Jeff Baxter

At the beach, many property owners have used the 1031 exchange procedures outlined in our tax laws to delay or "push-off" taxable gains on the sale of investment properties and, many times, vacation homes. Part of the strategy is to continue to rent the property for a while and then move into the property as a primary home for 2 years, sell, and qualify for the exclusions from taxes on the sale of a primary home. Unfortunately, the new Housing Bill is changing that dynamic. Click on the link below for a CCH summary of the new Housing Bill (all aspacts) and read below for an explanation of the change in the home sale exclusion.

http://tax.cchgroup.com/legislation/2008-Housing-Assistance-Act.pdf?cm_mmc_o=Vywll%20qwkwzlwCjCHFzbkCjCniio%20ZBAlbET%20-llblfzEgw%20-gf%20CjCioCiInD

This is exerpted from Ken Harney's Real Estate Column.

"As of next January 1st, investors who exchange into rental or second home properties that they later convert into their personal homes no longer will be eligible for the full $250,000 to $500,000 tax-free exclusions now available on sales of principal residences.

Instead, they'll need to allocate their time of ownership between taxable investment or second home usage and non-taxable principal residential usage.

To qualify for tax-free exclusions they'll still need to use a property as their primary home for two out of the five years preceding any sale or exchange. But if any part of their total usage time after January 1st is what the new law calls "nonqualified" -- that is, investment, rental or second home use - then that will lower their maximum exclusion.

This an especially big deal for investors using "Section 1031" exchanges because they frequently shield their real estate gains on rental houses and condos by moving into them for a couple of years and converting previously taxable gains into non-taxable principal residential profits.

An example of the dollars and cents impact of the change was provided by the Federation of Exchange Accommodators, a national trade group representing investors and intermediaries. Under the old law, an investor could exchange into a property that he or she then rents out for three years. Then the investor would move in and use the property as a principal residence for two years.

When the investor -- who is single -- sold the house for a $300,000 gain, $250,000 of that amount would be tax-free under the old law.

Under the new law, three fifths of that gain -- $180,000 out of the $300,000 -- would be taxable, while just $120,000 would be tax free.

That $130,000 difference is why exchange investors are so upset with Congress's latest tax increase."

The headlines grabbed you. "Foreclosure activity in March increases 5% over February and 57% over March of 2007!"

The reality? Most of the foreclosure activity is taking place in Nevada, California, and Florida. These are the states that had the fastest increase in home prices and the highest use of both Subprime loans and Option ARM loans, both made at very high loan to values.

How's Delaware doing? Delaware ranks 34th in foreclosure activity among the 50 states and most of that activity is concentrated in the Wilmington area. There were 192 foreclosure filings in Delaware in March according to RealtyTrac. This includes about 140 NFS filings - Notice of Foreclosure - and 51 REO filings - Real Estate Owned - when a property is foreclosed on and repurchased by a bank.

Those 192 filings represent 1 foreclosure filing per 1,994 households in Delware compared to 1 per 538 households nationwide. March also saw a 15.8% REDUCTION in filings compared to February, but it was a 34% increase over March 2007.

Foreclosures are a hard thing for the homeowner involved, especially someone's primary home, but we need to remember that Delaware is holding up pretty well in this housing crunch.

March 21, 2008

Legislation has been introduced (HB 293) that will raise the realty transfer tax by .28% to fund the Community College Infrastructure Fund for capital construction at all four (4) Delaware Technical and Community College campuses.

In addition, Governor Minner and the Department of Finance, Office of Management and Budget and the Controller General's Office recently released the General Fund Revenue Report which outlines current revenue and examines potential revenue sources that policy makers may want to consider.

The report states that "Despite its position among the highest realty transfer tax rates in the nation, in terms of revenue raising potential, increasing Delaware's RTT could be used to address an immediate budget shortfall." The report states that the cyclical nature of the tax would carry a larger confidence interval than other options.

Real estate transfer taxes and fees are a major burden to buyers and sellers including new entrants in the home market, seniors downsizing who have to pay the tax for the privilege of selling their home, churches and other civic groups and military families transferred to another community who must sell their homes.

The narrow base of property transfer taxes places a larger burden on a small share of the population relative to broader based taxes. New home owners and those "trading up or down" should not be singled out to pay for construction at DTCC.

Real estate transfer taxes and fees have a negative impact on housing costs and, therefore, economic development. Real Estate Taxes are regressive because the tax burden is higher for lower income households.

A household that moves frequently, for whatever reason, does not derive additional benefits or place additional burdens on public services (except for minimal administrative costs) as compared to someone who does not move, and should therefore pay similar taxes.

Using the proposed increase in the real estate transfer tax on a home selling for $150,000 the increase in tax would be an additional $420; on a home of $250,000 it would be an additional $700; at $350,000 another $980 and $1260 for a home sold for $450,000. If a couple retires to the beach, selling a house up state, they will be hit twice with the increase in real estate transfer tax.

LEGISLATORS WILL BE IN DOVER THROUGH MARCH 20^TH. (Returning from Easter Break on April 9th)
THEY CAN BE REACHED THROUGH THE SWITCHBOARD:
Senate Democrat Offices: (302) 744-4286. Senate Republican Offices: (302) 744-4048.
House Republican Offices: (302) 744-4171. House Democrat Offices: (302) 744-4351.

If you do not know your legislators or would prefer to e-mail them you can find the appropriate information at www.legis.delaware.gov. Please let Charlotte Herbert at DAR's Government Affairs Office (302) 734-4444, ext. 12 or charlotte@delawarerealtor.com know about any response you receive.

March 12, 2008

FISHING TOURNAMENT MAKES A MOVE

March 12, 2008

FENWICK ISLAND, DE-The Bethany-Fenwick Area Chamber of Commerce is very pleased to announce that Old Inlet Bait & Tackle shop will now be managing and presenting the long-standing spring fishing tournament.

A new state law now requires licenses for surf-fishing. Moving the tournament to Old Inlet will make that process easier for visiting anglers.

"We are so pleased to pass our surf-fishing tournament on to the folks at Old Inlet," said chamber executive director Karen McGrath. "With the new licensing requirements it just makes sense for this event to be run by fishing professionals while the Chamber focuses its resources on other new initiatives."

The Old Inlet Spring Surf-fishing Tournament is scheduled for Saturday, May 10^th. Registration information can be found at http://oldinlet.com/fishinginfo/springsurftournament.html or at the Old Inlet shop just north of the Indian River Bridge.

All anglers who have previously fished in the Chamber's tournament should receive an application for the Old Inlet tournament in the mail.