More Smart Year-End Tax Moves for 2012

Everyone needs help with tax strategies. Earlier in the week I posted a few ideas. Now I am continuing with some additional tips. If you haven't read the earlier post, I hope you will go back and read it for more ideas.

Review Your Portfolio Allowing taxes to dictate your investment strategy is rarely a good idea. But if you’re already considering selling appreciated securities or other assets -- even if you don’t have losses to offset them -- cutting them loose by year-end could save you money (you can harvest losses to offset investment gains, plus shield up to $3,000 of ordinary income from taxes).

Unless Congress extends the Bush tax cuts, the top rate on capital gains will rise to 20%, and the top rate for dividends will jump to 39.6%. Even if Congress extends current rates, the new 3.8% surtax on unearned income, levied on singles with adjusted gross income over $200,000 (over $250,000 for married couples), will boost the top rate for long-term capital gains and dividends to 18.8%.

If you think you’re going to need to sell some of your investments to raise cash next year, do it before December 31. And if you're an investor in the two lowest income tax brackets, 2012 is the last year you will pay zero tax on capital gains and dividends.

To take advantage of the 0% capital-gains rate for 2012, your taxable income can't exceed $35,350 if you are single; $47,350 if you are a single head of household with dependents; or $70,700 if you are married filing jointly.

Convert Your IRA to a Roth If you think your tax rate is going to rise sometime in the future, converting to a Roth makes a lot of sense. Withdrawals from traditional IRAs are taxed at your ordinary income tax rate, while all withdrawals from Roths are tax-free and penalty-free as long as you're at least 59½ and the converted account has been open at least five years. You do have to pay taxes on any pretax contributions and earnings in your traditional IRA for the year you convert. That's why converting before New Year's Eve is smart: You'll pay taxes at current tax rates, which are unlikely to go any lower.

If you're an upper-income taxpayer -- with modified adjusted gross income of at least $200,000 if you're single or $250,000 if you're married filing jointly -- you have an even greater incentive to convert in 2012 because converting next year could trigger a new 3.8% surtax on unearned income. (The surtax was enacted to pay for some of the costs of the health-care reform law.) Withdrawals from an IRA aren't subject to the surtax, but they're counted as adjusted gross income and could lift your AGI above the threshold.

There is a major caveat, though. We think a major tax reform package could be enacted as early as next year that would lower overall tax rates, while eliminating tax credits and deductions. If that happens, you'd be better off converting after December 31.
Fortunately, when you convert to a Roth, you can change your mind. If it looks like tax reform is going to lower your tax rate, you have until October 15, 2013, to undo the conversion and turn your Roth back into a regular IRA.

Give to Charity This is a great time of year to clean out your closets and garage, but you can write off donations to a charitable organization only if you itemize deductions. A few bags full of gently used clothes and household items can add up to hundreds of dollars in tax deductions, but valuing those donations can be difficult. (Try Turbo Tax's free tool).

If you donate a used car worth more than $500 to charity, your deduction will be limited to the amount the organization receives when it sells it. But you may be able to claim a bigger deduction based on the vehicle's fair-market value if the charity uses it to deliver meals, for example, or gives it to a needy individual. The charity will list the vehicle's sale price, or whether an exception allowing a higher deduction applies, on Form 1098-C, which you must attach to your tax return. Because of previous abuses, donations of used cars and other noncash items may attract extra scrutiny from the IRS. So keep scrupulous records.

Send cash donations to your favorite charity by December 31 and hang on to your canceled check or credit card receipt as proof of your donation. If you contribute $250 or more, you'll also need an acknowledgment from the charity.

Spend Down your Flex Plan (If You Need to) If you're thinking of cleaning out your 2012 flexible spending account to avoid the "use it or lose it" rule, remember that you can no longer use flex funds to pay for over-the-counter medicines, such as aspirin, ibuprofen or allergy meds, without a prescription (except for insulin).

But that restriction does not apply to other nonprescription medical items, such as crutches, contact-lens solution or bandages. (For a list of what is allowed by law, see IRS Publication 502.) The same rules on eligible purchases apply to health savings accounts.

In most cases, you have until March 15, 2013, to use your 2012 funds, but some employers still adhere to the December 31 deadline for using the money or forfeiting the balance. Check with your employer to verify your plan's deadline. 

Source: Kiplinger Magazine


Smart Year-End Tax Moves for 2012

Year-end tax planning is stressful under ordinary circumstances, and this year is anything but ordinary. Unless Congress reaches an agreement by December 31, tax rates on wages and investments will rise, the exemption from the estate tax will shrink, and dozens of tax breaks will disappear. Without a compromise, nearly 90% of Americans will pay higher taxes next year, and the average household’s tax bill will increase by $3,500, according to an analysis by the Tax Policy Center.

The most likely fix is a temporary extension of the current tax rates, but the odds that a lame-duck Congress will reach a deal are fading. With that in mind, focus on these year-end tactics that will trim your tax bill no matter what Congress does.
1. Pay into your 401(k) or similar employer-based retirement plan. Money you contribute to your plan (if it's not a Roth) is excluded from your income, lowering your tax bill.  If you're not yet on track to max out your contributions by year-end, you can direct some extra dollars to your retirement plan during your last few pay periods -- or, if you get a year-end bonus, use it to fatten your savings.

This year, workers can contribute up to $17,000 to employer-based plans. Workers 50 and older can contribute up to $22,500.

2. Cut your tax refund The majority of Americans are addicted to refunds. More than 75% of U.S. taxpayers give Uncle Sam an interest-free loan year after year, with an average refund of about $3,000 -- that's $250 per month. Wouldn't you rather get your money when you earn it instead of waiting a year for a refund? What’s more, that fat refund represents a security risk -- identity thieves have been filing fraudulent returns and stealing the refund.

There's an easy fix. Just file a revised Form W-4 with your employer. The more "allowances" you claim on the W-4, the less tax will be withheld. If your current financial situation is similar to last year's, just use our Tax Withholding Calculator. Answer three simple questions (you'll find the answers on your 2011 tax return), and we'll estimate how many additional allowances you deserve -- and how much your take-home pay could rise.

3. Boost Your 2012 Income Deferring discretionary income, such as year-end bonuses, is a popular tax strategy when tax rates are expected to remain the same or decline. This year, though, high-income taxpayers may want to accelerate discretionary income to avoid a tax hike created by the health-care reform law. Starting in 2013, taxpayers will pay an additional 0.9% Medicare tax on income from wages over $200,000 ($250,000 for married couples.) Of course, if tax reform leads to lower rates, deferring income would still make sense. But that may not happen right away: rate cuts in the Tax Reform Act of 1986 didn’t take effect until 1987 and 1988. 

4. Plan Your Itemized Deductions If tax rates increase next year, deductions will be more valuable. That would seem to argue in favor of postponing your charitable gifts until 2013. Much depends, though, on your personal situation. If you expect your income to drop next year -- you plan to retire, for example -- the deductions will probably be more valuable this year, no matter what happens with tax rates.

And for high earners, there’s another twist. Before 2001, the tax code limited itemized deductions and personal exemptions for taxpayers whose income exceeded a certain threshold. The Bush tax cuts phased out those limits and repealed them in 2010. The reductions are scheduled to be reinstated in 2013. If Congress doesn’t act, high-income taxpayers could lose up to 80% of their itemized deductions. For that reason, a charitable gift made in 2012 may produce greater tax savings than one made in future years, even if tax rates increase.

You may want to pay other deductible expenses before year-end, such as your January mortgage, 2013 real estate taxes and fourth-quarter estimated state income taxes. Be careful, though: If you're a candidate for the Alternative Minimum Tax, some of those deductions could be disallowed.

To take advantage of the 0% capital-gains rate for 2012, your taxable income can't exceed $35,350 if you are single; $47,350 if you are a single head of household with dependents; or $70,700 if you are married filing jointly.

Source: Kiplinger Magazine


Commercial Real Estate Vacancies Slowly Declining, Rents Rising

Most of the major commercial real estate sectors show gradually improving fundamentals and are easily absorbing the relatively small amount of new space that is coming online, with a full recovery already in the multifamily market, according to the National Association of Realtors® quarterly commercial real estate forecast.

Lawrence Yun , NAR chief economist, said the market has been slowly building momentum. "Job creation is the key to increasing demand in the commercial real estate sectors," he said. "The economy is expected to grow 2.5 percent next year, and with modest job creation, assuming there is no fiscal cliff, the demand for commercial space will gradually rise. The greatest friction that remains is a tight credit environment, notably for smaller properties."

Vacancy rates over the next four quarters are forecast to decline 1.0 percentage point in the office market, 0.6 point in industrial, 0.2 point for retail and 0.1 point in multifamily; however, multifamily has the tightest availability and is experiencing the strongest rent increases, well above the rate of inflation.

"The primary factor holding back greater job creation has been uncertainty over regulations and associated costs," Yun said. "With the elections behind us and Washington apparently resolved to prevent a fiscal cliff, it's hoped that ambiguity over regulatory issues will clear relatively soon so employers can understand the rules of the game and the layout of the field."

NAR's latest Commercial Real Estate Outlook offers projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data for metro areas were provided by REIS, Inc., a source of commercial real estate performance information.

Office Ma​rkets 

Vacancy rates in the office sector are projected to fall from an estimated 16.7 percent in the fourth quarter to 15.7 percent in the fourth quarter of 2013.

The markets with the lowest office vacancy rates presently (in the fourth quarter) are Washington, D.C., with a vacancy rate of 9.6 percent; New York City, at 10.1 percent; and New Orleans, 12.9 percent.

Office rent is expected to increase 2.0 percent this year and 2.5 percent in 2013. Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is likely to total 21.7 million square feet in 2012 and 49.0 million next year.

Industrial Markets

Industrial vacancy rates should decline from 10.1 percent in the fourth quarter of this year to 9.5 percent in the fourth quarter of 2013.

The areas with the lowest industrial vacancy rates currently are Orange County, Calif., with a vacancy rate of 4.3 percent; Los Angeles, 4.4 percent; and Miami at 6.5 percent.
Annual industrial rent is forecast to rise 1.7 percent in 2012 and 2.2 percent next year. Net absorption of industrial space nationally will probably total 93.4 million square feet this year and 89.6 million in 2013.

Retail Markets

Retail vacancy rates are expected to ease from 10.8 percent in the fourth quarter to 10.6 percent in the fourth quarter of 2013.

Presently, markets with the lowest retail vacancy rates include San Francisco and Fairfield County, Conn., both at 3.9 percent; Long Island, N.Y., 5.1 percent; and Orange County, Calif., 5.4 percent.
Average retail rent should increase 0.8 percent this year and 1.4 percent in 2013. Net absorption of retail space is estimated to be 9.1 million square feet this year and 19.8 million in 2013.

Multifamily Markets

The apartment rental market - multifamily housing - is projected to see vacancy rates decline from 4.0 percent in the fourth quarter to 3.9 percent in the fourth quarter of 2013; vacancy rates below 5 percent are considered a landlord's market with demand justifying higher rents.

Areas with the lowest multifamily vacancy rates currently are Portland, Ore., at 2.1 percent; New York City, 2.2 percent; and Minneapolis, 2.3 percent.

Average apartment rent should increase 4.1 percent in 2012 and another 4.6 percent next year. Multifamily net absorption is likely to be 219,700 units this year and 234,600 in 2013.
Source: National Association of Realtors

Changes In Using SEC Rule 506 For Commercial Property Investment

With lender credit to commercial property remaining shy and sluggish years after the housing bubble, it’s more important than ever to be aware of investment capital options for commercial property transaction finance.  The act of raising capital by the offering of securities for such transactions or projects is highly regulated and rightly so, but changes are afoot in key regulations and might provide ways forward for property deals that would otherwise be held up for lack of access to capital markets.

What is Rule 506?
Under the Securities Act of 1933, any offer to sell securities in the US must either be registered with the United States Securities and Exchange Commission (SEC) or meet certain qualifications to exempt them from such registration.  These exemptions for registration requirements are described in SEC Regulation D, or “Reg D”.  Some companies are allowed under Reg D to sell securities without having to register the offering with the SEC, which can make access to capital markets a possibility for companies not able to bear the costs of SEC registration.

A reading of the Reg D text spells out what the purpose behind the regulations are – to ensure, among other things, that offers to sell securities are limited to investors meeting certain criteria of “sophistication” and “wealth” and “accreditation”.   These and other key terms have specific meanings in the regulations and need to be very well-understood before offers of securities are made.  Further, such offerings have been historically prohibited from being “general solicitations” announced with “general advertising”.  It’s these prohibitions concerning communications and solicitations that are changing.

The JOBS Act Relaxes Regulations For The First Time In 80 Years
On April 5th, 2012, President Obama signed into law the Jumpstart Our Business Startups (JOBS) Act, which is the first relaxation in Reg D in its over eighty years as a law. In response, SEC has proposed amendments to offerings under Rule 506  that include:

To implement Section 201(a) of the JOBS Act, we are proposing to amend Rule  506 to provide that the prohibition against general solicitation contained in Rule 502(c)  shall not apply to offers and sales of securities made pursuant to Rule 506, as amended,  provided that all purchasers of the securities are accredited investors and the issuer takes  reasonable steps to verify that the purchasers are accredited investors. In addition, we are  proposing to amend Form D, which is a notice required to be filed with the Commission  by each issuer claiming a Regulation D exemption, to add a check box to indicate  whether an offering is being conducted pursuant to the proposed amendment to Rule 506 that would permit general solicitation.

Broadly speaking, private placement just got easier.  Could this relaxation of regulation open up capital markets in significant amounts? A study of SEC’s own data and that of Thompson New Issues says that in 2011, the estimated amount of capital (including both equity and debt) raised in Rule 506 offerings was $895 billion, compared to $984 billion raised in registered offerings.  The answer appears to be a qualified yes.

[DISCLAIMER: Reprinted from "The Source" - This article is not to be construed as legal advice!  Obtain experienced securities counsel before using any technique regulated hereunder.]

Mortgage Rates Rise after Fed Announcement

With little progress on the fiscal cliff talks and few surprises in this week's economic data, the Fed meeting was this week's big story. Policy changes announced in Wednesday's Fed statement raised investor concerns about higher future inflation, and resulted in mortgage rates ending the week a little higher. 

The Fed announcement contained two major policy changes. The first, which was widely expected, is that the Fed will purchase $45 billion per month of long-term Treasury securities beginning at the start of 2013 to replace the Operation Twist program which expires at the end of this year. This will be in addition to the $40 billion of mortgage-backed securities (MBS) that the Fed now purchases monthly. The second change from the Fed was not expected. For the first time, the Fed announced that it will keep the fed funds rate at very low levels until certain economic targets are reached. Specifically, the fed funds rate will remain low until unemployment falls below 6.5% and inflation tops 2.5%. 

Despite four years of extraordinary levels of Fed stimulus, the economic data released this week revealed that inflation is not a problem right now. This week's data showed that Core CPI, the most widely followed measure of inflation, was only 1.9%. The concern for investors after the Fed statement is that the Fed appears to be willing to tolerate a higher level of inflation in its efforts to boost the economy, and inflation is negative for mortgage rates. 
Source:Marshall Moody at Bluebonnet Capital Mortgage 

Better Homes and Gardens Real Estate Enters 26th State

 Better Homes and Gardens® Real Estate recently announced the expansion of its network into its 26th state, Kentucky, with the addition of Better Homes and Gardens Real Estate Bluegrass Connection in Lexington. The brokerage is led by owners Richard Towner and Ronald Perry and serves the greater Lexington area. This marks the 14th U.S. brokerage to join the brand’s growing network this year.

“Richard and Ronald have an exceptional team that knows the home-buying process has evolved into a more engaging practice, which involves understanding the consumer’s lifestyle and community preference,” says Sherry Chris, president and CEO of Better Homes and Gardens Real Estate LLC. “The agents at Better Homes and Gardens Real Estate Bluegrass Connection recognize that a strong relationship with the client and community is necessary in ensuring consumers find homes that best suit their lifestyle. We are excited to add a brokerage that directly parallels our brand mission.”
According to the company, Better Homes and Gardens Real Estate Bluegrass Connection was founded on the principles of honesty, knowledge and innovation. The owners note that they strongly believe that it is the responsibility of the agent to keep the consumer informed, and help them make the best possible decision.

“We are excited to bring a new vision to the Bluegrass real estate market area,” says Towner. “The Better Homes and Gardens Real Estate philosophy of empowering the informed consumer resonates with today’s homebuyers and sellers. Our agents are eager to use the unique tools provided by Better Homes and Gardens Real Estate to bring this new model to our market.”

“Beyond the exceptional brand Better Homes and Gardens Real Estate offers, there are additional service and marketing benefits to our clients and our agents, thanks to the brand’s other listing programs and tools, including commercial, urban, and luxury programs,” Perry adds. With the new tools provided by Better Homes and Gardens Real Estate, our agents will be able to strategically identify new consumers and not have to rely on a reactive approach to marketing their home. Additionally, we are thrilled to offer our clients relevant real estate market insights through the brand’s social media efforts, as well as videos for first-time buyers developed by the national brand.”

The company notes that corporate citizenship is a key tenant of the brokerage’s philosophy. Better Homes and Gardens Real Estate Bluegrass Connection plays an active role in the Lexington community. The organization partners with Habitat for Humanity and RCHF – Real Community Housing Foundation, a non-profit group that works with low income and elderly families to refurbish their homes.

Disaster Relief Options for FHA Homeowners

Was your home or your ability to make your mortgage payments harmed by an event that the President declared a disaster? You may qualify for relief to help you keep your home. Much of the mortgage industry and The United States Department of Housing and Urban Development is committed to assisting borrowers whose lives and livelihoods are thrown into turmoil by a disaster.

If you can't pay your mortgage because of what happened, your lender may be able to help you. If you are at risk of losing your home because of the disaster, your lender may stop or delay initiation of foreclosure for 90 days.

Lenders may also waive late fees for borrowers who may become delinquent on their loans. Just follow the four steps below to see if help may be available to you. You are strongly encouraged to contact your lender for further information, and to see if you are eligible for relief.

Step One - Answer Four Basic Questions

  1. Did my expenses rise or income fall?
  2. Were these changes in my finances caused directly or substantially by the disaster?
  3. Have I missed any mortgage payments?
  4. Am I without other resources, such as insurance settlements, to catch up?
If you answered "yes" to all of these questions, and you have a conventional or VA mortgage, contact your lender. If you have an FHA-insured mortgage, please continue reading.

Step Two - See If and How You Can Participate in FHA Disaster Relief

The next step is to determine if you are one of the affected borrowers as described below. You must be in one of three basic groups in order to qualify for a moratorium on foreclosure:
  1. You or your family live within the geographic boundaries of a Presidentially declared disaster area, you are automatically covered by a 90-day foreclosure moratorium.
  2. You are a household member of someone who is deceased, missing or injured directly due to the disaster, you qualify for a moratorium.
  3. Your financial ability to pay your mortgage debt was directly or substantially affected by a disaster, you qualify for a moratorium.

If Your FHA Loan Was Current before the Disaster but Now You Can't Make Your Next Month's Payment

This special program is designed to help borrowers who are at risk of imminent foreclosure, so a moratorium won't apply to your situation. However, if your inability to pay your loan resulted from the disaster, your lender may waive any late fees normally charged and let you know about other options. Also, if you foresee ongoing problems in making your mortgage payments resulting from changes in your financial status, you should contact your lender immediately.

How Can This FHA Disaster Relief Help Me?

HUD has instructed FHA lenders to use reasonable judgment in determining who is an "affected borrower." Lenders are required to reevaluate each delinquent loan until reinstatement or foreclosure and to identify the cause of default. Contact your lender to let them know about your situation. Some of the actions that your lender may take are:

  • During the term of a moratorium, your loan may not be referred to foreclosure if you were affected by a disaster.
  • Your lender will evaluate you for any available loss mitigation assistance to help you retain your home.
  • Your lender may enter into a special forbearance plan, or execute a loan modification or a partial claim, if these actions are likely to help reinstate your loan.
  • If saving your home is not feasible, lenders have some flexibility in using the preforeclosure sales program or may offer to accept a deed-in-lieu of foreclosure.

Step Three - Take Action to Qualify for Foreclosure Relief

A foreclosure moratorium applies only to borrowers who are delinquent on their FHA loan. If you are current on your loan payments, then you should continue to make them. When contacting your lender for further instructions, please be prepared to provide them information about disability or other insurance that may be available to assist you in making your payments.
FHA lenders will automatically stop all foreclosure actions against families with delinquent loans on homes within the boundaries of a Presidentially declared disaster area.
If you were physically or financially impacted by the disasters and are in default or foreclosure, contact your lender immediately to request assistance.

Borrowers who were injured or whose income relied on individuals who were injured or died in the disaster will be asked for documentation such as medical records or death certificates, if available. Your lender will ask you for financial information to help evaluate what assistance can be provided to you to reinstate your loan.

FHA Loans Already in Foreclosure

It is very important that you notify your lender to be sure that they realize you are an affected borrower. Your lender may request supporting documentation and use it to determine if you meet the relief criteria. Once identified as an affected borrower, foreclosure action may be stopped for the duration of the moratorium period.

Step Four -If Your Lender Is Unable to Assist You

HUD is confident that your mortgage lender will make every attempt possible to assist you. If you are not satisfied after discussing possible relief actions with your lender, please call a HUD-approved counseling agency toll free at (800) 569-4287 or contact HUD's National Servicing Center.