Ask the Realtor - New-Healthcare-Bill-Comes-with-Real-Estate-Sales-Tax

Jim E. Flynn
"Experience
& Integrity"

Ask The Realtor

As printed in the OC Register / Saddleback Valley News

Written by Jim E. Flynn, Century 21 Beachside Realtors, Lake Mission Viejo

May 21, 2010

New Healthcare Bill Comes with Real Estate Sales Tax

Q. Pat from Mission Viejo and Bill and Sally from Lake Forest asked: Jim, under the new health care bill - did you know that all Real Estate transactions are subject to a 3.8% Sales Tax? If you sell your $400,000 home, this will be a $15,200 tax.

A. Thanks Pat, Bill and Sally. Certainly that projected 3.8% imposed tax effective Jan.1 of 2013 will be tackled by the N.A.R. (National Association of Realtors) over the next 3 years. For now, we will just need to watch and wait. According to Paul Spring, President Exchange Resources, Inc, if, the additional tax of 3.8% does become effective in 2013 it will also be imposed on certain investment income which will bring the new capital gain rate to 23.8% for certain taxpayers.

Q. Dolores from Las Vegas emailed and asked: We have 2 sons ready to enroll in college in the Saddleback Valley area and are wondering if we took a lease for more than a year would the monthly price be negotiable?

A. Rental price negotiations in this market are usually not too negotiable Dolores, since rental prices are already adjusted to the market competition and many are lower than they have been the last couple of years. Occasionally, if a property has been on the market for longer than usual the Landlord may be willing to consider a 3% to 5% reduction if, the prospective tenant has a good credit history and submits a short Bio letter with their offer.

Some Landlords would be please to have you sign a lease for more than 12 months. Others simply just want to experience your payment history and market conditions the first 12 months before renewing the lease for another period of time. Home owner association costs to the landlord come out of the lease/rent and the benefits are transferred to the Tenant. So, if the Association cost increase by no more then 3% and the landlord must absorb the increase until the lease term period was completed.

Landlord cost are higher in some communities also. For example, HOA monthly dues for a lake front complex in Mission Viejo are $413 per month. The complex is a 24-hour gated community and has a private community beach. A rental in this community for $2,000 less HOA costs paid by the landlord then leaves $1,587.

From that $1,587 amount the landlord must pay Lake assoc. dues of approximately $21 per month property taxes; approximately $300, monthly rental Insurance, aprox. $85. The landlords revised net is possibly $1,181 from a $2,000 a month rental. So most Landlords would not be able to cover a mortgage payment without having a negative cash flow.

Probably a bit different than in the Las Vegas Market.

Q. Bill from Mission Viejo asked: I have heard that the capital gains tax will be increasing to 20 % at the end of the year. Is that correct?

A. Yes that is true Bill. for long term capital gains. The capital gain reduction that went into effect in 2003 under the Tax Increase Prevention and Reconciliation Act will sunset on January 1, 2011. The tax rate for long-term capital gains will revert from the current 15% back to the former 20% tax rate.

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