- 1031 Exchanges
- Consumer Protection Financial Bureau
- Senior Housing Issues
- Homestead Exemption
- Mortgage Interest Deduction
- National Association of Realtors
- Flood Insurance
- Payroll Tax
The 1031 Exchange was added to our tax code in the 1920’s. It is not a loophole in the system. We need to protect against federal reform that is seeking to eliminate or diminish the value of the 1031 Exchange. To reduce or do away with the 1031 Exchange would result in longer periods of time (holding time) for investors. Without the 1031 Exchange, people may choose not to swap properties, which will lead to a slowdown in the national housing market.
A simple example of the 1031 Exchange – An investor owns a duplex he purchased for $200K. He sells the duplex for $300K and purchases two homes for $300K with the proceeds from his sell. Using the current 1031 Exchange, he would not pay capital gains on the $100K profit because he used it in the exchange. If he had to pay capital gains on that $100K, he would lose buying power and therefore would be left with no incentive to do the transaction.
Shannon supports emailing Congress to say NO to eliminating the 1031 Exchange. If you would like to join her, the website is www.ipx1031.com/action. Just enter your zip code and click submit. Enter your information and click submit again. Then click send letter.
Below are two videos about the 1031 Exchange. They show how Realtors can help investors use the program and explain why we need to protect it.
CFPB (Consumer Protection Financial Bureau) is the biggest change in real estate sales since 1975 and it’s COMING SOON on August 1, 2015. All agents will need to be prepared for it. It will be industry changing.
Shannon supports this change. Consumers should have always received their HUD 1 information before the day of closing. Shannon recommends you take as many classes as you can on the new changes before they go into effect on August 1st. She recently took a class that was sponsored by WCR Great West on May 6th.
This is going to be a painful, but much needed change in the industry. Don’t fight it – it’s here and we need to embrace it. Shannon encourages all of the major brokerage systems (for example – Back Agent) to put calendar time lines in place that match the new time lines on a CFPB transaction. Also, start now preparing your buyer and seller clients for the changes in time frames because by the time they find a house, they may fall under these new guidelines.
CFPB is focused on protecting buyers in the real estate transaction and I like some of the new documents and procedures. However, the seller is also a consumer and needs to be protected. I don’t think these new changes took into account that the seller is a consumer and needs to be protected as well.
The Houston Association of Realtors is asking our representatives to sign a letter that requests a delay in beginning these new changes. Currently the changes go into effect on August 1st, the peak of Realtor selling season. It would be much better to implement these changes on January 1st, when there are fewer real estate transactions taking place.
We have a growing senior population in the United States and the real estate community must be equip to handle their housing needs. Builders and remodelers must adapt housing to meet their growing demands.
Shannon studied housing issues at the University of Georgia where she received her undergraduate degree. She went on a two week housing tour of Washington, D.C. and learned about the complex needs of Senior housing while visiting the world headquarters of AARP, the Housing and Urban Development Offices, and the Manufactured Housing Institute.
Shannon believes the SRES designation is important for Realtors working with the Senior Population.
Below is a video about implementing ADA requirements for handicapped people in their homes. These same aids that help the disabled also help the elderly population.
Homeowner’s get a tax break from property taxes on their principal residence with a homestead exemption. Homeowners must apply for it and can only do so on their primary residence. A homestead exemption removes part of your home’s value from taxation, so it lowers your taxes.
A simple example of the Homestead Exemption – Your home appraises for $100K and you qualify for a $15K exemption (amount mandated for school districts.) You will pay school taxes on the home as if it was worth only $85K.
Shannon supports increasing the homestead exemption. Appraisal values have increased so much, that the exemption percentage should be increased to be a real tax benefit. Doing away with this benefit would discourage many renters from purchasing a home.
Every January Shannon encourages all of her buyers from the past year to file for their homestead exemption. She has also spoken with Mike Sullivan, the Harris County Tax Assessor Collector, on her radio show about how to file for the exemption so that homeowners throughout Houston are reminded to file for it.
Without a national mortgage interest deduction from our federal taxes, there are fewer reasons for someone to stop renting and purchase a home. The mortgage interest deduction is one way people defer risk on a property purchase, because they know they can deduct the interest from their taxes. If you take this away, you remove an incentive for a renter to purchase. When you remove that buyer from the market, it has a trickle down effect. For example, if a renter decides not to be a first time home buyer because they won’t get the mortgage interested deduction, now the move up buyer has no one to sell to. The consequence of getting rid of this deduction is that it will slow down the real estate market.
Shannon fully supports keeping the mortgage interest deduction on our taxes.
The National Association of REALTORS® is the largest trade association in the U.S. NAR advocates every day on behalf of the nation’s 1 million REALTORS® and 75 million property owners. NAR is widely considered one of the most effective advocacy organizations in the country. Shannon is currently applying to be on a committee at NAR and is attending the yearly conferences that NAR has around the country.
Flood Insurance is a government program that subsidizes homeowners making it affordable for them to mitigate their risk against flooding. The program isn’t sustainable as a commercial product, as evidenced by the $24 Billion deficit. This is however, good for homeowners, Realtors, and Builders in Texas and other gulf coast states because it allows for the purchase of insurance on flood plain homes and allows homeowners to mitigate losses in the event of catastrophic flooding. It is probably not good for our country that is $16 Trillion in debt, or for interior states that don’t have flooding issues. But for us in Texas, it’s a good deal and protects a lot of homeowners.
In 1968, Congress created the National Flood Insurance Program (NFIP) to help provide a means for property owners to financially protect themselves from floods. The NFIP offers flood insurance to homeowners, renters and business owners if their community participates in the NFIP. Participating communities agree to adopt and enforce ordinances that meet or exceed FEMA requirements to reduce the risk of flooding because FEMA administers the NFIP.
Since the NFIP’s inception, the program has been losing money. The NFIP has been government subsidized because it is not actuarially sound and the program is not self-sustaining. The NFIP has been in debt around $24 Billion.
It’s a good thing we have government backed flood insurance because private insurers would not offer coverage to some homeowners without the backing of the government. After Hurricane Katrina, the NFIP took a huge hit. To alleviate a financial strain, Congress overhauled the program with the Biggert Waters Act that was passed in 2012. That law was supposed to bring more money into the flood insurance program by eliminating subsidies for flood insurance and homeowners would pay premiums that reflected the real risk of having them incur flood losses. So, all those people that have been receiving subsidies had to start paying a lot more on their flood insurance premiums. Many of those policyholders live in Texas and have seen increases in their flood insurance policies.
For many homeowners, this was not a slight increase in flood insurance premiums, but was thousands of dollars difference in their annual premiums.
Some policyholders won’t see a change in their policy until their sell, their policy lapses, or they change their policy. Any changes can cause the subsidies that homeowners have received in the past, to go away.
High policy prices could lead people to choose not to purchase flood insurance. That is not acceptable in Texas where we have hurricanes that destroy entire cities.
Shannon believes that high flood insurance rates are making some properties unsellable and that legislation should allow government subsidies to gradually be removed instead of all at once. We do not want flood insurance to be a barrier for homeowners to purchase properties in Texas.
Also, many policyholders across the state are confused by what is happening and Shannon feels that new legislation should be enacted to make changes more clear and understandable. Also, flood maps should continue to be updated for better accuracy.
There are websites of advocacy groups that connect policyholders with the information they need to better understand the program and changes. They are below.
Read More Information – http://www.Floodsmart.gov
Order Flood Maps – http://www.floodsource.com
Frequently Asked Questions – http://www.fema.gov/frequently-asked-questions
More Information – http://www.fema.gov/media-library/assets/documents/104126
The Zillow-Trulia merger has been the most controversial discussion in real estate this year.
Zillow adds no value to the real estate transaction process. They utilize Realtor data to intercept the customer to lead capture and sell that lead back to the Realtor. They are a media company only, but many consumers do not realize that. They inject themselves into our transactions.
Zillow does not create their own data; they use Realtor’s data. The Zillow issue is not about creating a free flow of information. The information on their site is many times inaccurate and outdated information. Our Realtor Associations have the most accurate data, not this media company. Our National Association of Realtors has a vested interest in the success, education, and professionalism of our industry and is in the best position to distribute our data. The hyper local nature of real estate, the complexities of the laws, makes this a business that should, in the best interest of the client, resist commoditization.
Shannon believes that Zillow is a large public company single handedly trying to change the industry for the worse. Our association has to do everything in it’s power to resist Zillow’s attempted takeover of our industry.
As licensed real estate professionals, acting under normal circumstances for helping clients buy and sell real estate, we (nor the broker or brokerage owner) are not subject to payroll taxes or unemployment taxes. Both Federal and Texas State Law consider us independent contractors. We are only required to pay our own taxes directly to the IRS.
Jerrold J. Stern published an article in the Tierra Grande Magazine outlining this issue for the industry. He is a research fellow with the Real Estate Center at Texas A&M University. His article explained the following.
Federal Tax Law determines whether we are independent contractors or not and that is determined by how much control our brokerage or broker has over us. For example, do they set your schedule? Does your employer require you to clean the bathrooms or work the front desk?
The Texas Unemployment Compensation Act and the Texas Law Manual state that real estate brokers and real estate sales people aren’t employees. So their employers aren’t subject to Texas Unemployment taxes. However, in 2013 in Massachusetts, their State Supreme Judicial Court had a case that looked into whether real estate professionals are really independent contractors or employees that require their employers to pay payroll taxes and unemployment taxes.
In Texas, Brokers are now required to have a manual for all independent real estate agents to follow. It is Trec mandated. Will that call into question whether or not Realtors are independent contractors?
Shannon has consulted with accountants and attorneys on this issue and believes this could eventually become an issue in our state of Texas. She would work hard to protect brokerage and brokers from this type of taxation should it be called into question.