Capital Gains Exceptions Finalized

The Internal Revenue Service issued final rules recently that could reduce capital gains taxes for some homeowners including those in Tulsa, Jenks and Broken Arrow !!! Current rules allow taxpayers to exclude $250,000 in gains for single sellers and $500,000 for married sellers if they have met certain criteria.

Ann vom Eigen, Legislative and Regulatory Counsel for the American Land and Title Association (www.alta.org), reports on her group's web site, "The IRS has finalized rules for the treatment of taxpayers who do not qualify for the maximum exclusion of capital gains on home sales because they have not owned and used their property as their principal residence for two of the past five years, or have taken an exclusion within the preceding two years. The rules significantly expand the situations under which capital gains exclusions may be taken."

In essence, if a Tulsa homeowner found it necessary to move before the two year period, then he or she would owe capital gains taxes on gain under the two floor amounts ($250,000/$500,000).

There have always been exemptions under the code to allow for at least some exemption from taxation if the homeowner had extenuating circumstances, such as a change in place of employment, health or unforeseen circumstances. Under the final rules, "safe harbors" are established for taxpayers to qualify for these exclusions of capital gains taxes.

Unforeseen circumstances have been the most confusing section of the rules, though they point out that the IRS is not heartless when it comes to taxes and hard times. What determined unforeseen circumstances seemed to be considered on a case-by-case basis in the past. Now, the IRS has named an unforeseen circumstance as "an event that the taxpayer could not reasonably have anticipated." In addition, the unforeseen circumstance could affect someone in the household other than the taxpayer, such as the taxpayer's spouse or other dependent who lives in the house.

Safe harbors under the unforeseen section include, but are not limited to:

· A natural or man-made disaster or act of war or terrorism resulting in a casualty to the residence. Death.

· The cessation of employment as a result of which the individual is eligible for unemployment compensation.

· A change in employment or self-employment status that results in the taxpayer's inability to pay housing costs and reasonable basic living expenses for the taxpayer's household.

· Divorce or legal separation under a decree of divorce or separate maintenance; and

· Multiple births resulting from the same pregnancy.

If you find yourself in an "unforeseen circumstance" situation, then you may be in luck, as it were, for your hardship. It means you may be able to pay less taxes or be exempt from taxes altogether. The tax would be calculated based on how long you had lived in the property, among other criteria. Check with your accountant to be sure and you can use the online capital gains calculators below to get started.

Members of the military also receive some final rules on the length of stay test. ATLA also reported that under the military exception, "A taxpayer serving, (or whose spouse is serving) on qualified official extended duty as a member of the uniformed services or Foreign Service may elect to suspend the running of the 5 year period for up to 10 years. The exception for members of the Foreign Service and the military is retroactive to May 7, 1997."

Credit Report Errors Common, Costly

Here's a compelling reason to keep closer tabs on your Tulsa credit report -- 79 percent of credit reports examined in a recent survey contained either serious errors or other mistakes of some kind.

What's more, there's a one-in-four chance your credit report contains an error serious enough to cause you to be denied credit, according to "Mistakes Do Happen: A Look at Errors in Consumer Credit Reports," a recent report by public issues watchdog U.S. Public Interest Research Group (USPRIG).

Errors can cost you in the form of higher financing costs and, while errors can be corrected, by the time they are, interest rates and home prices could have risen. That can cost you still more or put a home out of your financial reach.

Tulsa mortgage interest rates, for example, have risen almost a full percentage point since March this year.

On a $500,000 mortgage, with a fixed interest rate of 5.38 percent (this year's average low point on March 18, according to Freddie Mac) your monthly principal and interest would have been $2,801.41.

Compare that to financing the same mortgage with the June 17, 6.32 fixed interest rate (this year's high mark thus far) -- $3,101.39.

Higher home prices compound the financial impact of a delayed purchase. Median home prices in Silicon Valley, for example, rose nearly $60,000 in a single month earlier this year.

USPRIG collected 200 surveys from adults in 30 states and reviewed their credit reports for accuracy.

USPRIG found:

· Eight percent of the credit reports were missing major credit, loan, mortgage, or other consumer accounts that demonstrate the creditworthiness of the consumer.

· Twenty-two percent listed the same mortgage or loan twice.

· Twenty-five percent of the credit reports contained errors serious enough to result in the denial of credit.

· Thirty percent of the credit reports contained credit accounts that had been closed by the consumer but incorrectly remained listed as open.

· Fifty-four percent of the credit reports contained personal demographic identifying information that was misspelled, long-outdated, belonged to a stranger, or was otherwise incorrect. 

· Seventy-nine percent of the credit reports contained mistakes of some kind.

Credit reports -- generated by the big three credit bureaus, Equifax, Experian and Trans Union -- are a compilation of your creditworthiness based on information collected from banks, creditors, public records and other sources. A financial resume, the reports also contain a sort of financial SAT or credit score that is a numerical representation of the likelihood that you will default on a loan.

You have a right to examine your Tulsa credit report and your credit score and you should exercise that right every year -- more often when you plan to apply for credit for a large purchase, including a home loan, second mortgage or refinance loan.

In December 2003, Congress passed the Fair and Accurate Credit Transactions Act (FACT Act), which included the right to a free credit report every 12 months and a number of provisions designed to improve the accuracy of credit reports.

Your ability to exercise your right to a free credit report rolls out over a nine-month period beginning on the West Coast in December this year and finishing on the East Coast in September 2005.

You may not want to wait for the free report and pay the $10 or so now to obtain your report, especially if you are in the borrowing mode.

"It is outrageous that inaccurate credit reports could damage one-in-four consumer's ability to buy a home, rent an apartment, obtain credit, open a bank account, or even get a job," said Ed Mierzwinski, USPIRG Consumer Program Director.

Buying? Consider Insurance Implications

With the Tulsa home-buying season in full gear, would-be buyers are getting pre-approved for mortgages, researching school districts, and looking at houses. But one thing that should be added to the to-do list is considering the insurance implications of buying a specific house.

Home sales so far this year have been strong, and experts expect a robust pace to continue this year.

Existing single-family home sales rose strongly in March to the second-highest level on record, according to the National Association of Realtors.

Existing-home sales increased 5.7 percent to a seasonally adjusted annual rate of 6.48 million units in March from an upwardly revised pace of 6.13 million units in February. March's sales activity was 12.7 percent above the 5.75-million unit level in March 2003; the record is 6.68 million in September 2003.

"Although interest rates are rising modestly, an improving job market is creating a favorable backdrop for home sales, but at a somewhat slower pace in the months ahead," said David Lereah, NAR's chief economist.

When consumers are house hunting in Tulsa, the Insurance Information Institute (III) recommends keeping insurance issues at the forefront of their buying decisions.

"In the frenzied excitement of buying a Tulsa home, it is important that consumers ask a number of key questions about securing financial protection for their most valuable asset," said Jeanne M. Salvatore, vice president, consumer affairs at the III.

For example, if the house you're eyeing is located in a flood zone, you'll need a separate flood insurance policy, which you'll need to budget a few hundred extra dollars for.

The III says you should also get a copy of the house's claim loss history, which comes in the form of a CLUE report from Mortgage Fraud or an A-plus report from the Insurance Services Office.

"Getting a copy of a home's loss history provides powerful information to a potential buyer," said Salvatore. "These reports provide information on the number and types of homeowner insurance claims filed by the home's owner going back five years."

If the house had water claims, that would be a red flag -- problems that should be remedied before you buy the house. Conversely, you can also pick up reassurances about the house you're eyeing, Salvatore said. For example, if there were significant wind damage that required roof replacement, you'd be pleased to know you have a new roof.

The III says some of the factors that will influence your insurance include the house location, the type of construction, and its condition. You should also consider:

· How old the Tulsa house is. Older homes tend to have features -- plaster walls, ceiling moldings and wooden floors -- that are more expensive to replace and may ultimately raise the price of your insurance.

· Plumbing, heating and electrical. The older the systems, the more likely fire or water damage will occur. If recent upgrades have been made, it will be easier to get insurance.

· Quality and closeness of fire department. Your insurance premiums will typically be lower if you live near a fire department with a top rating that staffs firefighters full-time.

· Disaster-resistance. If the house is built with products that stand up to disasters -- like hail-resistant roofs and windstorm shutters -- it could cost you less to insure.

· Location. You always hear location is key in Tulsa, Jenks, Broken Arrow, Bixby real estate. It's also important in determining your insurance premium. It could cost you more if you live near the coast or a river or in a dense, wildfire area. If you live in an earthquake-prone area, it will mean getting a separate policy, as is the case with flooding.