Tuesday, September 28, 2010

Dispelling Another Internet Rumor

A rumor that is spreading rapidly on the Internet is that the Healthcare legislation that passed Congress earlier this year contains a provision to impose a 3.8 percent sales tax on homes sales. There is a hint of truth to the rumor, but for the most part it is untrue.

The tax being referred to is not a sales tax or a transfer tax, but a tax on certain capital gains, as described below. Some capital gains from the sale of a home could be caught up in the tax, but the rumor exagerates the impact. The vast majority of sales will not be impacted because of the capital gain exemption on a principal residence.

New Tax on Capital Income

Set to take effect in 2013, a tax increase on income from capital gains will affect some real estate investments. However, it will have a negligible impact on sellers of principal residences.

The new 3.8% Medicare tax on so-called unearned income will affect high-income taxpayers who report taxable income due to capital gains and other non-wage income. It will not affect income that is currently tax-exempt, including most capital gains like income resulting from the sale of a principal residence, the result of the $250,000/$500,000 gain exclusion rules. Taxpayers with less than $250,000 in income will not be impacted by the new tax.

Under prior law, Social Security and Medicare benefits are financed by payroll taxes on wages. The tax is equal to 12.4% of covered wages up to a maximum amount of $106,800 in 2010, with half paid by the employer and half paid by the employee; and 2.9% of covered wages uncapped, again with half paid by the employer and half paid by the employee. Self-employed individuals — including independent contractors — generally pay both the employee and employer parts of the tax. Unearned income (e.g. rents, dividends, interest and capital gains) were not subject to these taxes.

As a result of the Patient Protection and Affordable Care Act of 2010, this system is changing. Under revised law, the Medicare tax will increase for taxpayers earning more than $250,000 (if married) or $200,000 (if single). In particular, the individual’s Medicare portion of the tax — which was previously 1.45% or half of the 2.9% — increases to 3.8%, but only for certain income amounts. The rate of 3.8% applies to the smaller of: (1) the amount of income above $250,000/$200,000 of modified adjusted gross income; or (2) net investment income. The tax also applies to self-employed individuals.

Net investment income is the sum of income from interest, dividends, annuities, royalties, rents and capital gain — except income derived from active participation in a trade or business, including sole proprietorships, partnerships and S Corporations.

As noted earlier, tax-exempt unearned income (excluded gain from the sale of a principal residence or interest income allocatable to a tax-exempt bond) is not subject to this new tax.

Here are two examples:
  • A couple with wage income of $260,000 and $9,000 in capital gains will pay the extra 3.8% tax on the smaller of $19,000 (the difference between $269,000 and $250,000) and $9,000. $9,000 is smaller, so the increased tax is equal to $342 ($9,000 times 3.8%)
  • A couple with wage income of $50,000 and gains income of $210,000 will pay the extra 3.8% tax on the smaller of $10,000 (the difference between $260,000 and $250,000) and $210,000. $10,000 is smaller, so the increased tax is equal to $380 ($10,000 times 3.8%).

Monday, September 27, 2010

Realtors publish 10 reasons why now is the time to buy a home

Among the reasons why now is a great time to buy a home? Home prices are lower and mortgage rates are low.

Read the entire report by clicking here.

Greenville has highest average credit score in South Carolina

Experian, one of the big three credit rating agencies, has published average credit scores for all of the major metropolitan areas in the country, and has ranked the top and bottom ten markets.

In Greenville, according to Experian, the average credit score is 740, the highest in the state. The other cities in South Carolina rated by Experian were:
  • Charleston, 729
  • Columbia, 716
  • Myrtle Beach, 709
Nationally, the cities with the highest average credit scores:
  • Minneapolis, 787
  • Madison, Wis., 785
  • Cedar Rapids, Iowa, 781
  • Green Bay, Wis., 780
  • San Francisco, 780
  • Boston, 779
  • Peoria, Ill., 778
  • La Crosse, Wis, 778
  • Seattle, Wash., 777
  • Sioux Falls, S.D., 777
Nationally, the cities with the lowest average credit scores:
  • Harlingen, Texas, 684
  • Jackson, Miss., 698
  • Corpus, Christi, Texas, 700
  • Shreveport, La., 701
  • El Paso, Texas, 706
  • Monroe, La., 706
  • Las Vegas, Nev., 707
  • Bakersfield, Calif., 708
  • Myrtle Beach, S.C., 709
  • Tyler, Texas, 709
Read the entire report and explore the credit ratings of other cities by clicking here.

Study indicates South Carolina will gain one seat in Congress after census

The reason our Federal government conducts a census every 10 years is to determine the division of our representatives in Congress among the states. This fact often gets lost in all the hype about the Census. After the Census is completed, Congress reallocates the available seats in the U.S. House of Representatives (435). This happens in time for the General Elections two years after the Census year.

A study by Election Data Services indicates that South Carolina will gain one seat in the U.S. House of Representatives in beginning in 2012. EDS estimates that six states will gain one seat in Congress and one state, Florida, will gain two. Arizona, Georgia, Nevada, Utah, and Washington are the states in addition to South Carolina expected to pick up one seat in Congress.

When states gain a seat in Congress, that means other states lose seats. Eight states are expected to lose one seat each in Congress: Illinois, Iowa, Louisiana, Massachusetts, Michigan, Missouri, New Jersey, and Pennsylvania.

Once Congress reallocates seats in Congress, if South Carolina gains a seat, the South Carolina General Assembly will reapportion the state and draw new lines for its Congressional Districts.

Read a complete report on the EDS Study by clicking here.

Poll Finds Voters Overwhelmingly Opposed Changing Mortgage Interest Deduction

Americans overwhelmingly oppose any action by Congress to tamper with the mortgage interest deduction, according to a new nationwide survey of likely voters commissioned by the National Association of Home Builders (NAHB). Nearly 80 percent support retaining federal tax incentives to promote homeownership, which have been in the tax code since the introduction of federal income taxes in 1913.

"These poll results show strong national voter support for keeping the mortgage interest deduction that cuts across gender, age, partisan, ideological, educational and regional lines," said Neil Newhouse, partner at Public Opinion Strategies, which conducted the survey. "Clearly, voters have a very strong connection to the home mortgage interest deduction and are not likely to respond well to efforts to reduce or eliminate it. In fact, voters overwhelmingly say they would be less likely to vote for a candidate for Congress who supported either eliminating or reducing the home mortgage interest deduction."

On the issue of tax reform, U.S. voters remain unwavering in their support of the mortgage interest deduction. When asked to rate the importance of preserving tax deductions in the current tax code, an overwhelming number, 81 percent, said it's important to keep the deduction of mortgage interest on a primary home, ranking it in a virtual tie with medical expenses (82 percent).

In addition, more than three-quarters of respondents (76 percent) cited the importance of keeping the deduction for state and local taxes, including property taxes. Furthermore, those renting their current homes also placed a high priority on preserving the mortgage interest deduction. In ranking the importance of current tax deductions, renters said this provision came in second at 71 percent, behind the deduction for medical expenses.

Public Opinion Strategies conducted the survey Sept. 9 through 12 to assess the public's attitude toward the mortgage interest deduction and the importance of homeownership.

"As the midterm elections draw near, voters are sending a resounding message to Congress and the Administration: Don't meddle with the mortgage interest deduction or other tax incentives that support homeownership," said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. "Voters strongly oppose any action to curtail or eliminate the mortgage interest deduction, even when they hear an argument that eliminating the deduction would help reduce the federal deficit."