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Capital Gains Tax and Health Reform Act

I. IntroductionThe Taxpayer Relief Act of 1997 (the “1997 Act”) and the IRS Restructuring and Reform Act of 1998 (the “1998 Act”) provide for an exclusion from income for certain amounts of gain from the sale of a principal residence. The Mortgage Forgiveness Debt Relief Act of 2007 (the “2007 Act”) provides clarification regarding certain capital gains issues as well.The Jobs and Growth Tax Relief Reconciliation Act of 2003 (the “2003 Act”) also made important changes to the federal taxation laws including, among other matters, lower capital gains tax rates, acceleration of a reduction in tax rates, increased child tax credits and a reduction in the so-called marriage penalty. Sunset provisions in the 2003 Act were extended by the Tax Increase Prevention and Reconciliation Act of 2005 (the “2005 Act”).With passage of H.R. 3221, the Housing and Economic Recovery Act of 2008, further changes were made to capital gains exclusions for a principal residence that wasn’t used as a principal residence part of the time of ownership.This legal article discusses portions of all of these laws having an impact on capital gains treatment for the sale of real property and providing an exclusion from income for gain from the sale of a principal residence.In addition, this…Read More

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Property Tax Exemptions from Reassessment

I. Introduction Ordinarily, when the ownership of California real property changes, the property is reassessed at its current fair market value and the new owner pays property tax based on the reassessed value.  However, the law provides certain exemptions from reassessment and, in certain instances, allows a taxpayer to transfer the base-year value of the property to a subsequent property without being reassessed.  This article will review some of the basic exemptions from property tax reassessment which are likely to be relevant to a real estate licensee’s practice or address likely concerns of clients. Readers should consult their own professional tax advisors when faced with situations not discussed in this article as not all exemptions are discussed here. I. Sale and Replacement of Principle Residence by Taxpayers 55 Years of Age or Older Q 1. Is there a property tax reassessment exemption for taxpayers 55 years of age or older? A   Yes. Under certain conditions as described below, a taxpayer who is 55 years of age or older may transfer the Proposition 13 base-year assessment value of his or her principal residence to any replacement dwelling of equal or lesser value in the same county and, sometimes, in another county (Cal. Rev….Read More

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Water-Conserving Plumbing Fixtures

Introduction California  law requires property owners (for properties built before 1994) to install water-conserving plumbing fixtures by 2017 for single-family properties and by 2019 for other properties ). Additionally, if a property is altered or improved after 2014, then water-conserving plumbing fixtures must be installed as a condition of final permit approval.  (Cal. Civ. Code section 1101.4) In 2012 the Transfer Disclosure Statement was expanded to include a check box for water-conserving plumbing fixtures. As explained in the TDS itself, the check box does not create a point of sale requirement.  (Cal. Civ. Code section 1102.6.) Beginning in 2017 a seller of a single-family property will also be required to disclose whether the property is in compliance with the law. This same disclosure requirement will apply to other types of properties beginning in 2019. Even then, the law creates no point of sale requirement.  (Cal. Civ. Code section 1101.4 and 1101.5.) Q 1. What is the purpose of the water conservation law? A The legislature thinks that water conservation is a cost effective approach to the challenges created by not having enough water. Those challenges include future economic health; environmental health; growing urban areas; water reliability; waste water treatment; energy and other resource…Read More

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Small Claims Court

INTRODUCTION Small claims court provides a way for persons to resolve disputes within its jurisdiction without the cost and time that regular court proceedings normally entail. Attorneys may not represent plaintiffs or defendants in small claims court which reduces costs as there are no attorney fees.  Also the proceedings are typically more informal allowing persons to represent themselves without having to master all the formal legal procedures which must be followed in regular court proceedings. This legal article reviews the basic information a person considering a small claims action will want to know including the procedures that apply, the jurisdictional limits, what types of cases may be filed, suggestions for preparing a case, and methods for collecting on a judgment. I. SMALL CLAIMS COURT BASICS Q 1. What is small claims court? A The purpose and function of small claims court is described in the case of Sanderson v. Niemann (1941) 17 C.2d 563: ”The theory behind its organization is that only by escaping from the complexity and delay of the normal course of litigation could anything be gained in a legal proceeding which may involve a small sum. Consequently, the small claims court functions informally and expeditiously. The chief characteristics of its…Read More

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Mediation for the Consumer

Introduction In recent years, our society has seen a dramatic increase in litigation. Turning to the courts to resolve disputes seems to be an almost instinctive reaction these days. However, the sobering reality is that lawsuits can be financially and emotionally draining for the participants, and can even impact our economy over the long-run. While buyers and sellers of real estate usually are able to negotiate away the little disputes that arise in the course of their transactions, sadly those disputes do sometimes end up in lawsuits. Fortunately, there are alternatives to litigation for resolving disputes. Mediation is one such alternative that is growing rapidly in popularity–one that can dramatically reduce the time and cost (both emotional and financial) of resolving disputes. In fact, many real estate contracts, including those published by C.A.R., now require the parties to mediate many disputes that might arise between them. This memorandum provides a brief overview of some of the issues parties to real estate transactions may confront when deciding whether or not to use mediation as a method for resolving those disputes. Q 1.  What is mediation? A   Mediation is the term used to describe a relatively informal form of dispute resolution that occurs outside of the…Read More

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Homestead

I. Introduction The primary purpose of the California’s homestead law is to protect a person or family’s residence from certain types of creditors.  It allows debtors and their families to remain in the home in some situations even when a sale of the home could pay off the creditors. Generally, a homestead is protected from forced sale by certain creditors, to the extent of the homestead exemption, which is the amount of equity that is protected by law.  A judgment creditor cannot force the sale of a home unless they first show the court that before they are paid, (1) the homeowner will receive their homestead exemption and (2) that any and all prior liens will be paid. This legal article will discuss the two types of homesteads, the Residential (or automatic) homestead and the declared homestead and other issues related to homesteads. II. California Homestead Law Q 1. What is the California homestead law?  A California homestead law provides some protections for homeowners against certain judgment creditors trying to force the sale of the home or attach sale proceeds. The statute provide for two types of protections in the form of exemptions: the residential  homestead exemption and the declared homestead. The residential…Read More

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Deficiency Judgment Chart After Foreclosure

This legal chart is intended to provide a quick and easy guide to determine when a borrower may be liable for a deficiency judgment after foreclosure.  There are other factors and conditions which may change the result such as fraud by the borrower and bad faith waste.  For information on deficienciesafter a short sale, please see our “Short Sale Deficiencies Fact Sheet“. Residential 1 – 4 units, Owner Intends to Occupy a Unit in the Secured Real Property Non-owner Occupied or Other Real Property Lender Purchase Money Loan; and any refinance of a purchase money loan1made on or after January 1, 2013(non-recourse loan) Seller Financed Purchase Money Loan(non-recourse loan) Any refinance made before January 1, 2013; and any cash out refinance loan or cash out portion of such a loan no matter when made3(recourse loan) Lender Purchase Money Loan(recourse loan) Seller Financed Purchase Money Loan(non-recourse loan) Refinance (Non-Purchase Money Loan)(recourse loan) ▼ ▼ ▼ ▼ ▼ ▼ NOdeficiency judgment if senior or junior lienholder2Cal. Code Civ. Proc. § 580b NOdeficiency judgment if senior or junior lienholder2Cal. Code Civ. Proc. § 580b YESdeficiency judgment if judicial foreclosureNOdeficiency judgment if trustee’s sale foreclosure(But YES if lienholder is a “wiped out” junior4)Cal. Code Civ. Proc. §§  580d, 580b…Read More

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California Homeowner Bill of Rights

All eyes in the nation now turn to California as Governor Jerry Brown signed into law today the Homeowner Bill of Rights to help struggling Californians keep their homes. This law aims to avoid foreclosure where possible to help stabilize California’s housing market and prevent the other negative effects of foreclosures on families, communities, and the economy. The new law will generally prohibit lenders from engaging in dual tracking, require a single point of contact for borrowers seeking foreclosure prevention alternatives, provide borrowers with certain safeguards during the foreclosure process, and provide borrowers with the right to sue lenders for material violations of this law. The following is a summary of the key provisions of the Homeowner Bill of Rights that may affect California’s REALTORS® and their clients. The full text of this law, also known as Assembly Bill 278 and Senate Bill 900, is available at www.leginfo.ca.gov. Applicability of the Law: This law will generally come into effect on January 1, 2013. It only pertains to first trust deeds secured by owner-occupied properties with one-to-four residential units, unless otherwise indicated below. “Owner-occupied” means the property is the principal residence of the borrower and secured by a loan made for personal,…Read More

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Taxation of Foreclosures and Short Sales

Introduction This legal article discusses the income tax consequences to the borrower in the event of a foreclosure on the borrower’s property, in the event the borrower transfers title to the lender as part of an agreement with the lender (deed-in-lieu of foreclosure), and if the borrower sells the property to another in a short sale in which a lender accepts less than the balance due on the loan as payment in full. There are generally two types of taxable income that can result from a foreclosure, deed-in-lieu of foreclosure, or a short sale: capital gains and forgiveness of debt income (also known as cancellation of debt—COD income). As a result of the recent dramatic increase in distressed properties, federal and state laws have been enacted which reduce or eliminate the tax liability for many borrowers and existing tax laws can provide some relief as well. While this article provides general information on the tax laws concerning this area, REALTORS® should always be sure to refer clients to seek appropriate guidance from a tax professional such as an accountant or attorney to discuss their potential tax liability. Q  1.   Are foreclosures, deeds-in-lieu of foreclosure, and short sales subject to federal tax income…Read More

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People don’t care how much you know until they know how much you care. Buying or selling a home is the single most expensive transaction for most people. My job is to make it as painless and as smooth as possible. I have more then 25 years experience in real estate. Your best interest is my first priority.

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