Home prices remain flat in Denver
By Howard Pankratz
The Denver Post
Posted: 09/27/2011 10:37:11 AM MDT
Updated: 09/27/2011 11:00:17 AM MDT
Home prices in Denver remained flat in July, bucking a national trend which saw 17 of 20 metro areas posting monthly increases in home prices, according to the Standard & Poor's/Case-Shiller Home Price Index released today.
Las Vegas and Phoenix home prices were down over the month and Denver was unchanged from June, said the report.
Home prices in Denver were down 2.1 percent from one year ago.
A month ago, Standard & Poor's/Case-Shiller Home Price Index showed home prices in metropolitan Denver increased 1.6 percent in the second quarter but were down 2.5 from the same period a year ago.
The Denver index is at 125.97 based on a value of 100 in January 2000. This mean that there has been almost a 26 percent appreciation of the typical home in Denver since 2000.
"With July's data we are seeing not only anticipated monthly increases, but some fairly broad improvement in the annual rates of change in home prices," said David M. Blitzer, chairman of the Index Committee at S&P indices. "This is still a seasonal period of stronger demand for houses, so monthly price increases are expected and were seen in 17 of 20 cities.
"The exceptions were Las Vegas and Phoenix where prices fell, while Denver was flat."
He added that while there have been four consecutive months of generally increasing prices, "we do know that we are still far from a sustained recovery.
"Continued increases in home prices through the end of the year and better annual results must materialize before we can confirm a housing market recovery."
Tuesday, September 27, 2011
Monday, September 26, 2011
House Between A Rock & A Hard Place
Does the economy have you between a rock and a hard place? This house truly is between a rock and a hard place. Call or email me for your real estate buying and selling goals.
Castel-Meur, the famous house between the rocks near the village of Plougrescant in Brittany, France was built in 1861 and still belongs to the descendants of the first owner/builder. It eventually became famous when photos of it were sold as postcards around the world. This attracted more tourists and some began to climb up on the house to be photographed as if it were some sort of statue. This caused damage to the property and prompted the owner to forbid visitation. An interesting house all the same...Enjoy!
Castel-Meur, the famous house between the rocks near the village of Plougrescant in Brittany, France was built in 1861 and still belongs to the descendants of the first owner/builder. It eventually became famous when photos of it were sold as postcards around the world. This attracted more tourists and some began to climb up on the house to be photographed as if it were some sort of statue. This caused damage to the property and prompted the owner to forbid visitation. An interesting house all the same...Enjoy!
Sunday, September 25, 2011
Colorado public trustees pushed to make it easier to foreclose on homes
Interesting article....
Colorado public trustees pushed to make it easier to foreclose on homes
By David Migoya
The Denver Post
Posted: 09/25/2011 01:00:00 AM MDT
Updated: 09/25/2011 10:13:12 AM MDT
Michael and Ann Rudnick wanted to know that Bank of America was really entitled to foreclose on their Denver home.
After all, the couple had borrowed $265,000 from New Century Mortgage in late 2006, yet it was Bank of America foreclosing three years later.
"They simply wanted to know how Bank of America came to have their mortgage, but they couldn't find out during the foreclosure," said Steven Brunette, the couple's Colorado Springs attorney who's taken up their cause.
The Rudnicks learned that the Legislature years earlier had basically removed a consumer's right to challenge a lender's standing to foreclose on a house.
The changes happened in 2002 and 2006 in paragraphs buried deep inside dense pieces
of legislation designed to shore up Colorado's foreclosure laws. The changes meant banks no longer had to provide original documents at a foreclosure, just affidavits from lawyers saying the bank owned the notes and got them legally.
Interviews and documents reveal that the changes to foreclosure due process in Colorado were drafted and promoted by county public trustees, who serve as administrators of the foreclosure process in Colorado and are supposed to hold as a key objective the protection of the public.
Such a failure of oversight prompted one housing official to question the competence of the trustees and the foreclosure process they oversee, a system that's unique in the country.
Others say the foreclosure process has become so heavily weighted in favor of lenders and their lawyers — much of it with the help of the trustees — that homeowners stand little chance of finding fairness in a system that's supposed to ensure equal justice.
"For all the good they bring to the table, this illustrates they are more a process trustee than a public trustee," said Zak Urban, director of housing counseling at the Adams County Housing Authority who often works with the trustees. "They put the
integrity of the process over the public interest."
Other trustees, who worked with foreclosure lawyers such as Larry Castle and Robert Hopp on the legislation, say they aren't sure how the changes occurred at all.
"I'd hate to think we were that lax, that we would have not noticed something that was trying to make its way under our noses," said Peggy Foley, former Pueblo County public trustee who sat on the committee of the Public Trustees' Association of Colorado that crafted the 2006 legislation. "I'd like to think someone would have pointed it out."
Now, to question a bank's entitlement to a foreclosure, consumers like the Rudnicks must file expensive and often time-consuming private lawsuits that aren't likely
to yield a result until long after the house is auctioned.
"The idea was clearly to facilitate the rapid repossession of collateral," said Boulder attorney Mark Hofgard, who specializes in representing homeowners facing foreclosure.
Critics say Colorado has since become a state where it takes little more than a lawyer's signature to take someone's home.
"It may be true they deserve to be foreclosed on, but there is the over-arching integrity of the system that's important," said Jan Zavislan, an assistant attorney general who runs that office's consumer protection division. "Has the system broken down to such a point that it has no credibility any longer? Maybe no one's hurt except the public trust and confidence. But we need them."
Unique trustee system
Colorado foreclosure laws require a judge to review and approve the public auction of a house. Called a Rule 120 hearing, it's the only time a judge is part of Colorado's foreclosure process. Instead, it is overseen entirely by a public trustee in the county where the foreclosure happens.
The governor appoints 10 of the trustees, two others are appointed by county officials where they serve and the remaining 52 are the county's elected treasurer.
No other state does it this way. Some states rely entirely on the courts and others use private trustees hired by the lenders.
Until 1989 Colorado homeowners could only defend themselves against a foreclosure at a Rule 120 hearing by proving they weren't in default on the loan or were in the active military.
That changed, however, with a Colorado Supreme Court decision that said homeowners had the right to challenge whether the foreclosing party was legally entitled to go after their house.
Few homeowners challenged, however.
"We were dealing with parties who knew the process and all their documents had the appearance of validity," former Boulder County Public Trustee Sandy Humesaid. "Nobody went to court (for a Rule 120 hearing). The documents were that strong and valid."
Colorado law was crystal clear: Foreclosing parties had to provide original documents in order to take someone's house: notes, deeds of trust and their assignments.
But subtle changes in favor of the banks began in 2002.
State officials at the time were looking to curb rampant foreclosure scams that took advantage of either the homeowner or the foreclosure process, Zavislan recalled.
Taking cues from the public trustees, the Colorado legislature passed a bill that re-wrote significant portions of the foreclosure statutes. The bill was drafted largely by Colorado's top foreclosure lawyers in conjunction with the trustees, according to testimony Castle gave to legislators.
But in addition to combating the scams, the legislation included a critical new provision: foreclosure attorneys could attest in writing that their client — a bank or other lender — actually possessed the note or deed of trust to a house they were foreclosing.
For the first time, a bank no longer had to provide an original deed of trust or note in order to foreclose, though they still had to show the original assignments — the proof that one bank sold a note to another, giving it the right to foreclose.
Undocumented leanings
The legislation also included an indemnity clause protecting the public trustees if the lawyers' certifications were wrong. The trustees backed the measure along with Castle, who told legislators he helped draft the legislation.
No one testified against the bill.
By then, the buying and selling of mortgages had become a common practice. Banks and other loan originators that provided mortgages to home buyers sold their loans, instead of holding onto those mortgages as had been customary for decades. The buyers of those loans bundled them into securities and sold them to other investors, often making it difficult to determine who actually owned the mortgage on an individual home.
The super-heated housing market collapsed in Colorado in 2006. That year, the state had more foreclosure filings than any other and was among the leaders for years after.
As Colorado struggled under the weight of its housing losses, the public trustees said they were trying to streamline the foreclosure process to make it easier for homeowners to protect their property.
Once again, the trustees started tinkering with Colorado's foreclosure laws — and the same few lawyers were there to assist.
"We were trying to restructure things so it was better for the homeowner," former Broomfield County trustee Roxy Huber recalls.
What the trustees aimed for and got with the help of a committee of foreclosure lawyers with the Colorado Bar Association — Castle and Hopp among them — was a longer period of time for homeowners to "cure" their debt or pay what they owed before the house was sold at auction.
What they also got was a paragraph that said lawyers no longer had to show the original assignments of a note to prove a lender actually owned it.
Suddenly, with just a lawyer's signature, a bank could foreclose on a house without ever showing any proof that it had the right to do so.
Although trustees involved in the process today say they can't recall the paragraph, trustees association meeting minutes indicate there was concern with how the bill was being drafted.
Christina Whitmer, the Grand County public trustee, "voiced concern that each time a new draft is received, changes appear that had not been discussed or approved at the prior meeting with the Bar committee," association minutes reflect, and "suggested that the Public Trustee committee take over the drafting."
Records show Hume, who at the time was Boulder County's trustee, was firm: "No matter who is doing the drafting, this is still to be a Public Trustees' bill."
Despite the concerns, minutes show Hopp "defended having attorneys doing the drafting, stating that they are better qualified to properly word the changes."
Hopp later testified on behalf of the bill.
Whitmer recalled in an interview a process that allowed the lawyers to run roughshod over the trustees.
"Unfortunately Castle and the other lawyers were very powerful and they, in my opinion, put in a lot of stuff that should not have happened," Whitmer said. "And it was to benefit their lender clients, absolutely."
Neither Castle nor Hopp returned calls for comment.
Bill sponsor and then-Rep. Michael Garcia of Aurora pressed his colleagues to pass the legislation, saying it would help consumers.
Garcia said that "the main provision of the bill is to eliminate the redemption period and to extend the cure period," according to notes from the April 2006 House Committee on Business Affairs and Labor hearing.
His testimony, and that of the trustees and Zavislan, was that Colorado needed better ammunition to battle mortgage fraud and this bill would do it.
There was no mention made of the provision allowing lawyers to attest to the assignments.
Garcia did not return a call for comment.
Zavislan said he wasn't aware of the provision that would hurt consumers, only those that helped.
"That was our focus," he said.
Gov. Bill Owens signed the bill into law June 1, 2006, effective a month later.
"I'm surprised that it happened under our nose; it shouldn't," said Jeannie Reeser, former public trustee for Adams County. "I'm old school. It shouldn't be this easy to foreclose on someone's home."
Who owns this home?
Years later, the Rudnicks would have to take Bank of America to court and spend more than two years trying to have the lender prove it was entitled to foreclose on them. During the process, they lost their house in foreclosure.
"When someone is going to lose their house, they have to litigate when they are least able to afford to," said Brunette, the Rudnicks' attorney. "It was two years of litigation just to get something they should have produced up front."
It's unclear if the bank ever produced the proof. The case settled earlier this month and all details were sealed.
"It's pathetic how unfair it's all become," Whitmer said. "There's story after story about people being hurt because the lawyers are not presenting the original documents. The integrity is gone and we have to fix this.
"I'm just not sure if we ever can."
Colorado public trustees pushed to make it easier to foreclose on homes
By David Migoya
The Denver Post
Posted: 09/25/2011 01:00:00 AM MDT
Updated: 09/25/2011 10:13:12 AM MDT
Michael and Ann Rudnick wanted to know that Bank of America was really entitled to foreclose on their Denver home.
After all, the couple had borrowed $265,000 from New Century Mortgage in late 2006, yet it was Bank of America foreclosing three years later.
"They simply wanted to know how Bank of America came to have their mortgage, but they couldn't find out during the foreclosure," said Steven Brunette, the couple's Colorado Springs attorney who's taken up their cause.
The Rudnicks learned that the Legislature years earlier had basically removed a consumer's right to challenge a lender's standing to foreclose on a house.
The changes happened in 2002 and 2006 in paragraphs buried deep inside dense pieces
of legislation designed to shore up Colorado's foreclosure laws. The changes meant banks no longer had to provide original documents at a foreclosure, just affidavits from lawyers saying the bank owned the notes and got them legally.
Interviews and documents reveal that the changes to foreclosure due process in Colorado were drafted and promoted by county public trustees, who serve as administrators of the foreclosure process in Colorado and are supposed to hold as a key objective the protection of the public.
Such a failure of oversight prompted one housing official to question the competence of the trustees and the foreclosure process they oversee, a system that's unique in the country.
Others say the foreclosure process has become so heavily weighted in favor of lenders and their lawyers — much of it with the help of the trustees — that homeowners stand little chance of finding fairness in a system that's supposed to ensure equal justice.
"For all the good they bring to the table, this illustrates they are more a process trustee than a public trustee," said Zak Urban, director of housing counseling at the Adams County Housing Authority who often works with the trustees. "They put the
integrity of the process over the public interest."
Other trustees, who worked with foreclosure lawyers such as Larry Castle and Robert Hopp on the legislation, say they aren't sure how the changes occurred at all.
"I'd hate to think we were that lax, that we would have not noticed something that was trying to make its way under our noses," said Peggy Foley, former Pueblo County public trustee who sat on the committee of the Public Trustees' Association of Colorado that crafted the 2006 legislation. "I'd like to think someone would have pointed it out."
Now, to question a bank's entitlement to a foreclosure, consumers like the Rudnicks must file expensive and often time-consuming private lawsuits that aren't likely
to yield a result until long after the house is auctioned.
"The idea was clearly to facilitate the rapid repossession of collateral," said Boulder attorney Mark Hofgard, who specializes in representing homeowners facing foreclosure.
Critics say Colorado has since become a state where it takes little more than a lawyer's signature to take someone's home.
"It may be true they deserve to be foreclosed on, but there is the over-arching integrity of the system that's important," said Jan Zavislan, an assistant attorney general who runs that office's consumer protection division. "Has the system broken down to such a point that it has no credibility any longer? Maybe no one's hurt except the public trust and confidence. But we need them."
Unique trustee system
Colorado foreclosure laws require a judge to review and approve the public auction of a house. Called a Rule 120 hearing, it's the only time a judge is part of Colorado's foreclosure process. Instead, it is overseen entirely by a public trustee in the county where the foreclosure happens.
The governor appoints 10 of the trustees, two others are appointed by county officials where they serve and the remaining 52 are the county's elected treasurer.
No other state does it this way. Some states rely entirely on the courts and others use private trustees hired by the lenders.
Until 1989 Colorado homeowners could only defend themselves against a foreclosure at a Rule 120 hearing by proving they weren't in default on the loan or were in the active military.
That changed, however, with a Colorado Supreme Court decision that said homeowners had the right to challenge whether the foreclosing party was legally entitled to go after their house.
Few homeowners challenged, however.
"We were dealing with parties who knew the process and all their documents had the appearance of validity," former Boulder County Public Trustee Sandy Humesaid. "Nobody went to court (for a Rule 120 hearing). The documents were that strong and valid."
Colorado law was crystal clear: Foreclosing parties had to provide original documents in order to take someone's house: notes, deeds of trust and their assignments.
But subtle changes in favor of the banks began in 2002.
State officials at the time were looking to curb rampant foreclosure scams that took advantage of either the homeowner or the foreclosure process, Zavislan recalled.
Taking cues from the public trustees, the Colorado legislature passed a bill that re-wrote significant portions of the foreclosure statutes. The bill was drafted largely by Colorado's top foreclosure lawyers in conjunction with the trustees, according to testimony Castle gave to legislators.
But in addition to combating the scams, the legislation included a critical new provision: foreclosure attorneys could attest in writing that their client — a bank or other lender — actually possessed the note or deed of trust to a house they were foreclosing.
For the first time, a bank no longer had to provide an original deed of trust or note in order to foreclose, though they still had to show the original assignments — the proof that one bank sold a note to another, giving it the right to foreclose.
Undocumented leanings
The legislation also included an indemnity clause protecting the public trustees if the lawyers' certifications were wrong. The trustees backed the measure along with Castle, who told legislators he helped draft the legislation.
No one testified against the bill.
By then, the buying and selling of mortgages had become a common practice. Banks and other loan originators that provided mortgages to home buyers sold their loans, instead of holding onto those mortgages as had been customary for decades. The buyers of those loans bundled them into securities and sold them to other investors, often making it difficult to determine who actually owned the mortgage on an individual home.
The super-heated housing market collapsed in Colorado in 2006. That year, the state had more foreclosure filings than any other and was among the leaders for years after.
As Colorado struggled under the weight of its housing losses, the public trustees said they were trying to streamline the foreclosure process to make it easier for homeowners to protect their property.
Once again, the trustees started tinkering with Colorado's foreclosure laws — and the same few lawyers were there to assist.
"We were trying to restructure things so it was better for the homeowner," former Broomfield County trustee Roxy Huber recalls.
What the trustees aimed for and got with the help of a committee of foreclosure lawyers with the Colorado Bar Association — Castle and Hopp among them — was a longer period of time for homeowners to "cure" their debt or pay what they owed before the house was sold at auction.
What they also got was a paragraph that said lawyers no longer had to show the original assignments of a note to prove a lender actually owned it.
Suddenly, with just a lawyer's signature, a bank could foreclose on a house without ever showing any proof that it had the right to do so.
Although trustees involved in the process today say they can't recall the paragraph, trustees association meeting minutes indicate there was concern with how the bill was being drafted.
Christina Whitmer, the Grand County public trustee, "voiced concern that each time a new draft is received, changes appear that had not been discussed or approved at the prior meeting with the Bar committee," association minutes reflect, and "suggested that the Public Trustee committee take over the drafting."
Records show Hume, who at the time was Boulder County's trustee, was firm: "No matter who is doing the drafting, this is still to be a Public Trustees' bill."
Despite the concerns, minutes show Hopp "defended having attorneys doing the drafting, stating that they are better qualified to properly word the changes."
Hopp later testified on behalf of the bill.
Whitmer recalled in an interview a process that allowed the lawyers to run roughshod over the trustees.
"Unfortunately Castle and the other lawyers were very powerful and they, in my opinion, put in a lot of stuff that should not have happened," Whitmer said. "And it was to benefit their lender clients, absolutely."
Neither Castle nor Hopp returned calls for comment.
Bill sponsor and then-Rep. Michael Garcia of Aurora pressed his colleagues to pass the legislation, saying it would help consumers.
Garcia said that "the main provision of the bill is to eliminate the redemption period and to extend the cure period," according to notes from the April 2006 House Committee on Business Affairs and Labor hearing.
His testimony, and that of the trustees and Zavislan, was that Colorado needed better ammunition to battle mortgage fraud and this bill would do it.
There was no mention made of the provision allowing lawyers to attest to the assignments.
Garcia did not return a call for comment.
Zavislan said he wasn't aware of the provision that would hurt consumers, only those that helped.
"That was our focus," he said.
Gov. Bill Owens signed the bill into law June 1, 2006, effective a month later.
"I'm surprised that it happened under our nose; it shouldn't," said Jeannie Reeser, former public trustee for Adams County. "I'm old school. It shouldn't be this easy to foreclose on someone's home."
Who owns this home?
Years later, the Rudnicks would have to take Bank of America to court and spend more than two years trying to have the lender prove it was entitled to foreclose on them. During the process, they lost their house in foreclosure.
"When someone is going to lose their house, they have to litigate when they are least able to afford to," said Brunette, the Rudnicks' attorney. "It was two years of litigation just to get something they should have produced up front."
It's unclear if the bank ever produced the proof. The case settled earlier this month and all details were sealed.
"It's pathetic how unfair it's all become," Whitmer said. "There's story after story about people being hurt because the lawyers are not presenting the original documents. The integrity is gone and we have to fix this.
"I'm just not sure if we ever can."
Long-contentious plans to build village near Wolf Creek Ski Area may get underway after wetlands exchange
interesting article on a long-time battle...
business
Long-contentious plans to build village near Wolf Creek Ski Area may get underway after wetlands exchange
By Jason Blevins
The Denver Post
Posted: 09/25/2011 01:00:00 AM MDT
Forest Service Ranger Tom Malecek addresses the more than 100 people who showed up last week to tour the area near the Wolf Creek Ski Area where a proposed village would be developed. (Jason Blevins, The Denver Post)WOLF CREEK PASS — Officials expected fewer than 50, but more than 100 people showed up for a recent Forest Service tour of the proposed land exchange atop Wolf Creek Pass, where a Texas billionaire has labored for a quarter century to erect a village.
The backpacked throng lingered in wetlands, meadows and dense timber as Rio Grande National Forest Divide District Ranger Tom Malecek held maps and answered questions about the land exchange proposed by B.J. "Red" McCombs, the octogenarian Texas businessman who has planned a village next to the Wolf Creek Ski Area since the mid-1980s.
At each stop, voices climbed and emotions flared as the uneasy mixture of environmentalists, local, state and federal officials, and
(Click to enlarge map)McCombs employees discussed Colorado's most contentious mountain real estate project.
"There's no doubt this stirs passions," said Malecek, standing next to a remote pond that could be a centerpiece for a 1,711-unit to 1,980-unit village. "But I think it's nice to get out and have these kinds of discussions."
Since 1985, when McCombs first negotiated a federal land exchange that gave him an island of 288 acres of high-alpine forest, wetlands and meadows in Mineral County adjacent to the Wolf Creek Ski Area and surrounded by federal land, the billionaire has been vying for a village. McCombs' most problematic issue has been reaching his isolated parcel, which does not have road access in the winter and does not reach U.S. 160. The developer is entitled to reasonable access under federal law commensurate with the proposed use of the land.
The proposed land exchange would deliver that access by swapping 204 acres of federal land for 178 acres of McCombs' land. The swap would give the federal government a swath of crucial wetlands and pull the village away from the ski area boundary and provide access to U.S. 160. The exchange is undergoing an environmental impact statement review by the Forest Service, which expects a draft of the statement early next year.
"We are getting more wetlands and (development) has moved away from potential building conflicts and scenic view corridors of the ski area. It gets it a little bit further away so it's not in your face," Malecek said of the proposed exchange.
Clint Jones, the Texas real estate attorney and longtime Wolf Creek skier in charge of the village project, said the land exchange came after years of often fiery discussions with locals, environmentalists, federal officials and the ski-area owners, the Pitcher clan. Jones said the exchange mitigates "issues that were so very volatile" in previous proposals for development.
"We can still build a village on the land we own, but we think we can build a better village back here in the trees," said Jones, whose proposed land exchange moves development from a sweeping meadow — Alberta Park — into dense timber farther east of the Wolf Creek Ski Area.
The land exchange is the latest iteration of a plan that has raised hackles for more than 25 years.
Back in 1985, it was a small proposal, with a warren of fancy homes and small hotel that enlisted support of the ski area's owner, Kingsbury Pitcher and his family, who bought the bankrupt ski hill in 1976.
But modest plans quickly blossomed into a commercial-residential city with nearly 2,200 units and at least 160,000 square feet of commercial space, a high-density proposal that has long galvanized vehement opposition. Those opponents included the Pitchers, who sued the McCombs team in 2004, five years after the family and McCombs had forged easements that allowed for ski terrain on McCombs' land.
The two sides settled the lawsuit in 2008, with the pair sculpting new easements that stopped home development on roughly 104 acres McCombs owns inside the ski area boundary, leaving about 60 to 70 acres in Alberta Park open for development.
Today, ski area president Davey Pitcher supports the land exchange but is reserving judgment on the proposed village, which has yet to be specifically detailed under the draft environmental impact statement review and would require a host of additional state transportation and Mineral County permits and approvals.
"We think the land exchange makes sense. The historical preservation of skiable terrain is important to us and it's a better chance to protect these wetlands," Pitcher said as he reclined in the soggy meadow that would be delivered to the federal government under the exchange."The village, if it's built, will have to stand on its own merits. Our job is to support and promote recreational skiing and . . . we think the land exchange can help us do that."
The latest village proposal is a blending of previous plans. If the land swap is approved, McCombs is proposing about 1,700 units. If not, the number could climb closer to 2,000. The plan calls for phased construction, with development occurring only after strong demand for earlier units.
"Once this gets through approval, it could be much smaller," Jones said. "The market will determine if we go past the first phase."
Environmental group Rocky Mountain Wild — formerly Colorado Wild — has been fighting McCombs for more than a decade. Spearheading a swarm of environmental opposition, the group has illuminated village development issues concerning water supply and quality, endangered wildlife such as the Canadian lynx and socioeconomic issues in nearby towns like South Fork and Pagosa Springs.
Paul Joyce, the group's field program director, said the proposed land exchange swaps undevelopable wetlands for developable land and should not be approved. Mountain towns already are enduring slowing real estate sales, low visitation and dwindling occupancy in hotels, "So why build more? Especially here?" Joyce said.
Still, some locals from both sides of the pass are beginning to see the benefits of another tourist destination in the struggling economy.
"We've got so many problems down in South Fork. Businesses just don't last," said Rich Martin, a Denver firefighter who owns vacation property in South Fork. "This can bring more people and it could help the economy, but I understand the concerns about water. We do live downstream."
business
Long-contentious plans to build village near Wolf Creek Ski Area may get underway after wetlands exchange
By Jason Blevins
The Denver Post
Posted: 09/25/2011 01:00:00 AM MDT
Forest Service Ranger Tom Malecek addresses the more than 100 people who showed up last week to tour the area near the Wolf Creek Ski Area where a proposed village would be developed. (Jason Blevins, The Denver Post)WOLF CREEK PASS — Officials expected fewer than 50, but more than 100 people showed up for a recent Forest Service tour of the proposed land exchange atop Wolf Creek Pass, where a Texas billionaire has labored for a quarter century to erect a village.
The backpacked throng lingered in wetlands, meadows and dense timber as Rio Grande National Forest Divide District Ranger Tom Malecek held maps and answered questions about the land exchange proposed by B.J. "Red" McCombs, the octogenarian Texas businessman who has planned a village next to the Wolf Creek Ski Area since the mid-1980s.
At each stop, voices climbed and emotions flared as the uneasy mixture of environmentalists, local, state and federal officials, and
(Click to enlarge map)McCombs employees discussed Colorado's most contentious mountain real estate project.
"There's no doubt this stirs passions," said Malecek, standing next to a remote pond that could be a centerpiece for a 1,711-unit to 1,980-unit village. "But I think it's nice to get out and have these kinds of discussions."
Since 1985, when McCombs first negotiated a federal land exchange that gave him an island of 288 acres of high-alpine forest, wetlands and meadows in Mineral County adjacent to the Wolf Creek Ski Area and surrounded by federal land, the billionaire has been vying for a village. McCombs' most problematic issue has been reaching his isolated parcel, which does not have road access in the winter and does not reach U.S. 160. The developer is entitled to reasonable access under federal law commensurate with the proposed use of the land.
The proposed land exchange would deliver that access by swapping 204 acres of federal land for 178 acres of McCombs' land. The swap would give the federal government a swath of crucial wetlands and pull the village away from the ski area boundary and provide access to U.S. 160. The exchange is undergoing an environmental impact statement review by the Forest Service, which expects a draft of the statement early next year.
"We are getting more wetlands and (development) has moved away from potential building conflicts and scenic view corridors of the ski area. It gets it a little bit further away so it's not in your face," Malecek said of the proposed exchange.
Clint Jones, the Texas real estate attorney and longtime Wolf Creek skier in charge of the village project, said the land exchange came after years of often fiery discussions with locals, environmentalists, federal officials and the ski-area owners, the Pitcher clan. Jones said the exchange mitigates "issues that were so very volatile" in previous proposals for development.
"We can still build a village on the land we own, but we think we can build a better village back here in the trees," said Jones, whose proposed land exchange moves development from a sweeping meadow — Alberta Park — into dense timber farther east of the Wolf Creek Ski Area.
The land exchange is the latest iteration of a plan that has raised hackles for more than 25 years.
Back in 1985, it was a small proposal, with a warren of fancy homes and small hotel that enlisted support of the ski area's owner, Kingsbury Pitcher and his family, who bought the bankrupt ski hill in 1976.
But modest plans quickly blossomed into a commercial-residential city with nearly 2,200 units and at least 160,000 square feet of commercial space, a high-density proposal that has long galvanized vehement opposition. Those opponents included the Pitchers, who sued the McCombs team in 2004, five years after the family and McCombs had forged easements that allowed for ski terrain on McCombs' land.
The two sides settled the lawsuit in 2008, with the pair sculpting new easements that stopped home development on roughly 104 acres McCombs owns inside the ski area boundary, leaving about 60 to 70 acres in Alberta Park open for development.
Today, ski area president Davey Pitcher supports the land exchange but is reserving judgment on the proposed village, which has yet to be specifically detailed under the draft environmental impact statement review and would require a host of additional state transportation and Mineral County permits and approvals.
"We think the land exchange makes sense. The historical preservation of skiable terrain is important to us and it's a better chance to protect these wetlands," Pitcher said as he reclined in the soggy meadow that would be delivered to the federal government under the exchange."The village, if it's built, will have to stand on its own merits. Our job is to support and promote recreational skiing and . . . we think the land exchange can help us do that."
The latest village proposal is a blending of previous plans. If the land swap is approved, McCombs is proposing about 1,700 units. If not, the number could climb closer to 2,000. The plan calls for phased construction, with development occurring only after strong demand for earlier units.
"Once this gets through approval, it could be much smaller," Jones said. "The market will determine if we go past the first phase."
Environmental group Rocky Mountain Wild — formerly Colorado Wild — has been fighting McCombs for more than a decade. Spearheading a swarm of environmental opposition, the group has illuminated village development issues concerning water supply and quality, endangered wildlife such as the Canadian lynx and socioeconomic issues in nearby towns like South Fork and Pagosa Springs.
Paul Joyce, the group's field program director, said the proposed land exchange swaps undevelopable wetlands for developable land and should not be approved. Mountain towns already are enduring slowing real estate sales, low visitation and dwindling occupancy in hotels, "So why build more? Especially here?" Joyce said.
Still, some locals from both sides of the pass are beginning to see the benefits of another tourist destination in the struggling economy.
"We've got so many problems down in South Fork. Businesses just don't last," said Rich Martin, a Denver firefighter who owns vacation property in South Fork. "This can bring more people and it could help the economy, but I understand the concerns about water. We do live downstream."
Thursday, September 22, 2011
The new real estate boom: rentals
This is article is so applicable to Front Range Market as well...
The new real estate boom: rentals
Perspective: Economic and demographic trends bode well for rental market
By Inman News, Thursday, September 22, 2011.
Inman News™
By BRIAN DAVIS
Editor's note: The following is a guest perspective.
Home prices and sales may be flat, but the rental industry is booming. The percentage of renters is on the rise, the number of households is increasing, and more Americans are downsizing, all of which point in a single direction: rents are on the rise.
At the peak of the housing boom, homeownership in America reached an all-time high at 69.2 percent. Today that number has plummeted to fewer than 67 percent, which may not sound like a huge drop, but that represents roughly 3 million households that were owner-occupied and are now tenant-occupied.
The high foreclosure rate has accelerated the transition toward leasing, but there are a myriad of other trends coalescing to boost demand for rental housing.
For the first time in 40 years, demand has been shifting toward smaller dwellings, coinciding with a shift in demand toward urban centers. Baby boomers are considering downsizing, moving toward areas with more amenities, and members of Generation Y are just hitting their single, urban-living years.
Only the relatively small Generation X is in the buy-a-large-house-in-suburbs category, which means the demand for the traditional single-family home with a white picket fence is weak.
The number of households in the U.S. was artificially stifled during the "Great Recession," as people took on roommates, moved in with family, or remained with their parents longer than they would have otherwise.
It's estimated that 1.2 million young adults moved back with their parents from 2005-10, which does not include the number of adults who moved in with roommates or those who would have moved out of their parents' houses but didn't because the economy was so bad.
Now, however, these artificially joined households are separating, the vast majority starting with a lease agreement.
Rental vacancy rates are sharply on the decline as well. In the first quarter of 2011, rental vacancy rates had dropped to 6.2 percent, according to Reis Inc., which tracks nationwide residency data. This figure is down sharply from the 8 percent vacancy rate just one year earlier.
That, of course, means that rents are on the rise. Reis tracks data for 82 metropolitan areas in America, and of those, 75 experienced increased rents from early 2010 to early 2011. Furthermore, the nationwide average rental amount rose from $967 in early 2010 to $991 in 2011.
Each of these indicators are entire topics in themselves, but the bottom line is that the rental industry is on the rise, and some real estate experts believe that its growth will accelerate rapidly over the next three to five years.
Apartment-building construction is already responding to the growing demand for rental housing, but with so many construction firms either out of business or licking their wounds, it's anticipated that there will be a rental housing shortage in many major cities around the country over the next few years.
Brian Davis is a veteran landlord and vice president of ezLandlordForms, which offers landlord information and legal forms.
The new real estate boom: rentals
Perspective: Economic and demographic trends bode well for rental market
By Inman News, Thursday, September 22, 2011.
Inman News™
By BRIAN DAVIS
Editor's note: The following is a guest perspective.
Home prices and sales may be flat, but the rental industry is booming. The percentage of renters is on the rise, the number of households is increasing, and more Americans are downsizing, all of which point in a single direction: rents are on the rise.
At the peak of the housing boom, homeownership in America reached an all-time high at 69.2 percent. Today that number has plummeted to fewer than 67 percent, which may not sound like a huge drop, but that represents roughly 3 million households that were owner-occupied and are now tenant-occupied.
The high foreclosure rate has accelerated the transition toward leasing, but there are a myriad of other trends coalescing to boost demand for rental housing.
For the first time in 40 years, demand has been shifting toward smaller dwellings, coinciding with a shift in demand toward urban centers. Baby boomers are considering downsizing, moving toward areas with more amenities, and members of Generation Y are just hitting their single, urban-living years.
Only the relatively small Generation X is in the buy-a-large-house-in-suburbs category, which means the demand for the traditional single-family home with a white picket fence is weak.
The number of households in the U.S. was artificially stifled during the "Great Recession," as people took on roommates, moved in with family, or remained with their parents longer than they would have otherwise.
It's estimated that 1.2 million young adults moved back with their parents from 2005-10, which does not include the number of adults who moved in with roommates or those who would have moved out of their parents' houses but didn't because the economy was so bad.
Now, however, these artificially joined households are separating, the vast majority starting with a lease agreement.
Rental vacancy rates are sharply on the decline as well. In the first quarter of 2011, rental vacancy rates had dropped to 6.2 percent, according to Reis Inc., which tracks nationwide residency data. This figure is down sharply from the 8 percent vacancy rate just one year earlier.
That, of course, means that rents are on the rise. Reis tracks data for 82 metropolitan areas in America, and of those, 75 experienced increased rents from early 2010 to early 2011. Furthermore, the nationwide average rental amount rose from $967 in early 2010 to $991 in 2011.
Each of these indicators are entire topics in themselves, but the bottom line is that the rental industry is on the rise, and some real estate experts believe that its growth will accelerate rapidly over the next three to five years.
Apartment-building construction is already responding to the growing demand for rental housing, but with so many construction firms either out of business or licking their wounds, it's anticipated that there will be a rental housing shortage in many major cities around the country over the next few years.
Brian Davis is a veteran landlord and vice president of ezLandlordForms, which offers landlord information and legal forms.
Rate on 30-year mortgage stays at record 4.09 pct.
Rate on 30-year mortgage stays at record 4.09 pct.
From Denver Post
By DEREK KRAVITZ AP Real Estate Writer
Posted: 09/22/2011 08:02:11 AM MDT
Updated: 09/22/2011 10:53:15 AM MDT
WASHINGTON—Fixed mortgage rates hovered at record lows for a third straight week. They are likely to fall even further now that the Federal Reserve said it would shuffle its holdings to drive down long-term interest rates.
The average rate on the 30-year fixed mortgage was unchanged at 4.09 percent this week, Freddie Mac said Thursday. That's the lowest rate seen since 1951.
The average rate on the 15-year mortgage ticked down to 3.29 percent. Economists say that's the lowest rate ever for the loan.
Mortgage rates tend to track the yield on the 10-year Treasury note. One day after the Fed's announcement, the yield on the 10-year note touched 1.74 percent Thursday. That's the lowest level since Federal Reserve Bank of St. Louis started keeping daily records in 1962.
In July, the yield on the 10-year note was above 3 percent.
Low mortgage rates have done little to boost home sales. This year is shaping up to be the worst for sales of previously occupied homes since 1997. Few are buying, even though the average rate on the 30-year fixed mortgage has been below 5 percent for all but two weeks this year.
Many Americans are in no position to buy or refinance. High unemployment, scant wage gains and large debt loads have kept them away.
Others can't qualify. Banks are insisting on higher credit scores and 20 percent down payments for first-time buyers. Some homeowners have too little equity invested in their homes to meet loan requirements.
Most people must also pay extra fees to get the low mortgage rates. Those fees are known as points, with one point equaling 1 percent of the total loan amount.
The average fees for the 30-year held steady at 0.7 point. Fees paid on 15-year fixed loans and both 5-year and one-year adjustable-rate loans were all at 0.6 point.
Once fees are factored in, the average rate on the 30-year loan rises to 4.25 percent, Freddie Mac said.
A drop in mortgage rates could provide some help to the economy if more people could refinance. When people refinance at lower rates, they pay less interest on their loans and have more money to spend.
But many homeowners with good jobs and stable finances have already refinanced in the past year. The average rate on the 30-year fixed loan fell to 4.17 percent last November, and to 4.15 percent last month. Both were previous lows.
Homeowners typically pay a few thousand dollars in closing costs when they refinance. To refinance again, most experts say rates would need to fall an additional 1 percentage point to make it worthwhile.
To calculate average mortgage rates, Freddie Mac surveys lenders across the country Monday through Wednesday of each week.
The average rate on a five-year adjustable-rate mortgage rose to 3.02 percent. That's higher than last week's 2.99 percent.
The average rate for the one-year adjustable-rate mortgage increased slightly to 2.82percent from 2.81 percent, the lowest rate on records going back to 1984.
From Denver Post
By DEREK KRAVITZ AP Real Estate Writer
Posted: 09/22/2011 08:02:11 AM MDT
Updated: 09/22/2011 10:53:15 AM MDT
WASHINGTON—Fixed mortgage rates hovered at record lows for a third straight week. They are likely to fall even further now that the Federal Reserve said it would shuffle its holdings to drive down long-term interest rates.
The average rate on the 30-year fixed mortgage was unchanged at 4.09 percent this week, Freddie Mac said Thursday. That's the lowest rate seen since 1951.
The average rate on the 15-year mortgage ticked down to 3.29 percent. Economists say that's the lowest rate ever for the loan.
Mortgage rates tend to track the yield on the 10-year Treasury note. One day after the Fed's announcement, the yield on the 10-year note touched 1.74 percent Thursday. That's the lowest level since Federal Reserve Bank of St. Louis started keeping daily records in 1962.
In July, the yield on the 10-year note was above 3 percent.
Low mortgage rates have done little to boost home sales. This year is shaping up to be the worst for sales of previously occupied homes since 1997. Few are buying, even though the average rate on the 30-year fixed mortgage has been below 5 percent for all but two weeks this year.
Many Americans are in no position to buy or refinance. High unemployment, scant wage gains and large debt loads have kept them away.
Others can't qualify. Banks are insisting on higher credit scores and 20 percent down payments for first-time buyers. Some homeowners have too little equity invested in their homes to meet loan requirements.
Most people must also pay extra fees to get the low mortgage rates. Those fees are known as points, with one point equaling 1 percent of the total loan amount.
The average fees for the 30-year held steady at 0.7 point. Fees paid on 15-year fixed loans and both 5-year and one-year adjustable-rate loans were all at 0.6 point.
Once fees are factored in, the average rate on the 30-year loan rises to 4.25 percent, Freddie Mac said.
A drop in mortgage rates could provide some help to the economy if more people could refinance. When people refinance at lower rates, they pay less interest on their loans and have more money to spend.
But many homeowners with good jobs and stable finances have already refinanced in the past year. The average rate on the 30-year fixed loan fell to 4.17 percent last November, and to 4.15 percent last month. Both were previous lows.
Homeowners typically pay a few thousand dollars in closing costs when they refinance. To refinance again, most experts say rates would need to fall an additional 1 percentage point to make it worthwhile.
To calculate average mortgage rates, Freddie Mac surveys lenders across the country Monday through Wednesday of each week.
The average rate on a five-year adjustable-rate mortgage rose to 3.02 percent. That's higher than last week's 2.99 percent.
The average rate for the one-year adjustable-rate mortgage increased slightly to 2.82percent from 2.81 percent, the lowest rate on records going back to 1984.
3.8% Sales Tax After 2012 on Home Sales?
How the New Wealth Taxes Will Hit You
from...Wall Street Journal Online, Laura Sanders
Each tax signals a radical change in policy. For workers, the extra 0.9% levy puts a progressive element in what used to be a totally flat tax. The 3.8% tax on investment income also knocks down a longstanding wall by applying a "payroll" tax to unearned income. Until now, FICA taxes for Social Security and Medicare have applied only to wages, not investment income.
While many details remain unclear and the Internal Revenue Service hasn't issued any guidance, here are preliminary answers to the most important questions taxpayers are asking.
These taxes take effect in 2013, two elections away. Might they be repealed first?
Not likely. "Congress would have to undo the health reform, and budget constraints would still be there," says Clint Stretch of Deloitte Tax. "Even if Republicans take control of Congress, President Obama holds the veto pen until Jan. 20, 2013."
How does the 0.9% tax work?
If Joe and Mary each earn $175,000, their total employment income is $350,000. Currently they owe 1.45%—$5,075—of regular Medicare tax, and their employers owe a matching amount. In 2013, the couple will owe an extra 0.9%—$900—on their wages above $250,000, which is $100,000. Their employers pay nothing extra.
What about the 3.8% tax on net investment income?
This levy is keyed to "modified adjusted gross income," with a threshold of $250,000 for couples and $200,000 for singles. (This is simply adjusted gross income for nearly everybody except expatriates, who must add back certain exclusions.) The tax is a flat 3.8% on investment income above the threshold.
How would this work?
Example 1: John and Jane, a married couple, have $400,000 of AGI—$200,000 of wages plus $200,000 of investment income. Because they have $150,000 of investment income above the $250,000 threshold, they would owe an extra $5,700.
Example 2: Anne, a single filer, earns $40,000 but has an investment windfall of $190,000, for total income of $230,000. Because she has investment income of $30,000 above her $200,000 threshold, she would owe $1,140 of additional tax.
Example 3: Retirees Mary and Bill have no wages but they do have a taxable IRA payout of $90,000, plus investment income of $150,000, for a total of $240,000. They don't owe the new tax, because they have no investment income above the $250,000 threshold.
What is investment income?
Interest, except municipal-bond interest; dividends; rents; royalties; and capital gains on the sales of financial instruments like stocks and bonds. The taxable portion of insurance annuity payouts also counts, unless it is from a company pension. So do gains from financial trading, as well as passive income from rents and businesses you don't participate in. All are subject to the 3.8% tax on amounts above the $250,000 or $200,000 threshold, as described above.
Not taxed: Distributions from regular and Roth IRAs and other retirement accounts, including pensions and Social Security, and annuities that are part of a retirement plan. Life-insurance proceeds, muni-bond interest and veterans' benefits don't count, nor does income from a business you participate in, such as a Subchapter S or partnership.
Could the 3.8% tax apply to gains on the sale of a home?
Yes, if there is a taxable gain above the $500,000 ($250,000, single) exclusion for gains on the sale of your residence.
Example: Fred and Fran, who bought their home in a New York suburb for $50,000 in 1972, sell it in 2013 for $1 million. After subtracting the $50,000 cost and $500,000 exclusion, they have investment income of $450,000. If they also have a taxable IRA payout of $70,000 and a pension of $30,000, they would owe the tax of $11,400 on $300,000.
What happens if a taxpayer who owes the new tax on investments also has a large itemized deduction—say, medical expenses or a theft loss?
Even if taxable income is zero because of deductions, he or she could still owe the 3.8% tax. Example: Myra is a single filer with investment income of $100,000 and wages of $200,000. But during the same year she loses $300,000 in a Ponzi scheme. She pays no income tax, but she still owes the new Medicare tax of $3,800 on her net investment income, says Sharon Kreider, a tax expert in Sunnyvale, Calif.
Does the 3.8% tax affect trusts and estates?
Yes, and it can hit them hard. The tax is levied on investment income as low as $12,000 that isn't paid out to beneficiaries. Some believe the tax may also hit children's unearned income subject to the "kiddie tax" if the parents owe it themselves.
What professions are able to avoid this tax?
Ms. Kreider and others see a sweet spot for real-estate professionals. The law deems their rents to be "active" income, so they wouldn't be subject to the investment tax. Often they don't owe self-employment taxes on that rental income, either.
What steps do experts recommend to minimize these taxes, other than taking capital gains before 2013 or buying municipal bonds?
• Examine both your regular and investment income: the higher your regular AGI, the more likely that your investment income will be subject to the new tax. So while Social Security and pensions don't count as investment income, they raise AGI. This makes Roth IRA conversions even more attractive for many. "Roth withdrawals don't raise AGI and aren't investment income," says Vern Hoven, a tax expert in Gig Harbor, Wash.
• Reconsider a defined-benefit pension if you're eligible—say, you're in a small business or have consulting income, says Mark Nash of PricewaterhouseCoopers. Pension payouts don't count as investment income, and the older a taxpayer is, the more he can contribute.
• Taxpayers selling assets should consider installment sales, says Ms. Kreider, if spreading out the income would minimize the new tax.
• For some, life insurance may become more attractive. Because life-insurance proceeds at death aren't subject to this tax, a taxpayer could buy a policy, borrow from it and settle up at death, avoiding income tax on investment gains within the policy. But Mr. Nash cautions that the savings must outweigh the fees and other disadvantages such policies may have.
Q&A From Realtor.com
Health Insurance Reform: Frequently Asked Questions (FAQs)
New Medicare Tax on "Unearned" Net Investment Income
Q-1: Who will be subject to the new taxes imposed in the health legislation?
A: A new 3.8% tax will apply to the “unearned” income of “High Income” taxpayers. Another 0.9% tax will apply to the “earned” income of many of these same individuals. Both levies are referred to as “Medicare” taxes. (For a description of the new 0.9% tax, see separate Q&A entitled “New Tax on EARNED INCOME: Wages, Salaries and Commissions.”)
Q-2: Who is a “High Income” Taxpayer?
A: Those whose tax filing status is “single” will be subject to the new unearned income taxes if they have Adjusted Gross Income (AGI) of more than $200,000. Married couples filing a joint return with AGI of more than $250,000 will also be subject to the new tax. (The AGI threshold for married filing separate returns is $125,000.)
Q-3: Are the $200,000 and $250,000 thresholds indexed for inflation?
No. Thus, over time, more individuals may become subject to this tax.
Q-4: When does the new 3.8% Medicare tax take effect?
A: The new Medicare tax on unearned income will take effect January 1, 2013.
Q-5: What is “unearned” net investment income?
A. Unearned income is the income that an individual derives from investing his/her capital. It includes capital gains, rents, dividends and interest income. It also comes from some investments in active businesses ifthe investor is not an active participant in the business.
The portion of unearned income that is subject both to income tax and the new Medicare tax is the amount of income derived from these sources, reduced by any expenses associated with earning that income. (Hence the term “net” investment income.) Thus, in the case of rents, the taxable amount would be gross rents minus all expenses (including depreciation) incurred in operating the rental property. So if gross rents were $100,000 with associated expenses of $40,000, net rents of $60,000 ($100,000 minus $40,000) would be included in Adjusted Gross Income (AGI).
Q-6: So the new tax will apply to rents from investment properties that I own?
A: Maybe. Remember that net investment income includes only net rental income. Thus, gross rents would not be subject to the tax. Rather, gross rents would be reduced (as they are under the income tax) by all allowable expenses, including depreciation, cost of repairs, property taxes and all other expenses related to the property. AGI includes net income from rent, so if your AGI is above the $200,000/$250,000 thresholds, then the rental income might be subject to the tax. For many investment real estate owners, the net rents will be the same as or similar to the amounts reported on their Schedule E, filed with their Form 1040 Income Tax Return. (For calculations, see Q-8, below. See also Q-9 through Q-12 related to capital gain from sale of principal residence, losses on sale and to vacation homes, below.)
Click here for all current details on how Congress might change future home taxes
from...Wall Street Journal Online, Laura Sanders
Each tax signals a radical change in policy. For workers, the extra 0.9% levy puts a progressive element in what used to be a totally flat tax. The 3.8% tax on investment income also knocks down a longstanding wall by applying a "payroll" tax to unearned income. Until now, FICA taxes for Social Security and Medicare have applied only to wages, not investment income.
While many details remain unclear and the Internal Revenue Service hasn't issued any guidance, here are preliminary answers to the most important questions taxpayers are asking.
These taxes take effect in 2013, two elections away. Might they be repealed first?
Not likely. "Congress would have to undo the health reform, and budget constraints would still be there," says Clint Stretch of Deloitte Tax. "Even if Republicans take control of Congress, President Obama holds the veto pen until Jan. 20, 2013."
How does the 0.9% tax work?
If Joe and Mary each earn $175,000, their total employment income is $350,000. Currently they owe 1.45%—$5,075—of regular Medicare tax, and their employers owe a matching amount. In 2013, the couple will owe an extra 0.9%—$900—on their wages above $250,000, which is $100,000. Their employers pay nothing extra.
What about the 3.8% tax on net investment income?
This levy is keyed to "modified adjusted gross income," with a threshold of $250,000 for couples and $200,000 for singles. (This is simply adjusted gross income for nearly everybody except expatriates, who must add back certain exclusions.) The tax is a flat 3.8% on investment income above the threshold.
How would this work?
Example 1: John and Jane, a married couple, have $400,000 of AGI—$200,000 of wages plus $200,000 of investment income. Because they have $150,000 of investment income above the $250,000 threshold, they would owe an extra $5,700.
Example 2: Anne, a single filer, earns $40,000 but has an investment windfall of $190,000, for total income of $230,000. Because she has investment income of $30,000 above her $200,000 threshold, she would owe $1,140 of additional tax.
Example 3: Retirees Mary and Bill have no wages but they do have a taxable IRA payout of $90,000, plus investment income of $150,000, for a total of $240,000. They don't owe the new tax, because they have no investment income above the $250,000 threshold.
What is investment income?
Interest, except municipal-bond interest; dividends; rents; royalties; and capital gains on the sales of financial instruments like stocks and bonds. The taxable portion of insurance annuity payouts also counts, unless it is from a company pension. So do gains from financial trading, as well as passive income from rents and businesses you don't participate in. All are subject to the 3.8% tax on amounts above the $250,000 or $200,000 threshold, as described above.
Not taxed: Distributions from regular and Roth IRAs and other retirement accounts, including pensions and Social Security, and annuities that are part of a retirement plan. Life-insurance proceeds, muni-bond interest and veterans' benefits don't count, nor does income from a business you participate in, such as a Subchapter S or partnership.
Could the 3.8% tax apply to gains on the sale of a home?
Yes, if there is a taxable gain above the $500,000 ($250,000, single) exclusion for gains on the sale of your residence.
Example: Fred and Fran, who bought their home in a New York suburb for $50,000 in 1972, sell it in 2013 for $1 million. After subtracting the $50,000 cost and $500,000 exclusion, they have investment income of $450,000. If they also have a taxable IRA payout of $70,000 and a pension of $30,000, they would owe the tax of $11,400 on $300,000.
What happens if a taxpayer who owes the new tax on investments also has a large itemized deduction—say, medical expenses or a theft loss?
Even if taxable income is zero because of deductions, he or she could still owe the 3.8% tax. Example: Myra is a single filer with investment income of $100,000 and wages of $200,000. But during the same year she loses $300,000 in a Ponzi scheme. She pays no income tax, but she still owes the new Medicare tax of $3,800 on her net investment income, says Sharon Kreider, a tax expert in Sunnyvale, Calif.
Does the 3.8% tax affect trusts and estates?
Yes, and it can hit them hard. The tax is levied on investment income as low as $12,000 that isn't paid out to beneficiaries. Some believe the tax may also hit children's unearned income subject to the "kiddie tax" if the parents owe it themselves.
What professions are able to avoid this tax?
Ms. Kreider and others see a sweet spot for real-estate professionals. The law deems their rents to be "active" income, so they wouldn't be subject to the investment tax. Often they don't owe self-employment taxes on that rental income, either.
What steps do experts recommend to minimize these taxes, other than taking capital gains before 2013 or buying municipal bonds?
• Examine both your regular and investment income: the higher your regular AGI, the more likely that your investment income will be subject to the new tax. So while Social Security and pensions don't count as investment income, they raise AGI. This makes Roth IRA conversions even more attractive for many. "Roth withdrawals don't raise AGI and aren't investment income," says Vern Hoven, a tax expert in Gig Harbor, Wash.
• Reconsider a defined-benefit pension if you're eligible—say, you're in a small business or have consulting income, says Mark Nash of PricewaterhouseCoopers. Pension payouts don't count as investment income, and the older a taxpayer is, the more he can contribute.
• Taxpayers selling assets should consider installment sales, says Ms. Kreider, if spreading out the income would minimize the new tax.
• For some, life insurance may become more attractive. Because life-insurance proceeds at death aren't subject to this tax, a taxpayer could buy a policy, borrow from it and settle up at death, avoiding income tax on investment gains within the policy. But Mr. Nash cautions that the savings must outweigh the fees and other disadvantages such policies may have.
Q&A From Realtor.com
Health Insurance Reform: Frequently Asked Questions (FAQs)
New Medicare Tax on "Unearned" Net Investment Income
Q-1: Who will be subject to the new taxes imposed in the health legislation?
A: A new 3.8% tax will apply to the “unearned” income of “High Income” taxpayers. Another 0.9% tax will apply to the “earned” income of many of these same individuals. Both levies are referred to as “Medicare” taxes. (For a description of the new 0.9% tax, see separate Q&A entitled “New Tax on EARNED INCOME: Wages, Salaries and Commissions.”)
Q-2: Who is a “High Income” Taxpayer?
A: Those whose tax filing status is “single” will be subject to the new unearned income taxes if they have Adjusted Gross Income (AGI) of more than $200,000. Married couples filing a joint return with AGI of more than $250,000 will also be subject to the new tax. (The AGI threshold for married filing separate returns is $125,000.)
Q-3: Are the $200,000 and $250,000 thresholds indexed for inflation?
No. Thus, over time, more individuals may become subject to this tax.
Q-4: When does the new 3.8% Medicare tax take effect?
A: The new Medicare tax on unearned income will take effect January 1, 2013.
Q-5: What is “unearned” net investment income?
A. Unearned income is the income that an individual derives from investing his/her capital. It includes capital gains, rents, dividends and interest income. It also comes from some investments in active businesses ifthe investor is not an active participant in the business.
The portion of unearned income that is subject both to income tax and the new Medicare tax is the amount of income derived from these sources, reduced by any expenses associated with earning that income. (Hence the term “net” investment income.) Thus, in the case of rents, the taxable amount would be gross rents minus all expenses (including depreciation) incurred in operating the rental property. So if gross rents were $100,000 with associated expenses of $40,000, net rents of $60,000 ($100,000 minus $40,000) would be included in Adjusted Gross Income (AGI).
Q-6: So the new tax will apply to rents from investment properties that I own?
A: Maybe. Remember that net investment income includes only net rental income. Thus, gross rents would not be subject to the tax. Rather, gross rents would be reduced (as they are under the income tax) by all allowable expenses, including depreciation, cost of repairs, property taxes and all other expenses related to the property. AGI includes net income from rent, so if your AGI is above the $200,000/$250,000 thresholds, then the rental income might be subject to the tax. For many investment real estate owners, the net rents will be the same as or similar to the amounts reported on their Schedule E, filed with their Form 1040 Income Tax Return. (For calculations, see Q-8, below. See also Q-9 through Q-12 related to capital gain from sale of principal residence, losses on sale and to vacation homes, below.)
Click here for all current details on how Congress might change future home taxes
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