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Welcome to our new blog!

We look forward to making this the best resource for information about real estate, our local area, and current topics that impact you. Please feel free to comment on our posts if you have questions or reactions to share. If there is anything you'd like to see us write about, we'd love to hear your ideas.

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    Benefits of Buying in the Current Market!

    Although the Federal tax credit programs ended with purchases occuring no later than 30 April 2010, there are still plenty of reasons to make a purchase in today's market:

    1. Mortgage interest rates are still at historically low rates - most recently being 4.75% APR. A one percent change in the interest rate on a 30-year $200,000 loan can result in a change of the monthly principal and interest mortgage payment of $125.00.

    2. Current inventory levels, downward pressure on sale prices, and low interest rates make this an excellent buying opportunity.

    3. Mortgage interest is still deductible on your Federal and State income tax returns (subject to certain income limits and restrictions.)

    4. Over a 10-year period, real estate has had a positive return, despite the losses experienced within the last 5 years.

    5. What a seller loses on the sale of his/her home can be recovered on the buy side if the individual is purchasing a more expensive home.

    6. As the economy improves, the real estate market will follow suit or lead the way. Even if you don't buy at the bottom, so long as you do not have to sell within the next 2 - 5 years, the home should be worth more in 5 years than it is today.

    7. With all of the Federal, State and other mortgage loans now available to buyers at all different income levels, more individuals can qualify for a mortgage loan and afford a home.

    8. As real estate sales increase, inventory levels will decrease and home prices will rise. This is the basic law of supply and demand.

    None of us has a crystal ball which will tell us when the real estate market has reached the bottom and trying to time the market to take advantage of the market is very difficult. However, making a sound investment in a home that is well-priced in today's market is one of the best ways to take advantage of today's low prices and put yourself in a position to profit in the long term.

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      Extended and Expanded Tax Credit for Homebuyers

      The following article is reproduced in its entirety for the benefit of the readers of our Blog. Now is the time to buy your first home, or to sell your current home and move up to a new home! Don't miss out on this extended and expanded tax credit which is set to expire on June 30, 2010!!

      By Kenneth R. Harney
      December 4, 2009
      The Chicago Tribune

      If you're thinking about applying for the new $6,500 homebuyer federal tax credit or the extended $8,000 version, here's some news: The IRS has just issued its first formal guidelines for you.

      Tops on the agency's list of advice: Cool it for a couple of weeks. Even if you qualify for one of the credits, don't send in any requests to the IRS quite yet. Wait until later this month when the agency publishes its revised Form 5405 with all the key instructions needed to get you a check from the government.

      The forthcoming version of the form will incorporate the major changes to the tax credit program made by Congress in legislation signed by President Obama on Nov. 6. These include expanded income limits, a cap on home prices, additional documentation requirements and prohibitions against claims by dependents, among others.

      In a tax bulletin issued just before Thanksgiving, the IRS emphasized that all home purchasers after Nov. 6 "must use this new version (of Form 5405) to claim the credit." Put another way: If you send in the old version, which happens to be the one you can currently download from the agency's Web site, www.irs.gov, your request for the credit is likely to go nowhere.

      The legislation, known as the Worker, Homeownership and Business Assistance Act of 2009, extended the $8,000 first-time home purchaser credit until April 30, 2010, for signed contracts, and June 30, 2010, for closings. The law also created a new tax credit for people who've owned a principal residence for a consecutive five of the previous eight years, and who purchase a replacement principal residence with a signed contract no later than next April 30, followed by a closing no later than June 30.

      Qualified repeat buyers can obtain credits up to $6,500. For both the first-time and repeat buyer program, the credit is equal to 10 percent of the purchase price of the house, up to a maximum of either $6,500 or $8,000.

      The new IRS bulletin also outlined the agency's guidance on other important features of the amended credit program:

      --Members of the armed forces, plus diplomatic and intelligence personnel who are in service in foreign countries, will get an extra year to buy a principal residence and still qualify for a credit. They will have until April 30, 2011, to enter into a binding contract to purchase a house, and until June 30, 2011, to close on it.

      --Anyone who buys a house after Nov. 6 -- even those who had intended to get in the door before the previous Nov. 30 expiration date for the $8,000 credit -- will now need to comply with several new rules. First, the house cannot cost more than $800,000. Second, no one under the age of 18 can claim the credit, no matter what the circumstances. And finally, anyone who is counted as a dependent on another taxpayer's federal filings is ineligible for a home purchase tax credit.

      --The expanded income limits for purchasers after Nov. 6 range to $125,000 in "modified adjusted gross income" for single taxpayers, and to $225,000 for those who file jointly. Singles with incomes between $125,000 and $145,000 may be eligible for phased-down credit amounts, as are joint filers with incomes from $225,000 to $245,000. Anyone with an income above these amounts cannot qualify for either of the credits. Under the pre-Nov. 6 rules, by comparison, taxpayers applying for the $8,000 credit were limited to incomes of $75,000 (single filer) to $150,000 (joint filer).

      The IRS continues to offer detailed consumer information resources on the credits, including questions and answers on a variety of home purchase scenarios.

      For example, some taxpayers seeking the extended $8,000 credit are uncertain about co-purchase and co-signing situations, especially involving parents and adult children. When a homeowning parent co-signs for a mortgage with a son or daughter, and both names appear on the note, can the son or daughter qualify for the first-time purchaser credit?

      The IRS says the parent clearly does not qualify for any portion of the credit since he or she already owns a principal residence. But if the son or daughter has not owned a house during the three years preceding the current purchase, and qualifies on income, he or she can be allocated the entire $8,000 credit.

      Similarly, when unmarried individuals co-purchase a house, and only one of them is eligible for the credit, the full $8,000 can be allocated to the eligible buyer. The ineligible co-purchaser, in other words, does not spoil the deal -- as long as none of the credit goes to that person.

      The Washington Post Writers Group

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        Vacation Home 1031 Exchanges

        Section 1031 of the Internal Revenue Code ("IRC") permits owners of "like kind" properties to trade their holdings and, by doing so, to defer until a future date all or a portion of their capital gains tax obligations on the profits. Real estate held as an investment is considered to be "like kind" and qualifies for a 1031 exchange when traded for another piece of real estate held for investment. "Investment" in this case simply means that the main motive for ownership is the anticipated appreciation in value. A principal residence doesn't qualify for an exchange under Section 1031. As the terms are used in the discussion that follows, a "relinquished property" is one given up in an exchange, and a "replacement property" is one acquired in an exchange.

        Vacation Home Classifications

        The IRC defines a "vacation home" as a single dwelling unit in addition to the owner's principal residence, and further defines a "single dwelling unit" as one having sleeping, bathroom and cooking facilities. The owner of a vacation home may decide to occupy it exclusively or to rent it to other persons for all or a portion of a calendar year. Mortgage interest and property taxes are generally deductible. However, the IRC's requirements for reporting rental income and determining the deductibility of expenses for a given calendar year are based on the number of days the home is rented as compared to the number of days the owner occupies it for personal use. As a result, a vacation home can have one of three use classifications.

        Classification-1 Vacation Home.
        The IRC considers this to be a personal-use property. This is a home that's rented for 14 days or less during the tax year. The owner doesn't have to report the rental income, but cannot deduct any other expenses besides mortgage interest and property taxes.

        Classification-2 Vacation Home.
        The IRC considers this to be a mixed personal-use and rental-use property. This is a home that's rented for more than 14 days during the tax year, but also occupied by the owner for more than 14 days or 10% of rental days, whichever is greater. The owner must report the rental income and may deduct expenses, such as insurance and utilities, but only the portions that are allocated to rental-use days.

        Classification-3 Vacation Home.
        The IRC considers this to be a rental-use property. This is a home that's rented for more than 14 days during the tax year, and occupied by the owner for 14 or less days or 10% of rental days, whichever is greater. As with a Classification-2 Vacation Home, the owner must report the rental income and may deduct expenses, but once again only the portions that are allocated to rental-use days.

        Safe Harbor Exchange Procedure

        There's been a great deal of confusion as to whether a vacation home qualifies for a 1031 exchange, particularly when the owner has occasionally used the property for personal purposes. Is it an investment property because it was rented to others? If so, it should qualify. Is it a personal-use property because the owner occasionally occupied it? If so, it may not qualify. To clear up the confusion, the Internal Revenue Service (IRS) in March 2008 issued Revenue Procedure 2008-16 ("Procedure"), which establishes a "safe harbor" procedure under which a vacation home will be considered an "investment property" and, therefore, eligible for a 1031 exchange. The term, "safe harbor," simply means that the IRS won't challenge an exchange satisfying this Procedure, provided that it satisfies all other requirements for a like-kind exchange under Section 1031. The Procedure became effective for exchanges of vacation homes occurring on or after March 10, 2008. From the summary that follows, it's obvious that only Classification-3 Vacation Homes will qualify.

        Relinquished Property. A relinquished property qualifies as an investment property and is eligible for an exchange if:

        * The owner owned it for at least 24 months immediately prior to the exchange.
        * The owner has rented the property to another person or persons at fair value for 14 days or more during each of the two 12-month periods immediately prior to the exchange.
        * The owner's personal use of the property hasn't exceeded the greater of 14 days or 10% of rental days during each of the two 12-month periods immediately prior to the exchange.

        Replacement Property. The requirements for a replacement property are identical to those for the relinquished property. The replacement property qualifies if:

        * The owner owns it for at least 24 months immediately following the exchange.
        * The owner rents the property to another person or persons at fair value for 14 days or more in each of the two 12-month periods immediately following the exchange.
        * The owner's personal use of the property doesn't exceed the greater of 14 days or 10% of rental days in each of the two 12-month periods immediately following the exchange.

        This Blog is not intended to be legal or tax advice and readers of this Blog should consult their own lawyer or tax preparer for legal or tax advice, as applicable.

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          Michigan Taxable Value Increases

          Michigan's General Property Tax Act (GPTA) establishes a process for valuing properties for purposes of property tax assessments. A tax assessor must annually estimate a property's true cash value (TCV) and divide this number by two, the result of which is called the state equalized value (SEV); by law a property's SEV cannot exceed 50% of the property's TCV. At one time, the property tax was calculated on the SEV.

          In a special election held in 1994, Michigan citizens approved "Proposal A" to amend the Michigan Constitution. This amendment became effective in 1994 and applicable to all property assessments beginning in 1995. The amendment created a new term, "taxable value," on which the property tax is now calculated.

          As with the SEV, a property's taxable value cannot exceed 50% of the property's TCV. Further, if the property remains owned by the same owner, annual increases in taxable value are limited ("capped") to the percentage increase in the Consumer Price Index (CPI) or 5%, whichever percentage is less.

          There's a special qualification to the taxable value "cap" that permits additional taxation based on increases in value arising from "additions" when they're added to the land. When Proposal A was adopted, the GPTA defined "additions" as "all increases in value caused by new construction or a physical addition of equipment or furnishings . . . ." Curiously and despite the fact that Proposal A was a tax revolt, it amended the definition of "additions" to also include "public services," such as water, sewer, roads, natural gas, electricity, telephone, sidewalks and street lighting. In other words, the amendment allowed an assessor to now increase a property's taxable value to reflect the value added by these public services!

          Additionally, once the property is sold or transferred to a new owner, the cap is lifted and the taxable value is reset to the assessed value.

          If you want to see what your property taxes would be on a new purchase, you would divide the purchase price by 2 to come up with the SEV. You could then enter the SEV in the Michigan Department of Treasury Property Tax Estimiator. If you already own the property, you would enter the taxable value.

          This Blog is not intended to be legal or tax advice and readers of this Blog should consult their own lawyer or tax preparer for legal or tax advice, as applicable.

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            My Favorite Meatloaf

            This recipe is courtesy of Susan Amory who shared it with me and informed me that her mother is the Casserole Queen. You will see more recipes from Susan and her mother in the future.

            2 pounds of ground beef
            2 beaten eggs
            2 tablespoons ketchup
            1 cup V8 juice (Susan sometimes uses a bloody mary mix instead)
            1 clove garlic
            3/4 cup chopped celery (optional)
            1/2 cup chopped onion
            1 cup fine bread crumbs
            3/4 teaspoon salt

            Preheat oven to 350 degrees. Mix all of the ingredients together in a bowl. (Susan says that she uses her paws.) Form into a loaf and place into an ungreased 9 x 5 x 3 loaf pan. Bake for 1 hour and 15 minutes.

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              Universal Exclusion for Former Vacation Homes

              The Internal Revenue Code provides for an exclusion on the sale of a principal residence for an amount not to exceed $500,000, for which no federal income tax is due. The term "universal exclusion" refers to the $250,000 ($500,000 for married couples filing jointly) of profit that is excluded from federal taxation when a taxpayer sells a principal residence after:

              • Owning it for not less than 2 years; and
              • Occupying it as a principal residence for not less than 2 out of the 5 years prior to the resale; and
              • Providing the taxpayer hasn't claimed the exclusion on the sale of another residence within the 2 years prior to the resale.

              (Please note that all 3 requirements must be satisfied. [See worksheet.])

              Since many individuals often purchase vacation homes as an investment strategy for retirement, their long-term goal being to sell their current residence and take advantage of the universal exclusion, and then move into the vacation home and claim it as their principal residence. Prior to the enactment of Housing and Economic Recovery Act of 2008 ("HERA"), once they had met the ownership and occupancy requirements, they could resell the vacation home and again take advantage of the universal exclusion. This was a great strategy for converting real estate assets to cash and avoiding federal income taxes in the process. However, since the enactment of HERA, and specifically Section 3092 thereof, there is a new calculation to determine the amount of the universal exclusion that may be claimed for a vacation home that is purchased and later converted to a principal residence.

              Specifically, the amount of the exclusion is now limited to the fraction of profit created when dividing the number of years the home was used as a principal residence by the total number of years the property has been owned. Consider the following example:

              EXAMPLE: A married couple purchases a vacation home for $300,000. Ten years later, they sell their current principal residence, take advantage of the universal exclusion, and then make the vacation home their principal residence. Fifteen years after that, they resell the vacation home for $800,000. To summarize, this couple has owned the vacation home for 25 years, they've used it as their principal residence for 15 years, and they've realized a profit of $500,000 upon resale.

              Prior to HERA, this couple could have excluded the entire $500,000 of profit on this former vacation home. As a result of HERA, they may exclude from federal taxation only 15/25ths, or 60%, of the $500,000 profit. This means that $300,000 of the $500,000 profit is tax free, but the couple must pay capital gains taxes on the remaining $200,000.

              This new limitation applies to sales closing on or after January 1, 2009 and only to nonqualified use periods beginning on or after that date. In other words, when such a property is sold in the future, the periods of use as a vacation home or rental property that occurred before January 1, 2009 are treated as if the use was as a principal residence.

              This Blog is not intended to be legal or tax advice and readers of this Blog should consult their own lawyer or tax preparer for legal or tax advice, as applicable.

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                Poppycock

                This is a family recipe that my grandmother and her neighbor made at the holidays. As a child, I enjoyed it immensely and we called it poppycock, although it isn't exactly the same as what is labeled Poppycock® and sold in stores. I still enjoy it as an adult and making it for my family. You can form it into balls, clumps, bricks or any shape you wish. It is very easy to make and children can help in the mixing of the popcorn with the caramel coating and shaping it when it is finished baking. Enjoy!

                6 quarts popped popcorn
                1 cup butter
                2 cups brown sugar
                1/2 cup corn syrup
                1/2 teaspoon baking soda
                1 teaspoon vanilla extract
                2 cups almonds or peanuts or other nuts, of choice, optional

                In a medium saucepan melt the butter over medium heat. Add brown sugar & corn syrup and bring to a boil stirring occasionally. Let boil for 4 minutes without stirring. Remove from stove and add vanilla extract and baking soda.

                In a very large pan or bowl pour caramel syrup over popcorn (and nuts.) Stir quickly to coat all of the popcorn (and nuts.) Divide coated-popcorn mixture onto 2 ungreased cookies sheets and spread evenly. Bake at 250 degrees for 1 hour turning mixture every 15 minutes with a spatula. (This baking is what causes the caramel coating to become dark and shiny. You can bake if for a shorter period of time if you choose or if it starts to burn.)

                Cool slightly and either break apart or form into balls (the size of a small snowball.) Store when cooled completely in air tight bags or containers.

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                  Pumpkin Bread

                  This recipe was provided by Josh Westlund of The House Inspector Company. His family bakes it every year during the holidays.
                  3 ½ cups flour
                  1 ½ teaspoon salt
                  3 cups sugar
                  2 teaspoons baking soda
                  1 can (16 ounces) pumpkin puree
                  1 cup vegetable oil
                  4 eggs
                  ¾ cup water
                  1 teaspoon cinnamon
                  1 teaspoon nutmeg
                  ½ teaspoon ground ginger

                  Preheat oven to 350 degrees. Sift or mix flour, salt, sugar and baking soda together. Mix pumpkin, oil, eggs, water and spices together in a separate bowl and then combine with the dry ingredients. Do not mix thoroughly. Pour into two greased and floured bread pans. Bake loafs for 1 hour.

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                    First-time Homebuyer Tax Credit

                    As Fall has arrived and Winter will soon be upon us, I am reminded that the first-time homebuyer Federal tax credit will expire on 1 December 2009, so first-time homebuyers should be mindful of this date to ensure that they are closing on their purchase by no later than this date. There are also several other important facts regarding this credit:

                    • Applies to purchases that close after 8 April 2008, and before 1 December 2009.
                    • Applies only to homes used as an individual's principal residence.
                    • Reduces an individual's tax bill or increases his or her refund, dollar for dollar.
                    • Is fully refundable, meaning the credit will be paid out to eligible individuals, even if they owe no tax or the credit is more than the tax owed.

                    In order to claim the credit, a buyer must file Form 5405 along with his or her Federal income tax return.

                    What if you bought your home in 2008 but prior to 8 April 2008?
                    The Housing and Economic Recovery Act of 2008 established a tax credit (which is actually a no-interest loan to be repaid in 15 equal, annual installments beginning with the 2010 income tax year) for first-time homebuyers that is worth up to $7,500.

                    For 2009 Home Purchases

                    The American Recovery and Reinvestment Act of 2009 expanded the first-time homebuyer credit by increasing the credit amount to $8,000 for purchases that closed between 8 April 2008 and 1 December 2009, and the credit does not have to be paid back unless the home ceases to be the individual's principal residence within a three-year period following the closing. Currently, first-time homebuyers who purchase a home in 2009 can claim the credit on either an amended 2008 tax return, or a 2009 tax return, due April 15, 2010. In no event may the credit be claimed before the closing date of the purchase. IRS News release 2009-27 has more information on these options.

                    There are certain aspects of the tax credit, e.g., income limit restrictions, married filing joint vs. married filing separate status, and percentage ownership, which apply, so you should consult a tax professional for advice on your specific situation. An unmarried couple would qualify for the tax credit, however, the amount that each individual could claim would depend on the percentage ownership of the specific individual in the residence and that amount of the credit would be included on that specific individual's individual tax return.

                    So, rake the leaves in your lawn and the rake in the benefits that Uncle Sam is providing to you as a first-time homebuyer!

                    For more information on this topic, go to: http://www.irs.gov/newsroom/article/0,,id=187935,00.html

                    This Blog is not intended to be legal or tax advice and readers of this Blog should consult their own lawyer or tax preparer for legal or tax advice, as applicable.

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