Matt Hodges

REAL ESTATE Tax Crackdown on Second Homes To help pay for the housing bill passed this summer, Congress has changed the rules for vacation homes and rental properties. Here's what you need to know about paying the piper. By Mary Beth Franklin, Senior Editor From Kiplinger's Personal Finance magazine, October 2008

Congress has pulled the rug out from under vacation-home owners planning to squeeze tax-free profit from their second homes. Under current law, you could sell your primary residence and take up to $250,000 of profit ($500,000 if you file a joint return) tax-free, as long as you owned and lived in the place for two of the five years leading up to the sale.

Then you could move into your vacation home or a rental property and, by living in it for at least two years, get a second bite of the tax-free apple. Even profit that built up while it was a vacation home or rental could dodge the IRS.

No more. To help pay for the big housing bill passed this summer, Congress has changed the rules so that some of your gain will be taxable if you convert your vacation home or rental unit to a primary residence after 2008.

The portion of the gain to be taxed is based on the ratio of nonqualified use -- the time the property is used as a vacation home or rental unit after this year -- to the total amount of time you owned the property.

Assume you bought a second home in 2000. Let's say you convert it to your primary residence in 2011 and sell it two years later. In this example, the home would be used as a vacation property for two years after 2008, so one-seventh of the profit (two out of the 14 years you owned it) would be taxed at capital-gains rates. The remainder of the gain -- up to $500,000 for couples -- would be tax-free.

This tax-law change could be even more significant if you buy a second home after 2008. In that case, none of the time it is used for vacations or rental income qualifies for the tax exclusion. But if you convert it to your principal residence, the longer you live there, the less the profit from a sale will be taxed. And you can avoid the crackdown altogether if you move in before the end of the year, says Raffaele Mari, a CPA in Corona Del Mar, Cal.

But what do you do with your current home? You could rent it to generate cash flow and buy some time before selling it in this slow housing market, says Mari. The tightening doesn't apply in reverse: You'd still qualify for tax-free profit on the home as long as you sell it within three years to meet the two-of-five-years test.

It seems in this volitale economy our government keeps hitting us where it hurts. Everytime something is passed the public seems happy, but who pays for it? That's right...you and I. This time it is just not in headline news. Makes a lot of sense in this economy to decrease opportunity....

What are your thoughts?

How Quickly We've Forgotten

This is something I wrote after the 1st anniversary of the start of the War on Terror. It talks about the Soldiers, but I think it fits in to todays rememberence.

Fallen Soldiers

For the souls of our fallen soldiers

I thank you for your service

and sorry for the price you've paid

For the families who

have lost a hero

we owe you so much

and yet... you can

never be repaid.

Daily Real Estate News | August 26, 2008Is the Worst Over? Analysts Have Mixed Views

Some analysts reacting to the news that home sales rose a healthy 3.1 percent in July compared to June say the increase predicts further improvement. Others are more pessimistic.

"We are not yet ready to call the current levels a bottom but clearly most of the declines are behind us," says Adam York, a Wachovia Corp. economist.

"The good news is the trough is behind us," says Harm Bandholz, a New York-based economist with UniCredit, but Bandholz warns that tighter lending standards and rising foreclosures will continue to put pressure on housing prices.

Real estate consultant John Burns, who advises large builders and investment firms, says he thinks supply and demand will remain out of whack until there is a 46 percent decline in the inventory of homes on the resale market.

Burns, who is president of John Burns Real Estate Consulting, estimates that by 2010 the most stable markets will reach equilibrium and by 2011, the national market will move into better balance. Overall, he believes that it will take until 2014 for it to be business as usual.

Sources: The Wall Street Journal, Kelly Evans (08/26/2008) and Business Week, Amy Feldman (08/18/2008)

I guess we are in for the long haul. Good luck to everyone.

This will be my first post of many and hopefully become a weekly and potentially daily habit for me.

I have been doing short sales now for about a year and quickly have made a name for myself as maybe Traverse City's leading expert on this topic. As you may know, short sales can be a very lucritive business, but it can also be a bust.

I would like let everyone know who I have worked with and what I thought about them.

A few are,

Ocwen, Wells Fargo, Countrywide, JP Morgan Chase, Huntington, and Option One.

I have had great success with Ocwen, but they have called it quits in this short sale dept. A few difficult ones were Countrywide, simply because of there size, and Huntington. The good thing about Huntington is if your a stock holder, you will be happy for there resistance on taking much less.

As far as smaller or local banks, I love working with them because the decisions are typically sooner than other, however, there ability, in my experience, to tkae a bigger loss is reduced.

I encourage questions regarding short sales or the foreclosure proccess. I will be hosting a Foreclosure Seminar on May 29th at the Traverse City Chamber building from 3-5pm. I am asking for RSVP due to seating.

Please RSVP to my email MHodges@TCExit.com

Thank you

Matt Hodges

231 624 1650

www.MattHodges.net