Main: 225-291-1234

Licensed by the Louisiana Real Estate Commission