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FHA may be reopening doors to condo financing

WASHINGTON – May 23, 2016 – Could the Federal Housing Administration (FHA) finally be opening its doors again to financing more condominium units? If so, that could be excellent news for young, first-time buyers and for seniors who own condo units and need a reverse mortgage to supplement their post-retirement incomes.

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Here’s why: FHA financing offers not only 3.5 percent minimum downpayments but is far more lenient than other options on crucial issues such as credit scores and debt-to-income ratios. Plus FHA is the dominant source of insured reverse mortgages – the only game in town for the vast majority of seniors.

But if a condo building is not certified as eligible for financing by FHA, all the individual units in the project are ineligible for mortgage financing as well. Young families can’t buy using FHA loans, sellers can’t sell and seniors can’t tap their equity through a reverse mortgage. It used to be different – for years FHA allowed so-called “spot” loans on individual units – but no more.

But maybe things are about to change. In a speech last week to the National Association of Realtors, Housing and Urban Development secretary Julian Castro said revisions to controversial FHA rules on condos have been completed and only await final Obama administration approval. The changes would simplify controversial certification procedures for condo buildings and amend other rules that have knocked thousands of condominium buildings out of eligibility.

Since adopting highly restrictive qualification rules early in the current administration, FHA – once a major player in the condo field and the go-to source of financing for moderate-income purchasers – has steadily seen its market share shrink. FHA once financed 80,000 to 90,000 condo units a year, but last year volume fell below 23,000. Many condo homeowner associations began losing their eligibility several years ago, and because of what they consider onerous recertification requirements, have never sought to reapply.

Castro provided no details on what changes are coming. But real estate and condo industry sources say they could build upon reforms announced last November that appear to have had at least modest success in encouraging condo homeowner boards to get onboard again.

Two California-based consultants who help associations and community managers work through the certification hoops told me they have seen a jump in activity in recent weeks. Condo boards that had been resistant to the FHA rules “aren’t fighting them as much any more,” said Natalie Stewart, president of FHA Review. “People need to sell their homes, people need to buy” affordable condo units, so some associations grudgingly are returning to the FHA fold.

Jon Eberhardt, president of Condo Approvals, LLC, said “we certainly have seen an uptick” in FHA certification applications. “I wouldn’t call it monumental, simply a steady growth” in the wake of last November’s changes, he added.

Dawn Bauman, senior vice president for government affairs at the Community Associations Institute, a Virginia-based group that represents 33,000-plus condo and homeowner associations and managers, confirmed that she’s also detected “an increase in the number of applicants” for condo certification and that regional FHA offices have been “more flexible” in recent months in evaluating applications.

What will be crucial to continuing the positive trend, industry experts say, is for the upcoming guidelines to make changes beyond simply streamlining condo certifications.

On the list of needed reforms:

The return of spot loans. That alone would significantly expand opportunities for millennials, minorities and seniors.
An end to FHA’s blanket prohibitions against community-benefit homeowner transfer fees collected by some condo associations when units change hands. In California, this ban alone has led to the loss of thousands of units from FHA financing – a huge problem in areas where affordability is tough and condos are the lowest-cost alternative for many consumers.
Relaxation of strict limits on commercial space in residential condo properties. Revenues from commercial leases are important to the financial health of urban condominiums, but current FHA caps render many buildings ineligible.

Copyright © 2016 the Boston Herald, Distributed by Tribune Content Agency, LLC.

New downtown Miami office building lands two major tenants

The Two MiamiCentral office building under construction in downtown Miami signed leases with Cisneros and Moss & Associates to push pre-leasing to 60 percent.

Cisneros, a media, entertainment and real estate firm, will occupy 30,000 square feet on the top two floors of the office building after relocating from Coral Gables. The 10-story building will total 190,000 square feet and should be completed in 2017 and will be connected to developer Florida East Coast Industries’ Brightline passenger train.

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“MiamiCentral and Brightline represent a major step forward for South Florida,” said Adriana Cisneros, CEO and vice chairman of Cisneros. “This facility is committed to innovation, entrepreneurship and social leadership, and we look forward to being able to provide our employees with a range of amenities and transportation options located right in MiamiCentral.”

Fort Lauderdale-based Moss & Associates, which has many construction projects in Miami, will lease 4,000 square feet on the seventh floor of Two MiamiCentral.

“Downtown Miami is experiencing a development boom, including a number of projects that we are directly involved in,” said Bob Moss, chairman and CEO of Moss & Associates. “We felt strongly that we should have a presence in the center of that development and that is Two MiamiCentral.”

FECI and broker Blanca Commercial Real Estate previously announced leases at the project with Ernst & Young for 23,000 square feet, Regus for 20,000 square feet and FECI’s headquarters for 20,000 square feet.

See what Tere Blanca had to say about the office project’s progress.

In addition to the passenger train linking Miami with Fort Lauderdale, West Palm Beach and Orlando, MiamiCentral will include residential and retail buildings. Miami-based H3 Hospitality, headed by Justin Schultz and Seth Gadinsky, was recently named leasing agent for the 180,000 square feet of retail. The developer recently announced that a 50,000-square-foot artisanal marketplace with six restaurants and 20 kiosks would be located at the station pedestal along Northwest 1st Avenue.

Courtesy of Bryan Bandell
Senior Reporter South Florida Business Journal

$183 Billion of U.S. Non-Bank Commercial Debt Matures in 2016, a 51% Spike Over 2015

February 5th, 2016

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According to the Mortgage Bankers Association’s 2015 Commercial Real Estate/Multifamily Survey of Loan Maturity Volumes, eleven percent or $183.3 billion of $1.7 trillion of outstanding commercial and multifamily mortgages held by non-bank lenders and investors will mature in 2016. This represents a 51 percent increase from the $121.0 billion that matured in 2015. Maturities will grow to $208 billion in 2017.

“More commercial and multifamily mortgages are maturing in 2016 and 2017 than have the last few years, but early refinancings and pay-downs are chipping away at those totals. The bottom line is that the ‘wall of maturities’ that has been the focus of concern the last many years is receding,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “Last year’s survey tracked $225 billion of commercial and multifamily mortgages that were set to mature in 2016. This year’s survey found that 2016 maturities had dropped by 18 percent, to $183 billion as loans prepaid and paid-down. That’s roughly the same amount that matured in the year 2010.”

The loan maturities vary significantly by investor group. Just $11.4 billion (2 percent) of the outstanding balance of multifamily and health care mortgages held or guaranteed by Fannie Mae, Freddie Mac, FHA and Ginnie Mae will mature in 2016. Life insurance companies will see $26.6 billion (7 percent) of their outstanding mortgage balances mature in 2016. Among loans held in CMBS, $114.6 billion (19 percent) will come due in 2016. Among commercial mortgages held by credit companies and other investors, $30.7 billion (18 percent) will mature in 2016.

The dollar figures reported are the unpaid principle balances as of December 31, 2015. Because most loans pay down principle, the balances at the time of maturity will generally be lower than those reported here. This survey covers $1.69 trillion of commercial and multifamily mortgages held or insured by life companies, Fannie Mae, Freddie Mac, FHA, CMBS trusts and other non-bank lenders and investors. Banks and thrifts hold an additional $1.0 trillion in mortgages backed by income producing properties which are not covered by this survey.

Courtesy of Michael Gerry
Photo Credits: World Property Journal

Tax Deductions for Rental Homes

February 5th, 2016

Although being a landlord certainly has its cons, tops among its pros are the tax deductions rental homeowners enjoy.

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From finding tenants to fixing faucets, renting out a home can be a lot of work. If that doesn’t dissuade you, you’ll appreciate collecting the rent checks and taking advantage of tax deductions.

In fact, you can use many rental property expenses to offset your rental income. IRS Publication 527 has all the details.

Writing Off Rental Home Expenses

Many rental home expenses are tax deductible. Save receipts and any other documentation, and take the deductions on Schedule E. Figure you’ll spend four hours a week, on average, maintaining a rental property, including recordkeeping.

In general, you can claim the deductions for the year in which you pay for these common rental property expenses:

-Advertising
-Cleaning and maintenance
-Commissions paid to rental agents
-Home owner association/condo dues
-Insurance premiums
-Legal fees
-Mortgage interest
-Taxes
-Utilities

Less obvious deductions include expenses to obtain a mortgage, and fees charged by an accountant to prepare your Schedule E. And don’t forget that a rental home can even be a houseboat or trailer, as long as there are sleeping, cooking, and bathroom facilities. Moreover, the location of the rental home doesn’t matter. It could even be outside the United States.

Limits on Travel Expenses

You can deduct expenses related to traveling locally to a rental home for such activities as showing it, collecting rent, or doing maintenance. If you use your own car, you can claim the standard mileage rate, plus tolls and parking. For 2015, it’s 57.5 cents per mile.

Traveling outside your local area to a rental home is another matter. You can write off the expenses if the purpose of the trip is to collect rent or, in the words of the IRS, “manage, conserve, or maintain” the property. If you mix business with pleasure during the trip, you can only deduct the portion of expenses that directly relates to rental activities.

Repairs vs. Improvements

Another area that requires rental home owners to tread carefully is repairs vs. improvements. The tax code lets you write off repairs—any fixes that keep your property in working condition—immediately as you would other expenses. The costs of improvements that add value to a rental property or extend its life must instead be depreciated over several years. (More on depreciation below.)

Think of it this way: Simply replacing a broken window pane counts as a repair, but replacing all of the windows in your rental home counts as an improvement. Patching a roof leak is a repair; re-shingling the entire roof is an improvement. You get the picture.

Deciphering Depreciation

Depreciation refers to the value of property that’s lost over time due to wear, tear, and obsolescence. In the case of improvements to a rental home, you can deduct a portion of that lost value every year over a set number of years. Carpeting and appliances in a rental home, for example, are usually depreciated over five years.

You can begin depreciating the value of the entire rental property as soon as the rental home is ready for tenants and you hold it out for rent, even if you don’t yet have any tenants. In general, you depreciate the value of the home itself (but not the portion of the cost attributable to land) over 27.5 years. You’ll have to stop depreciating once you recover your cost or you stop renting out the home, whichever comes first.

Depreciation is a valuable tax break, but the calculations can be tricky and the exceptions many. Read IRS Publication 946, “How to Depreciate Property,” for additional information, and use Form 4562 come tax time. You may need to consult a tax adviser.

Profits and Losses on Rental Homes

The rent you collect from your tenant every month counts as income. You offset that income, and lower your tax bill, by deducting your rental home expenses including depreciation. If, for example, you received $9,600 rent during the year and had expenses of $4,200, then your taxable rental income would be $5,400 ($9,600 in rent minus $4,200 in expenses).

You can even write off a net loss on a rental home as long as you meet income requirements, own at least 10% of the property, and actively participate in the rental of the home. Active participation in a rental is as simple as placing ads, setting rents, or screening prospective tenants.

If your modified adjusted gross income (same as adjusted gross income for most persons) is $100,000 or less, you can deduct up to $25,000 in rental losses. The deduction for losses gradually phases out between income of $100,000 and $150,000. You may be able to carry forward excess losses to future years.

Let’s say that for the year rental receipts are $12,000 and expenses total $15,000, resulting in a $3,000 loss. If your modified adjusted gross income is below $100,000, you can deduct the full $3,000 loss. If you’re in a 25% tax bracket, a $3,000 loss reduces your tax bill by $750, plus any applicable state income taxes.

Tax Rules for Vacation Homes

If you have a vacation home that’s mostly reserved for personal use but rented out for up to 14 days a year, you won’t have to pay taxes on the rental income. Some expenses are deductible, though the personal use of the home limits deductions.

The tax picture gets more complicated when in the same year you make personal use of your vacation home and rent it out for more than 14 days.

DISCLAIMER:This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice.

Courtesy of: Donna Fuscaldo
Image: Liz Foreman for HouseLogic

Florida Dominates Ranking of America’s Most Investable Housing Markets in 2016

February 1st, 2016

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Forbes ranked the 20 best markets to invest in housing in 2016 and Florida made its presence felt with seven cities gaining recognition. Orlando paved the way at No. 2.

The criteria for the ranking:

Local Market Monitor screened the 100 largest Metropolitan Statistical Area and Divisions (geographical designations used by the U.S. Census Bureau to delineate a core city and its surrounding suburbs), all with populations of at least 600,000, for characteristics that make for good investments. Each of our Best Buy Cities boasts healthy job growth, strong population growth, and anticipated home price appreciation. The majority of the cities are still considered undervalued.

South Florida was represented in the Top 10 with Fort Lauderdale coming in at No. 8, encompassing Fort Lauderdale, Pompano Beach, and Deerfield Beach. Among them, average home prices are highest in West Palm Beach (No. 19), at $285,000, and lowest in Tampa (No. 14), at $193,000, but have been accelerating at a rate of 9% to 14% in all the Florida cities. They calculated a three-year home price growth forecast of 20 percent for that market.

Why is Florida, of all places, dominating the list? “The Florida situation surprised me,” admits Winzer. But in light of the national economic recovery, Florida’s rise makes a lot of sense. Because it attracts retirees, second-home buyers, and investors, the Sunshine State’s housing market is subject to more volatility than other markets. With would-be retirees and vacationers staying away during the downturn, housing prices tumbled dramatically. “Since the national economy has stabilized and is growing again, the factors that prompt people to go to Florida have recovered,” Winzer said. As retirees and vacationers return, they need services, in turn creating a steady stream of jobs, which leads to a steady supply of renters. Last year Florida added nearly a quarter-million jobs, Florida TaxWatch reports.

Forbes’ Top 20 Best Buys of 2016:

1. Grand Rapids
2. Orlando
3. San Antonio
4. Charlotte
5. Salt Lake City
6. Dallas
7. Austin
8. Fort Lauderdale
9. Seattle
10. Cape Coral
11. Indianapolis
12. Northport
13. Nashville
14. Tampa
15. Charleston
16. Denver
17. Madison
18. Jacksonville
19. West Palm Beach
20. Boise

Courtesy of Forbes & Josh Baumgard

U.S. Home Prices Jump in December, Enjoy Biggest Increase in 2 Years

January 29, 2016

Sales Rise Nearly 8 Percent as Inventory Hits a New Low

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According to national real estate brokerage Redfin, U.S. home prices rose higher in December 2015 than they did in the 22 months prior, posting an 8.8 percent year-over-year increase. There were also fewer homes for sale in December than in any other month of 2015 (down 5.4 percent year over year), but despite this lack of supply, sales were up 7.7 percent.

U.S. home prices dodged the typical December slow-down and spiked last month due to a dearth of properties on the market. In December, there was a three-month supply of homes for sale, a steep slide from the 4.1 months reported in November and far from the six months that signals a balanced market. The lack of inventory supported a fast market, where the typical home sold in 41 days, a week faster than a year ago.

The 7.7 percent year-over-year increase in sales, compared to 2.8 percent the previous month, continued a recent pattern of sales rebounding in December from November. In 2014, December sales grew 9.7 percent after dropping 0.7 percent in November. This trend casts doubt on the theory that a new mortgage rule, known as TRID or Know Before You Owe, had a significant impact on November or December sales volume.

Nela Richardson, Chief Economist at Redfin tells World Property Journal, “This surge in prices and sales isn’t necessarily indicative of a broader pick-up in the market, but it is an unusual occurrence for December, when the market typically slows down. The lack of inventory made it an unexpectedly competitive month for buyers. But without more listings, the strong sales growth we saw last month simply won’t continue; buyers lose interest when there’s little to choose from.”

In total, there were nearly two million homes sold (1,969,814 to be exact) in 68 markets tracked by Redfin in 2015, leading to a strong 9.6 percent increase from 2014.

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Local Market Insights in December 2015:

*The median sale price in Hudson Valley, NY, climbed 15.1% from November, posting the biggest gains of any market. Year over year, prices were up 6.3%.

*Sales rebounded across the country in December from November, with 64 of 68 markets posting double-digit, month-over-month increases. San Jose (71%), San Francisco (29.7%) and Nashville (20.2%) had the biggest increases compared to last year.

*Denver and Oakland tied for the fastest markets, with half of all new listings selling in 18 days or less, followed closely by Seattle, where the typical home sold in less than three weeks.

*New listings surged at year end in Miami (58.3%) and Fort Lauderdale (26.9%), where sellers see demand from vacation homebuyers. New for-sale listings were up 80.4% in Miami from a year ago; sellers put more properties on the market in December than in any other month of 2015. Inventory in Miami is up 11.3% year over year.

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Courtesy: WPJ Staff

11 things to do when you move to Miami!

January 20th, 2016

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So you just relocated to Miami and are wondering what to do next? Here are 11 things you need to make sure you do before the moving truck arrives:

1. Learn Spanish; if you don’t speak it already.

I don’t care if you’re all: This is America! We speak English! … well, this is Miami, you better habla Espanol or you habla be outta-heaaaa, papi! Oh and get used to hearing/saying “Oye!” a lot … like a LOT!

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2. Hit up Enriqueta’s and order a cafecito
… because what quintessential thing will initiate you into being a true Miamian than ordering an over-loaded sugar-infested caffeine bomb over a sliding window to a woman who barely speaks English (see note #1).

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3. Hit up the beach – any beach (Haulover, Key Biscayne, South of 5th)
… because once you live here, you will never go to the Beach ever again because the “I live in Miami. I’ll hit the Beach next weekend” excuse exists … 20 years later, when was the last time you actually went to the Beach!?!

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4. Learn the back roads to avoid I-95 as much as possible.
Trust me – NW 7th Avenue might seem like it’s the “hood” (because it is) but it sure as hell beats being stuck in the parking lot of I-95 during rush hour (which is pretty much from 7 a.m. EST thru 8 p.m. EST every week day).

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5. Pronounce Art Basel as “Bah-sell”, not the Italian herb.
This will up your cultural-cred by 10 points when the first week of December rolls around.

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6. Purchase a Miami HEAT apparel – hat, sweater, jersey … whatever
… but please be aware that LeBron is a “bad word” down here. Do not even acknowledge this man’s existence, even if it’s about his acting abilities in the now DVD movie, Trainwreck. Note: “Did you check out that new Amy Schumer flick, Trainwreck – it’s hilarious. And that guy, whats-his-name, basketball player – he’s not so bad either.

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7. Lease a luxury car and pay up-the-ass a month
– because there’s really no rhyme or reason except you just have to. So that 2010 Honda CRV that you drove down from bumblef**k Ohio … yeah, burn that and get yourself a nice, baby-blue 2016 BMW 7 Series Sedan … trust me. Valet is real here, Miami. Valet can make or break your Tinder date.

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8. Two Words: Publix. Subs.
I rest my case.

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9. Don’t rush to make a meeting on time
because in Miami, if you’re on time, you’re really 10-15 minutes early. And well, there’s no such thing as being “late” because, well, traffic, bro …

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10. Say “bro”
after everything … bro.

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11. Learn to love the random craziness of Miami.
Prepared to not be prepared. Throw all your plans out the window. What you thought was reality is not. Miami lives and dies by a whole set of rules that do not make any common sense in any other part of this great nation.

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So just learn to love the madness and enjoy the ride.

Oye! Bienvenidos, bro!

Courtesy: Esther Park | Miami.com

Is This The House That Will Turn Millennials Into Homeowners?

January 14th, 2016

Millennials are having a hard time entering the real estate market (because the generations before them destroyed it). This affordable, sustainable house is trying to change that.

If you were born after 1980, there’s a pretty good chance you don’t own a house. Thanks in part to massive student loans and difficulty finding jobs after graduation, almost half of men ages 18 to 34 (and over a third of women, a record number) still live with their parents.

Others rent. And while it’s true that some millennials would rather live in the city than the burbs, some do want to own houses. So one Las Vegas builder is trying to figure out how to design a house they’ll actually be interested in buying—and actually be able to pay for.

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After surveying hundreds of would-be homeowners, they focused on a few key points. Because the house had to be affordable—and because millennials say they want to stay in the same place over time, rather than moving over and over—the architects rethought how a home could be used.

Instead of a typical single-family home, the design has rooms that can start as apartments. “A young single guy could bring in a couple of roommates, rent out rooms for a big chunk of his mortgage payment, but then those spaces could easily turn into a baby’s room, a mother-in-law quarters, later,” says Klif Andrews, Las Vegas division president of Pardee Homes, the developer.

The designs are also sustainable, but only to the point that’s affordable. “Our research showed that millennials are interested in sustainability and green features, but that they have to be practical,” he says. “They were very specific about that. Whereas research we’ve done on boomers might be much more magnanimous, like we’ll make this statement about green, damn the cost.”

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The electricity in the houses runs completely on solar power. But because natural gas is cheap—and people still want gas stoves, rather than electric—the whole house doesn’t use zero total energy. Rain sensors on the roof tell the irrigation system when to stop watering the lawn, and sinks and showers also save water, both features that can save money for a young homeowner.

The houses also use smart tech, but only when it’s truly useful. You can control energy systems or lighting through your phone; the Wi-Fi is fast. “Millennials have a very pragmatic look at technology,” says Andrews. “Gee-whiz technology just for the sake of having it doesn’t seem to impress them. They’ve grown up with it their whole life.”

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The houses are concepts, but the developer is already using them as inspiration in real projects. They’re convinced that this is the type of design that can make millennials finally invest, something that a significant portion of the generation wants to do.

“Millennials in their twenties are very happy to live in urban areas,” he says. “But as the leading edge of millennials gets a little bit older, they start to have much more traditional thoughts about the locations that they live. They have a noted preference for close-in suburban locations, with all of the same typical amenities that we find in suburban locations—a private yard, room to get a dog.”

Cortesy:
Adele Peters from FastCoExist

Luxury Buyers Will Lose Their Anonymity

 

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Condominiums at the Time Warner Center were found to have a number of hidden owners over a decade who had been the subjects of government investigations. Credit Edward Caruso for The New York Times

WASHINGTON – Jan. 13, 2016 – A pilot program to uncover the names of luxury real estate buyers in Miami-Dade County and New York City could one day expand nationwide if it proves successful.

The recently announced program by the U.S. Treasury Department stems, in part, from a series of stories published by The New York Times. It’s the first time U.S. authorities have demanded the names of cash buyers.

In Miami-Dade County, the rule will apply to all cash sales worth more than $1 million; in New York City, it applies to sales $3 million or higher. The test program runs from March through August.

“We are concerned about the possibility that dirty money is being put into luxury real estate,” says Jennifer Shasky Calvery, director of the Financial Crimes Enforcement Network. “We think some of the bigger risk is around the least transparent transactions.”

According to The New York Times, the Treasury Department isn’t the only federal agency boosting its oversight of luxury home sales’ potential to hide ill-gotten gains. The Justice Department will start to focus on real estate deals separately rather than include them in bigger transactions; and the Federal Bureau of Investigation (FBI) plans to create a new unit that focuses on money laundering with real estate “a central emphasis.”

According to the Treasury Department, it will focus on shell company buyers of upscale real estate, which are often LLCs, partnerships or other financial entities. It will require title insurance companies to discover buyers actual identifies and report the information.

Shell buyers are legal but “often mask their identities by layering companies on top of other shell companies,” according to the newspaper. “Buyers also commonly fill out LLC formation papers using the names of lawyers or other placeholders, often called ‘nominees,’ instead of their own names.”

Under Treasury rules, a “beneficial owner” – one whose name must be sent to the department – are “each individual who, directly or indirectly, owns 25 percent or more of the equity interests.”

“Repeated anecdotal information where we see criminals of different stripes putting money into real estate all suggest to us that this is an area we need to pay attention to,” says Calvary.

Source: The New York Times, Jan. 13, 2017, Louise Story

© 2016 Florida Realtors®

FIRPTA WITHHOLDING RATE TO INCREASE TO 15%

 

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Effective Feb. 16, FIRPTA general withholding rate increases from 10% to 15%.

Recent federal tax legislation increases the FIRPTA general withholding rate from 10% to 15% effective for closings on or after February 16, 2016. Closing agents should adjust their procedures and forms to reflect this change. (If you want a reference, it is H. R. 2029, now known as Public Law 114-113. See Section 324 for text of changes).

The 10% rate will still apply for those transactions in which the property is to be used by the Transferee as a residence, provided the amount realized (generally the sales price) does not exceed $1,000,000, and the existing $300,000 “exemption” remains unaffected. So here are your new guidelines:

If the amount realized (generally the sales price) is $300,000 or less, AND the property will be used by the Transferee as a residence (as provided for in the current regulations), no sums need be withheld or remitted.
If the amount realized exceeds $300,000 but does not exceed $1,000,000, AND the property will be used by the Transferee as a residence (there are no regulations that specifically address these changes but many are assuming you can follow the current regulations for the $300,000 exemption), then the withholding rate is 10% on the full amount realized.
If the amount realized exceeds $1,000,000, then the withholding rate is 15% on the entire amount, regardless of use by the Transferee.
The well-documented flaws and risks of the $300,000 exemption will likely continue although future regulations could change existing procedures. Members should document the Transferee’s intent to use the property as a residence as best they can and point out to the Transferee the risks of allowing the exemption to apply to their transaction. Under the law, the Transferee is the withholding agent and is responsible for withholding and remitting the proper amount to the IRS. Members should also be alert for situations where the foreign Transferor forces the Transferee to claim residence status merely to lower the withholding rate, since the Transferee could be liable for any additional withholding tax, penalty, and interest if their intent is ever challenged by the IRS.

The current FAR/BAR contract form contains language specifically referring to a 10% withholding. An amendment to the contract for closings scheduled on or after February 16, 2016 should be added to change the potential rate of withholding to 15%.

The remainder of the FIRPTA changes in the recent legislation involve REITS, but a new exemption from FIRPTA taxation and withholding is provided for qualified foreign pension funds. A new certification form likely will be needed to document the exemption.

Thanks to Jason Warner at Warner Tax for helping with this Fund Alert!

Courtecy The Fund & Jonathan H. (Jason) Warner