Interested in buying a home with a tax exemption?

Did you know some homes in Portland qualify for a 10-year property tax exemption?  This can save a homeowner thousands of dollars each year.  In order to qualify for the limited tax exemption the sale must meet the following requirements AND be identified as an eligible property on THIS WEBSITE.proptaxxxxxx

Here are the requirements from the City of Portland website:

Sale price cap: The property must sell for no more than the sale price cap established annually by Portland Housing Bureau (PHB) — no more than 120% of the annual median sale price (or appraised value if an owner/builder) — currently $291,000 (as of January 2014). Escrow must notify PHB if a property is selling over the established price cap. If the exemption is already in effect, it will be terminated and escrow must request the amount of any taxes exempted due from Multnomah County to be paid at closing by the seller.

Occupancy: The property may not be rented at any time (both prior to initial sale and after homebuyer qualification); properties which are rented are subject to termination of the exemption. Homebuyers must occupy the property as their primary residence.

Affordability: Homebuyers at initial sale (who will be both on title to the property and occupying the home) must earn no more than 100% median family income for a family of four — currently $68,300 (as of January 2014), adjusted upward for households larger than four persons.

Tax Update for 2012-2013

If there is one thing I’ve learned over the years with regard to personal financial planning it’s that reviewing tax changes EARLY in the new year is important.  By the time December rolls around it is typically too late to make any meaningful changes to your tax bill for that year.  This will be especially applicable in 2012 & 2013 when many tax cuts are currently set to expire.  I am in the process of updating my tax summary sheet that focuses on personal & real estate related tax provisions.  I will upload it to this blog once complete.  In the meantime, HERE IS A LINK to a 4-minute summary of what you should know.  Please remember that it’s an election year and many in Washington DC may be extending some of these provisions to help their reelection chances.  In general, tax laws can change during the year and even retroactively so it’s best to talk with a competent tax professional about your individual situation.

Real Property Tax Explanation for Oregon

The Oregonian’s Brent Hunsberger wrote a good article over the weekend outlining Oregon’s confusing property tax rules.  What makes things difficult for homeowners to understand is why their property taxes rise even when their home value declines.  Brent does a good job of explaining:

…tax bills will go up even though real market values declined again as of January 2011, the date of record for valuations, and were down at least 20 percent from their peak in 2008.

You can thank Oregon’s tax system for that.

In the ’90s, Oregon voters passed two constitutional amendments limiting growth in property taxes. One essentially divorced real market values from so-called assessed values. The lower value is used to calculate the taxes you owe.

The second amendment in 1997 capped property tax increases to 3 percent a year, though it exempted remodeling, new additions and new voter-approved levies from that cap. That measure also cut tax bills overall.

Market values skyrocketed after that while assessed values bumped up at a more modest rate. By 2008, real market values across the state were 86 percent higher than assessed values, according to the Oregon Department of Revenue. And though market values have declined since then, they still remain about one-third higher than assessed values in Portland’s urban counties.

Tax provisions regarding debt foregiveness on a short sale or foreclosure

I was recently asked by a real estate professional if I knew the tax implication of a homeowner having mortgage debt forgiven via a short sale or foreclosure.   At the time I did not but have since researched the issue and thought I would blog about it.  Keep in mind that I AM NOT a tax professional and if the topic in this post pertains to you then I recommend you seek individual help from a qualified tax professional.

In general, this topic is covered in section 108 of the Internal Revenue Tax Code.  Mortgage debt forgiven via a short sale or foreclosure can be excluded from taxable income so long as it meets a set of rules.  CLICK HERE to read a print off directly from the 2011 CCH US Master Tax Guide about these rules.  The mortgage debt must have been qualifying acquisition indebtedness (any “cash-out” will be included in taxable income) and it must have been secured against the tax filers primary residence.  This provision is set to expire in 2012.

Also, in section 108 of the IRC it states that debt discharged as a part of a court approved Chapter 11 bankruptcy and/ or debt discharged when the taxpayer is insolvent outside of bankruptcy is also excluded from taxable income.  I’m sure I am missing a lot of details so feel free to comment below if there are any important provisions I neglected to mention.

From this we can deduct that if a mortgage was used to acquire rental property or was used to pay-off consumer debt then any discharge of this debt will be included in a taxpayers gross income for tax filing purposes unless they are insolvent.

Mortgage Insurance Tax Info

I’ve recently received a few questions regarding the tax deductibility of mortgage insurance.  I blogged about this a while back to I thought I would re-post the link.  Click HERE.

Are points deductible on a refinance?

If you were one of the many homeowner’s that refinanced in 2010 you are probably wondering if any of the costs associated with refinancing are deductible on your taxes.  You can download the IRS’s publication 936 that deals with home mortgage interest HERE.  Or, I have included some of the highlights below:

  • Points: In general points on a refinance are deducted on a pro-rated basis over the life of the loan.  For example, if you paid $3,000 in points on a 30-year mortgage then $100 ($3,000/ 30 years) would be deducted each year in addition to the qualifying interest you paid.
  • Per Diem Interest: Chances are at closing you paid some interest on the new mortgage you took out.  So long as your new mortgage is replacing qualified home acquisition debt or home equity debt (which it is in most cases) then this interest is tax deductible and you should have received a 1098 from the company you refinanced with.  If you’re looking at your final HUD-1 settlement statement this amount is shown on line 901.
  • Property Taxes?: Depending on the time of year that you closed your refinance you may have paid property taxes directly to the county your home is located in.  In Oregon this would only impact homeowner’s that refinanced in September -November.  This would also show up on your final HUD-1 settlement statement.

There are some fairly obscure rules regarding points if you refinanced with the same lender that your previous loan was with.  Be sure to speak with your tax professional as I am not a licensed tax preparer.

Tax implications of selling your home at loss

I thought I would re-post a post (can I say that?) I made back in August of 2008 concerning the tax implications of the  sale of a primary residence.  Most people know that a capital gains exclusion exists for those who meet the ownership & use tests up to $500,000 for joint filers ($250,000 for individuals).  But  most people who purchased primary residences in the past 5 years and are selling now gains aren’t in the cards.  Instead they are incurring losses and I’ve had a couple past clients call me recently asking me if there is any tax benefit.  So what is the tax implication of selling your primary residence at a loss?  Unfortunately there is none.  When it comes to losing money on the sale of your primary residence the IRS takes the position that your home is “personal use property”.  So just like when you sell your car for less than you originally bought it for you may not take a capital loss.   As my father in law would say “bummer man”.

In fact, if a homeowner had mortgage debt waived as a part of a short sale then they could actually have taxable income to claim.  In this instance I would recommend speaking with a tax professional BEFORE you ever put your house up on the market.

BTW, HERE is a link to my post from August 2008.

Tax Summary Sheet for 2011

If you’re looking for an easy reference for some of the general and real estate related tax provisions in the 2010 & 2011 tax code I have put together THIS FORM.  Feel free to download it, print it off, share it with friends, or whatever else you can think of.  And if you have any questions please don’t hesitate to give me a call.  Please remember though I am not a licensed tax professional.

Video Summary of Tax Relief Act 2010

I came across THIS VIDEO today and thought it offered a good concise summary of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.  I am currently putting together a flier that highlights some of the general provisions of the 2011 tax code and will post it in the next week.

Summary of Tax legislation passed by Congress on December 16, 2010

In case you’re wondering what is embedded in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 here are the highlights thanks to the Financial Planning Assoication:


Two-year extension of all current tax rates through 2012

  • Rates remain 10, 25, 28, 33, and 35 percent
  • 2-year extension of reduced 0 or 15 percent rate for capital gains & dividends
  • 2-year continued repeal of Personal Exemption Phase-out (PEP) & itemized deduction limitation (Pease)

Temporary modification of Estate, Gift and Generation-Skipping Transfer Tax for 2010, 2011, 2012

  • Reunification of estate and gift taxes
  • 35% top rate and $5 million exemption for estate, gift and GST
  • Alternatively, taxpayer may choose modified carryover basis for 2010
  • Unused exemption may be transferred to spouse
  • Exemption amount indexed for inflation in 2012

AMT Patch for 2010 and 2011

  • Increases the exemption amounts for 2010 to $47,450 ($72,450 married filing jointly) and for 2011 to $48,450 ($74,450 married filing jointly).  It also allows the nonrefundable personal credits against the AMT.

Extension of “tax extenders” for 2010 and 2011, including:

  • Tax-free distributions of up to $100,000 from individual retirement plans for charitable purposes
  • Above-the-line deduction for qualified tuition and related expenses
  • Expanded Coverdell Accounts and definition of education expenses
  • American Opportunity Tax Credit for tuition expenses of up to $2,500
  • Deduction of state and local general sales taxes
  • 30-percent credit for energy-efficiency improvements to the home (IRC section 25C)
  • Exclusion of qualified small business capital gains (IRC§1202)

Temporary Employee Payroll Tax Cut

  • Provides a payroll tax holiday during 2011 of two percentage points. Employees will pay only 4.2 percent on wages and self-employed individuals will pay only 10.4 percent on self-employment income up to $106,800.


Reductions in Individual Income Tax Rates through 2012

  • Income brackets remain 10, 25, 28, 33, and 35 percent
  • Capital gains and dividend rates remain at 0 or 15 percent
  • Repeal of the Personal Exemption Phase-out (PEP)
  • Repeal of the itemized deduction limitation (Pease limitation)
  • Marriage penalty relief
  • Expanded dependent care credit
  • Child Tax Credit
  • Earned income tax credit

Education Incentives Extended Through 2012

  • Expanded Coverdell accounts and definition of education expenses
  • Expanded exclusion for employer-provided educational assistance of up to $5,250
  • Expanded student loan interest deduction
  • Exclusion from income of amounts received under certain scholarship programs
  • American Opportunity Tax Credit of up to $2,500 for tuition expenses

Extension of Certain Expiring Provision for Individuals through 2011

  • Above-the-line deduction for qualified tuition and related expenses
  • Tax-free distributions of up to $100,000 from individual retirement plans for charitable purposes.  Donors may treat donations made in January 2001 as if made in 2010.
  • 30-percent credit for energy-efficiency improvements to the home (IRC section 25C)
  • Deduction of state and local general sales taxes
  • Parity for employer-provided mass transit benefits
  • Contributions of capital gain real property for conservation purposes
  • Deductibility of mortgage insurance premiums for qualified residence
  • Estate tax look-through of certain Regulated Investment Company (RIC) stock held by nonresidents for decedents dying before January 1, 2012
  • Above-the-line deduction for certain expenses of elementary and secondary school teachers

Alternative Minimum Tax (AMT) Relief

  • The legislation increases the exemption amounts for 2010 to $47,450 (individuals) and $72,450 (married filing jointly) and for 2011 to $48,450 (individuals) and $74,450 (married filing jointly).  It also allows the nonrefundable personal credits against the AMT.

Temporary Estate Tax Relief and Modification of Gift and Generation-skipping Transfer Taxes

  • Higher exemption, lower rate. The legislation sets the exemption at $5 million per person and $10 million per couple and a top tax rate of 35 percent for the estate, gift, and generation skipping transfer taxes for two years, through 2012. The exemption amount is indexed beginning in 2012. The proposal is effective January 1, 2010, but allows an election to choose no estate tax and modified carryover basis for estates arising on or after January 1, 2010 and before January 1, 2011. The proposal sets a $5 million generation-skipping transfer tax exemption and zero percent rate for the 2010 year.
  • Portability of unused exemption. Under current law, couples have to do complicated estate planning to claim their entire exemption.  The proposal allows the executor of a deceased spouse’s estate to transfer any unused exemption to the surviving spouse without such planning. The proposal is effective for estates of decedents dying after December 31, 2010.
  • Reunification of estate and gift taxes. Prior to the 2001 tax cuts, the estate and gift taxes were unified, creating a single graduated rate schedule for both. That single lifetime exemption could be used for gifts and/or bequests. The proposal reunifies the estate and gift taxes. The proposal is effective for gifts made after December 31, 2010.
  • As noted above. the look-through of RIC stock held by non-resident decedents is extended through 2011

Temporary Extension of Investment Incentives

  • Extension of bonus depreciation for taxable years 2011 and 2012
  • Small Business Expensing: increase in the maximum amount and phase-out threshold under section 179. Sets the maximum amount and phase-out threshold for taxable years 2012 at $125,000 and $500,000 respectively, indexed for inflation.  (Previously-passed legislation raised the 2010 and 2011 max amount and phase-out at $500,000 and $2,000,000 respectively.)

Extension of Certain Expiring Provisions for Businesses through 2011

  • Enhanced charitable deduction for corporate contributions of computer equipment for educational purposes
  • Enhanced charitable deduction for contributions of food inventory
  • Enhanced charitable deduction for contributions of book inventories to public schools
  • Special rule for S corporations making charitable contributions of property
  • 15-year straight-line cost recovery for qualified leasehold improvements
  • Employer wage credit for activated military reservists
  • Tax benefits for certain real estate developments
  • Extension of expensing of environmental remediation costs
  • Treatment of interest-related dividends and short term capital gain dividends of Regulated Investment Companies (RICs)
  • Work opportunity tax credit (WOTC)
  • 100% Exclusion of qualified small business capital gains held for more than 5 years (IRC§1202)
  • Research credit
  • Qualified Zone Academy bonds

Extension of Unemployment Insurance

  • The unemployment insurance proposal provides a one-year reauthorization of federal UI benefits.

Temporary Employee Payroll Tax Cut

  • The legislation creates a payroll/self-employment tax holiday during 2011 of two percentage points. The employer’s share of the payroll tax remains unchanged.  This means employees will pay only 4.2 percent on wages and self-employed individuals will pay only 10.4 percent on self-employment income up to $106,800.  The social security trust fund is made whole by transfers from the general fund.