Wednesday, December 14, 2011

Lending and Gifting Between Family Members

Do I have to pay tax for receiving or giving gifts?
The donor of the gift is liable for gift tax if the value of the gift is greater than the annual exclusion of $13,000.00.  The donor may gift $13,000.00 each to his or her son, daughter, nephew, grandchild, and next door neighbor tax free.  Husband and wife, as donors, may collectively gift double the amount, $26,000.00, to each respective donee tax free.

Thursday, August 18, 2011

The $5 Million Exemption

On December 17, 2010, President Obama signed a bill raising the exemption from federal gift tax to $5 million.  As a married couple, each is entitled to such an exemption, bringing the total assets that a couple is able to transfer as a gift, tax-free, to up to $10 million.  Gifts beyond such exemption are subject to a federal tax up to 35%.  This new law is in effect for the year 2011 and 2012 and is set to expire at the end of 2012.  If Congress takes no action to extend or change the laws, the lifetime gift tax exemption will revert to $1 million and the top tax rate will go up to 55% beginning 2013.  The new bill unifies both the exemption from gift tax and estate tax for asset transfers to $5 million, once again befitting of the term "unified credit".

Tuesday, July 26, 2011

No Federal Capital Gains Tax?

For the years 2008 through 2012, the federal long term capital gains tax rate is 0% if you belong in the income tax bracket of 10% or 15%. Those who are in the 25% income tax bracket or higher are still subject to a 15% long term capital gains tax rate. You are in the income tax bracket of 10% or 15% if you have a taxable income of $67,900.00 or less if you are married filing jointly, or a taxable income of $33,950 or less if you are filing single. Taxable income is not the adjusted gross income ("AGI"), but the income after accounting for standard or itemized deductions and the number of exemptions for your household usually found on the second page of the IRS form 1040. Going forward from year 2013, the long term capital gains tax rate is 10% for taxpayers in the 10% or 15% income tax bracket, and 20% for taxpayers in the 25% or higher income tax bracket.

Tuesday, July 12, 2011

Sellers in a Short Sale

For a brief explanation of a short sale, see the post on Purchasers in a Short Sale here.  As mentioned in that post, a short sale involves a sale of the seller's home which the proceeds of the sale will be insufficient to pay off the entire outstanding balance of the seller's home loan.  The seller's mortgage holder accepts this short payoff to enable the sale of the house and removes its mortgage lien on the house.  A short sale is an attractive option to both the seller and the seller's lender because it avoids foreclosure.

The seller should know, however, that even though the mortgage holder may agree to a short sale of the seller's home, the the mortgage holder has the right to pursue the seller for the deficiency amount unpaid on the outstanding mortgage loan after short sale proceeds have been applied.  For example, the short sale of the seller's home brought about the sum of $300,000.00 to be applied to the seller's mortgage debt.  Seller's mortgage debt is an outstanding balance of $400,000.00.  That means the seller's bank has the right to sue or collect, from the seller, the remaining balance of $100,000.00.  This is because even though the bank may agree to release its lien on the house, the seller is still personally liable to the bank for the loan.  When obtaining a mortgage loan, the seller signs two important documents among hundreds.  The first is the note, which makes the seller personally liable to the bank for the loan.  The second is the mortgage instrument, which gives the bank security, for the loan given to the seller, by holding the seller's property as collateral.  As part of a seller's short sale transaction and as one of the most crucial elements to the seller in this kind of a deal, the seller's attorney should be ensuring that the seller's bank agrees to forgive the remaining balance of the debt of the seller, or that the seller is released from any further obligation on the mortgage loan, or that seller's bank waives and forgoes its rights against the seller for the remaining balance of the loan.

Thursday, July 7, 2011

Purchasers in a Short Sale

You find a house in a neighborhood that you love.  The price is reasonable, although you will probably have to put in new carpet or floors to replace the ones that look like they haven't been replaced for thirty years.  Just down the block, you find a similar house in better condition.  The best part is that it is asking for $50,000.00 less. You get to save money and there is no major work to be done.  Sounds great.  But the catch is that this one is a short sale.  Is a short sale for you? It depends.

Tuesday, June 28, 2011

Do I Lose Everything If I File Bankruptcy?

There are a combination of state and federal laws that protect you so that even if you owe a hundred times more debt than what you have in assets, you will not lose everything that you have and walk away penniless when you file bankruptcy to discharge your debt. The property exemption laws ensure that you get to keep some of your property so that you can continue to live. So what property is shielded from the reach of creditors? Here is a partial list of what is protected from creditors in the State of New York:

Tuesday, June 21, 2011

Who Pays What Tax When You Buy or Sell Your Home?

Depending on whether you purchase or sell your home or other property that you own, you may be responsible for New York State and New York City transfer taxes on the price of the property being sold.  Generally, the seller is responsible for both state and city transfer taxes in a sales transaction.  However, this responsibility can be passed on to the purchaser in a contract of sale or other agreement.  For example, generally, when buying into a  new condominium development, the developer will pass the burden of paying the transfer taxes onto the purchaser.  That means the purchaser should consider the amount of additional closing costs they will be paying, in the form of state and city transfer taxes, when buying into a new condominium development.  However, in a buyer's market, where real estate sales are not so frenzied, the developer may concede to bearing the burden of paying these transfer taxes or maybe half the taxes.  So how much are these transfer taxes? You can see some of the rates below.  And if you are planning to take a mortgage loan for your purchase, you will also be responsible for mortgage tax on the loan amount that you will be borrowing, as part of the closing costs that you will be incurring in your purchase.  See here for information on mortgage tax.

Tuesday, June 14, 2011

Mortgage Tax

New York City
Residential
For a loan amount less than $500,000.00, the rate is 2.05%.
The borrower pays 1.80% of the loan amount minus $30.00 if the property is a 1-2 family and the loan is $10,000.00 or more.  The lender pays .25% of the loan amount if the property is a 1-6 family.

For a loan amount of $500,000.00 or more, the rate is 2.175%.
The borrower pays 1.925% of the loan amount minus $30.00 if the property is a 1-2 family and the loan is $10,000.00 or more.  The lender pays .25% of the loan amount if the property is a 1-6 family.

Commercial
Properties that are not 1, 2, 3 family buildings or condos.
For a loan amount less than $500,000.00, the rate is 2.05%.  The borrower pays the entire amount.
For a loan amount of $500,000.00 or more, the rate is 2.80%.  The borrower pays the entire amount.


Westchester County except for Yonkers
Residential, the rate is 1.30%.
The borrower pays 1.05% of the loan amount minus $30.00 if the property is a 1-2 family and the loan amount is $10,000.00 or more.  The lender pays .25% of the loan amount if the property is a 1-6 family.

Commercial, the rate is 1.30%.  The borrower pays the entire amount.