©OnCourse Learning. All Rights Reserved.. Issues in Home Ownership ©OnCourse Learning. All Rights Reserved. Chapter 5

©OnCourse Learning. All Rights Reserved.

Issues in Home Ownership


Chapter 5


In This Chapter

You will be introduced to ad valorem taxes, various types of property assessments & insurance.

Property Taxes Ad valorem taxes = according to value

Source of income for local government Appropriation

Tax district appraisers all taxable property Assessment by appraisal district

Tax rate calculation Dollars per hundred Mill ( $0.001) Dollars per thousand


Expressing Property Tax Rates


Other Taxing Matters Unpaid property taxes Assessment appeal Property tax exemption Property tax variations


Special Assessments Improvement District Texas Homestead Exemption Confirmation Bond Issues Apportionment


Federal Income TaxBasis is the price originally paid for the home plus any fees paid for closing and any fee or commission paid to help find the property.


Capital Gains To calculate the gain you must take the sale

price and subtract the selling expenses; then subtract the basis to determine the gain.

Amount realized – selling price of home less sales expense.


Adjusted Sales Price

Selling price of old home

Less selling expenses

Less fix-up costs

Equals adjusted sales price

$250,000

-18,000

-7,000

$225,000


Amount Realized Determining taxable gain is to calculate the

amount realized from the sale. Selling price of the home less selling

expenses, which is the adjusted sales price. Selling expenses include brokerage

commissions, advertising, legal fees, title services, escrow or closing fees, & mortgage points paid by the seller.


Income Tax Exclusion

Sale of principal residence Married – exclude up to $500,000 gain Single – exclude up to $250,000 gain


TAXES ON SALE OF A RESIDENCE A taxpayer can exclude $250,000 of gain from the sale of

the taxpayer’s principal residence. If the taxpayer is married, there is a $500,000 exclusion

for married individuals filing jointly, if: either spouse meets the ownership test, both spouses meet the use test and the taxpayer has resided

there for at least two of the past five years, a husband and wife file a joint return in the year of sale or

exchange, and neither spouse is ineligible for exclusion by virtue of sale or

exchange of the residence within the last two years.


Calculation of Gain


Long Term Capital Gain Holding period longer than 1 year Tax rates


Other Tax Considerations

Installment Sales Property Tax and Interest Deductions Below-Market Interest


Agent’s Liability for Tax Advice A real estate practitioner must be aware of

tax laws that affect the properties the practitioner is handling. A real estate agent has a responsibility to alert clients to potential tax consequences, liabilities, and advantages whether they ask for it or not. Lastly, an agent is responsible for the quality and accuracy of tax information given out by the agent.


Property Insurance Property Damage Modern Fire Coverage

Endorsements

Public Liability Homeowner Policies

Policy Formats Properties Covered Perils Covered Tenant’s Policy Condominium Policy Loss & Liability Medical Payments


New for Old

The question is whether insurance should pay for the full cost of fixing the damage, in effect, replace “new for old,’’ or simply pay the actual cash value of the loss.

if insurance carried is 80% or more of cost to replace, the full cost of repair will be paid.


Requirements

Guaranteed Replacement Cost Flood Insurance Landlord Policies Policy Cancelation Policy Takeovers Home buyer’s insurance


CLUE Reports

Comprehensive Loss Underwriting Exchange Claims history of the property Claim history of applicant Can property be insured?


Key Terms Adjusted sales price Ad valorem taxes Appraisal Review

Board Assessed value Basis Gain

Homeowner policy Installment method Insurance premium Mill rate New for old Public liability Tax lien


Documents

©OnCourse Learning. All Rights Reserved.. Issues in Home Ownership ©OnCourse Learning. All Rights Reserved. Chapter 5