Obamacare Tax

Obama Care 3.8% Tax On Your Investment Real Estate Profits?

Buzzard photograph ©

copyright Caroline Gerardo

OBAMACARE ADDITIONAL INCOME TAX-- ONLY THE WEALTHY WAGE EARNERS PAY FOR THE PEOPLE WHO MAKE $30000- $40000 A YEAR. OR 3.8% OF YOUR REAL ESTATE INVESTMENT GAINS

1.      The tax applies to investment income, not just real estate. When your income is more than the $200,000/$250,000 amount, then the tax formula will be applied to capital gains, interest income, dividend income and net rents (i.e., rents after expenses).

2.      The tax goes into effect in 2013. If you have investment income in 2013, you won’t pay the 3.8% tax until you file your 2013 Form 1040 tax return in 2014. The 3.8% tax for any later year will be paid in the following calendar year when the tax returns are filed. There is still time to plan, because I don't see anyone protesting about paying this.

3.      If you have no income from capital gains, rents, interest or dividends, you will not have to pay this tax, even if you have millions of dollars of other types of income.

4.      The formula that determines the amount of 3.8% tax due will always protect $200,000 ($250,000 on a joint return)  For example, if you are single and have a total of $201,000 income, the 3.8% tax is imposed on  $1,000.

5.      Investment income from rents on an investment property is subject to the 3.8% tax. But: The only rental income that would be included in your gross income and therefore possibly subject to the tax is net rental income: gross rents minus expenses like depreciation, interest, property tax, maintenance and utilities. Most borrowers income taxes that I review who have rental properties tend to net negative numbers. In other words - once they pay their mortgage, taxes, insurance, repairs, depreciation and... they aren't paying income tax on the rental.

6.      The tax was bundled with the health care legislation in 2010. It was SLIPPED to the package just hours before the final vote and without review. National Association of Realtors fought the tax and the tax will be debated during the upcoming tax reform debates in 2013. Why is this not in the news?

7.      The health care reform package (the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010) imposes a new 3.8 percent Medicare contribution tax on the investment income of higher-income individuals. Although the tax does not take effect until 2013, start examining methods to lessen the impact of the tax today. A few methods come to my mind -prepare now: reduce income by deferring, putting into retirement,

8.       “Net investment income” includes interest, dividends, annuities, royalties and rents and other gross income attributable to a passive activity. Gains from the sale of property not used in an active business and income from the investment of working capital are also treated as investment income. Further, an individual’s capital gains income will be subject to the tax. This includes gain from the sale of a principal residence, unless the gain is excluded from income under Code Sec. 121, and gains from the sale of a vacation home. However, contemplated sales made before 2013 would avoid the tax.

9.      This tax also applies to estates and trusts, on the lesser of undistributed net income or the excess of the trust/estate adjusted gross income (AGI) over the threshold amount ($11,200) for the highest tax bracket for trusts and estates, and to investment income they distribute.

10. Net investment income is gross income or net gain, reduced by deductions that are “properly allocable” to the income or gain. This is a key term that the Treasury Department expects to address in guidance, and which we will update on developments. For passively-managed real property, allocable expenses will still include depreciation and operating expenses.
 

11. For real estate with capital gains, this formula puts RED Alert on amounts that increase your property’s basis. It also focuses on investment expenses that may reduce net gains: interest on loans to purchase investments, investment counsel and advice, and fees to collect income. Other costs, such as brokers’ fees, may increase basis or reduce the amount realized from an investment. As such, taxpayers may want to consider avoiding installment sales with net capital gains (and interest) running past 2012. Sellers need to look carefully at what they will net on capital gains on sales of real estate before they list. A few suggestions here: 1031 Exchange, even though the Orange County Real Estate market is increasing- in Newport Beach and Laguna Beach prices have risen about 16-18% - Sellers need to look carefully at capital gain before they close the sale.

12. The tax applies to the lesser of net investment income or modified AGI above $200,000 for individuals and heads of household, $250,000 for joint filers and surviving spouses, and $125,000 for married filing separately. MAGI is your AGI increased by any foreign earned income otherwise excluded under Code Sec. 911; MAGI is the same as AGI for someone who does not work overseas.

    For example: A single individual, with modified AGI of $220,000 and net investment income of $40,000. The tax applies to the lesser of (i) net investment income ($40,000) or (ii) modified AGI ($220,000) over the threshold amount for an individual ($200,000), or $20,000. The tax is 3.8 percent of $20,000, = $760. The tax is not applied to the entire $40,000 of investment income.

 

13.   The tax does not apply to distributions from qualified plans, 401(k) plans, tax-sheltered annuities, individual retirement accounts (IRAs), and eligible 457 plans. But there is no exception for distributions from nonqualified deferred compensation plans subject to Code Sec. 409A. You can defer income, but be careful pulling it all out at once and exceeding the $200000. mark.  However, distributions from these plans (including amounts deemed as interest) are generally treated as compensation, not as investment income.

14. The exception for distributions from retirement plans suggests that potentially taxable investors may want to shift wages and investments to retirement plans such as 401(k) plans, 403(b) annuities, and IRAs, or to 409A deferred compensation plans. Increasing contributions will reduce income and may help you stay below the applicable thresholds. Small business owners may want to set up retirement plans, especially 401(k) plans. If you have not yet established a plan, I suggest  you open one and consider increasing contributions to keep your income under $200000.  

15. Another exception is provided for income ordinarily derived from a trade or business that is not a passive activity under Code Sec. 469, such as a sole proprietorship. Small business owners may avoid the tax and investment income from an active trade or business is excluded. However, SECA (Self-Employment Contributions Act) taxes still remain intact to proprietors and partners. Income from trading in financial instruments and commodities over the income numbers will be paying the 3.8% tax.

 

This may be boring tax news, but very important for Realtors to advise clients who are selling high end Jumbo multi million dollar property. "Mine government" is not yet charging new larger transfer taxes in California, but this 3.8% Federal tax on the wealthy wage earner (I say this because business owners and corporations know how to write off income to avoid the $200,000. income number while w-2 earners like myself will worry about paying this). 

This is not tax advice, just news to plan around if you are a w-2 income earner who works hard and makes a good deal of money.

 

 

 

 

 

 

White Bathroom Remodel

Low cost Bathroom remodels in Orange County California. These clean white looks don't require you to take out a new mortgage to finance. Plan carefully, recycle found objects and keep it simple.

white bathroom

All four of these bathrooms are light and bright. They use combinations of Carrera marble, white prefabricated vanities and pale blue and grey accents. Glass shelf is recycled from other use with new hardware.

white bathroom

This bathroom has a dash of fun with the pink boa as an accent

 A Mirror found at a garage sale painted with white lacquer accents and softens this powder room

selfie in white bathroom

The smaller toile tank is accented with succulent plants and a pretty mirror. 

Oops there's a self portrait with my iphone.

All these remodels were completed for cost less than $10000. Keep the countertop clutter down and store your toothbrush and beauty products in the drawers.

I took a pillow from my linens that is this heavenly calming blue grey and Home Depot scanned it to make paint color for me. Painting is important, I suggest you have small quantities made and roll them on the wall and live with the  color choices a couple days. Examine them at different times of day, and choose when you are totally happy.

Lawsuits Plague Orange County Condo Complexes

 Condominiums plagued by frivolous lawsuits
Homeowners suing the HOA causes problems for all owners in a complex. This makes it impossible to get an FHA loan, difficult to close a conventional loan and harms the value of all the units. In California (we are a litigious state) anyone can sue the Home Owner Association and hold everyone hostage. 

Laguna Niguel, Laguna Woods and Newport Beach have the highest number of this type of Civil suits in the State.

Case # Orange County Superior Court 30-2012 00611073

Dolumeter Wharton V Old Trabuco Highlands Homeowners Association

Dolumeter Wharton  did not pay her HOA dues for two years.

Dolumeter Wharton Sued the Home owner Association in Orange County Superior Court filed as a case less than $25000 claiming they didn’t have the right to charge her late fees. On The Orange County Superior Court Case Access the case appears satisfied financially, however this creates headaches, hardship for owners and holds down the value of units in the complex with frivolous claims.  

The case was originally against American Express… then Dolumeter Wharton (one owner in the complex) cross- complaint sued the Homeowner Association for collecting normal monthly dues. Mr. Wharton did not pay her HOA dues for two years and tried to dispute in court that the collection company that the HOA used was illegal.  Wharton wanted the condo complex to waive all her late fees of $1700. Wharton paid the past due bills.

Superior Court of California- County of Orange, Case access and enter her name Wharton, Dolumeter you can see the case. She also sued four other people about various and sundry (don’t look solid or valid) issues in the past. She originally sued American Express in this filing then took a broad approach and sued everyone in sight. You can see on the case access Wharton paid $10000 and later this was set aside.

Since this was filed as Under $25000 he could not have re-couped any more than that amount. Insurance in the master policy covers this. The HOA did have to hire an attorney. The case has nothing to do with the solid HOA – it is about one unit owner trying not to pay the monthly dues. Dolumeter is asking for an apology from the HOA…

Verified losses $6700 + $1700 but still dragging all the homeowners and mortgagees into problems. In order to close a home loan in a condominium complex, lenders must verify the cost of lawsuits and if the pending litigation creates a hardship or financial strain on the owners, and mortgage lenders.  These frivolous claims end up harming all the owners in a condo complex. It adds costs. It makes the value of the units less because it is difficult to get conventional or FHA financing. The only person who will win in this is her Attorney.

 

 

 

Rule 3.740. Collections cases

(a) Definition

"Collections case" means an action for recovery of money owed in a sum stated to be certain that is not more than $25,000, exclusive of interest and attorney fees, arising from a transaction in which property, services, or money was acquired on credit. A collections case does not include an action seeking any of the following:

(1)Tort damages;

(2)Punitive damages;

(3)Recovery of real property;

(4)Recovery of personal property; or

(5)A prejudgment writ of attachment.

(b) Civil Case Cover Sheet

If a case meets the definition in (a), a plaintiff must check the case type box on the Civil Case Cover Sheet (form CM-010) to indicate that the case is a collections case under rule 3.740 and serve the Civil Case Cover Sheet (form CM-010) with the initial complaint.

(Subd (b) amended effective January 1, 2009.)

(c) Exemption from general time-for-service requirement and case management rules

A collections case is exempt from:

(1)The time-for-service requirement of rule 3.110(b); and

(2)The case management rules that apply to all general civil cases under rules 3.712-3.715 and 3.721-3.730, unless a defendant files a responsive pleading.

(d) Time for service

The complaint in a collections case must be served on all named defendants, and proofs of service on those defendants must be filed, or the plaintiff must obtain an order for publication of the summons, within 180 days after the filing of the complaint.

(e) Effect of failure to serve within required time

If proofs of service on all defendants are not filed or the plaintiff has not obtained an order for publication of the summons within 180 days after the filing of the complaint, the court may issue an order to show cause why reasonable monetary sanctions should not be imposed. If proofs of service on all defendants are filed or an order for publication of the summons is filed at least 10 court days before the order to show cause hearing, the court must continue the hearing to 360 days after the filing of the complaint.

(f) Effect of failure to obtain default judgment within required time

If proofs of service of the complaint are filed or service by publication is made and defendants do not file responsive pleadings, the plaintiff must obtain a default judgment within 360 days after the filing of the complaint. If the plaintiff has not obtained a default judgment by that time, the court must issue an order to show cause why reasonable monetary sanctions should not be imposed. The order to show cause must be vacated if the plaintiff obtains a default judgment at least 10 court days before the order to show cause hearing.

Rule 3.740 amended effective January 1, 2009; adopted effective July 1, 2007.

THIS RULE Wharton filed under is to try and stop the HOA from foreclosing on her individual unit.

 

 

Caroline Gerardo NMLS # 324982

 

 

 

 

Natural Mosquito Repellants

Lemon Balm or Citronella is very effective

 

 

I am sensitive to mosquitoes. My children are allergic. It is mosquito season in Orange County, California and we like to hike in the local canyons, spend time at Newport Beach and in our backyard.  These tips are all natural and do not use any chemicals or poisons.

 

First and most important is don't leave standing water in fountains, ponds, dog bowls, old tires, etc.  If you have a small pond - stock it with gold fish, or mosquito fish (supplied  through our local Orange County Vector Control or often shared for free at garden suppliers like Plant Depot).

 

Wear light colored clothing that covers .

 

Mosquitoes don't like wind, a fan can help. Also make certain your screens are in good repair. Vents to the home can allow these pests into the walls. They are attracted to the CO2 in our breath.  Screen up the vents.

 

Electronic bug zappers have been proven to  be ineffective, they actually kill more beneficial bugs than the mosquitoes. There are bug zappers that put out CO2, and these kill about fifteen percent of the pests, BUT they are expensive and last about one season. Ultrasonic ones also are proven to be mostly useless. 

 

However here are some recipes for natural bug repellents. I suggest you plant any of these plants in your yard and in pots. All will grow without fertilizer or bug spray in California gardens. Do not treat the plants with chemicals, as you will want to crush some leaves on your exposed skin or use for cooking,

 

 

 

Catnip smells nasty to mosquitoes, gnats and flies. Nepeta cateria, is very easy to grow and more effective than the chemical most often used (Deet). The growth habit is similar to mint and will spread. I no longer have a cat, but she used to sleep on top of the pot with this plant with that glassy eyed look. I learned to plant it directly in the ground and just let her go crazy, the plant seemed to always return.

 

My front yard - lavender, lemon balm, rose geranium, coriander, pelagonium, penny royal, ageratum, and bee balm all repel mosquitoes (also aphids, and gnats but provide food and fun for bees and butterflies of many sorts). 

 

Nasty guy

My side yard peppermint, and the marigolds are gone - I don't have great luck with marigolds.

 Lemon verbena, and rosemary also have some repellant properties.

Many of my "mosquito enemy  plants" are herbs used for cooking or just smell lovely to brush against in the garden

 

Backyard pelagonium growing like a weed, need to hack it back and rose geranium

 

Lemon Thyme and regular thyme in my yard also act to scare the critters away.

You may of course purchase these as herbal oils and mix them with apple cider vinegar.

I also suggest you create castile soap with lavender oil, citronella oil and rose oil ( add a four drops of each into an 8 ounce bottle to use to wash your body. Also you can add the oils to inexpensive bubble bath, your rinse cycle of your washing machine, dog collars to keep your pets comfortable, and the cuffs of pants and long sleeves.

I have read that drinking a tablespoon of apple cider vinegar, eating garlic and vitamin B-1 will change the smell of your breath and skin to be less attractive to mosquitoes who are out hunting around water at dusk.

The though makes me itchy just writing about them.  Enjoy the outdoors,  and your home without chemicals... Being green is good, come on over to my garden

Ageratum Houstonian is very useful repellant to mosquitoes. The plant secretes coumarin, the number one alternative to DEET in commercial mosquito repellents.

Do not use this on your skin, if you are allergic to any plants.