Sea Island Beach

Sea Island Beach

Friday, March 7, 2014

Changes to Biggert Waters Flood Insurance Reforms Passes House

• Grimm Waters Bill Highlights
Creates a firewall on annual rate increases – Prevents FEMA from raising the average rates for a class of properties above 15% and from raising rates on individual policies above 18% per year for virtually all properties.
 Repeals the property sales trigger – Repeals the provision in Biggert-Waters that required homebuyers to pay the full-risk rate for pre-FIRM properties at the time of purchase. This provision caused property values to steeply decline and made many homes unsellable, hurting the real estate market. Under the Menendez/Grimm Bill, homebuyers will receive the same treatment as the home seller.
• Repeals the new policy sales trigger – Repeals the provision in Biggert-Waters that required pre-FIRM property owners to pay the full-risk rate if they voluntarily purchase a new policy. This provision disincentivizes property owners from making responsible decisions and could hurt program participation. The Menendez/Grimm Bill allows pre-FIRM property owners to voluntarily purchase a policy under pre-FIRM conditions.
• Reinstates grandfathering – Repeals the provision in Biggert-Waters that would have terminated grandfathering. If grandfathering was terminated, property owners mapped into higher risk would have to either elevate their structure or have higher rates phased in over 5 years. The Menendez/Grimm Bill allows grandfathering to continue and sets hard caps on how high premiums can increase annually.
• Refunds homeowners who overpaid – Requires FEMA to refund policyholders for overpaid premiums.
• Affordability goal – Requires FEMA to minimize the number of policies with annual premiums that exceed one percent of the total coverage provided by the policy.q

Thursday, December 6, 2012

To Tax or Not to Tax

The rumor is true.  Beginning January 1, 2013, a new 3.8% tax on some investment income will take effect that may affect some real estate transactions.  Just like its predecessors, it’s a complicated tax.  Predicting how it will affect every buyer or seller is a bit like reading a cracked, cloudy crystal ball.  The primary thing you need to know is that the tax will fall only on individuals with an adjusted gross income (AGI) above $200,000 and couples filing a joint return with more than $250,000 AGI.  And, the new tax does NOT eliminate the benefits of the $250,000/$500,000 exclusion on the sale of a principal residence. Thus, ONLY that portion of a gain above those thresholds is included in AGI and could be subject to the tax.

The National Association of Realtors® has prepared a Top10 Things You Need to Know About the 3.8% Tax that may help clear some of the confusion.  Here is the Top 5:
  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 the tax formula will be applied to capital gains, interest income, dividend income and net rents (i.e., rents after expenses).
Read NAR’s Top 10 guide to better understand how this may impact you or your upper income clients.  For more comprehensive information, try NAR'S The 3.8% Tax, Real Estate Scenarios and Examples
In addition to the new 3.8% tax, the 0% and 15% tax rates on capital gains expire at midnight, Dec. 31.  Regardless of the results of Congressional infighting, expect an increase.  The CCH Group predicts that President Obama’s 20% rate will go into effect.  Read today's Wall Street Journal MarketWatch article "6 tax issues to watch in 2013" for other tax issues to be on the lookout for in the coming year.