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The FORMAL APPEAL PROCESS FORM: The next open filing period for the City and County of San Francisco will be July 2, 2009 to September 15, 2009 to file a formal appeal for the 2009/2010 assessed value of your property. To timely file a formal property appeal for the 2009/2010 tax year, a completed Application for Changed Assessment form must be submitted or postmarked to the Assessment Appeals Board no later than September 15, 2009, regardless of whether or not you have requested an Informal Review of your property through the Assessor’s office. This is a simple one page form and can save you thousands of dollars if you are successful with your property tax appeal. For more information or to obtain comparable sales, please contact me and I will provide you this information at no charge.

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Market Downswings offer Buying Opportunities. Short Term Sellers take the HIT!
We are all challenged with the market undulations. At times, it feels like we are on a rollercoaster ride and we are helpless to do anything but HANG ON. But for many long term homeowners, the paper loses on the market fluctuations will have little or no effect.
And here is why:
Real Estate always follows trends and market cycles. Market corrections are inevitable. We have been on an upswing market trend in San Francisco since 1999. The good news is that after the market corrects itself, the 50 year market performance statistics reveal that the market eventually recovers and, in time, the prices go even higher than the last high.
FOR FIRST TIME BUYERS: The reduced prices in the market allows for many FIRST TIME BUYERS to afford home ownership. There is also a $8000 first time buyer credit available for those that qualify.
FOR SELLERS: For sellers trading up, what you lose based on past higher values on the sale of your home, you will pick up on the now lower values if you purchase of another home.
SHORT TERM SELLERS take the hit: The people who get hurt in market swings are the short term buyers and sellers. If you are a recent home purchaser and if you are forced to sell because of financial needs, a job transfer to another area and you do NOT replace this property with another property in the area, then you may suffer financially from the downturn.
Some of you remember, as I do, the real estate market in 1980 when interest rates peaked over 18% interest on FHA 30 year Loans. There was recession, and then there was recovery. Then there was the up market swing in the 1980s with yet another correction. In the 1990’s we had the DOT COM boom and then another correction.
The TRUTH about real estate markets is this:
There is ALWAYS a market…good or bad.
There are ALWAYS buyers and sellers.
Any given market is determined by an offer from a willing buyer and acceptance from a willing seller.
Buying opportunities occur when there is less competition and increased inventory.
And such is our present market.

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There is an old saying that “too many cooks ruin the stew” and such is often the case with short sales. The problem is there are too many people involved with self-serving interests and trying to hold the deal together can be challenging. Short sales are a moving target and the buyers and sellers can be left hanging out to dry with nothing to show for their efforts but frustration and wasted time, not to mention money spent on appraisals, inspections, and other reports. Statistics show that only about 30 -35% of short sale offers are accepted and only about 10% to 15% of short sale offers actually come to fruition. With changing market conditions and the time delays, buyers may be better off purchasing property on the open market. In years past, many lenders have been receptive to short sales.  But my experience last year (2008) was that most lenders were so buried with short sale requests (mostly in other counties) that they did not even respond to short sale offers in San Francisco. The lenders chose to take distress property into inventory through the foreclosure process, vacate the premises (absent the homeowner or tenant), then list and sell the property to the highest bidder on the open market.

However, all this being said, the process has now been streamlined to make short sale offers easier to accomplish. Some of the big players, Bank of America and Wells Fargo have announced new cooperative programs to help expedite the SHORT SALE process. BofA has increased staffing, updated training and created a dedicated short sale call center at (866) 880-1232. Of course, MONEY is always an incentive. On May 14, the Treasury Department announced a PLAN to “provide incentives for servicers and borrowers to pursue short sales.” Treasury will pay a servicer $1,000 for completing a successful short sale, it will pay the borrower $1,500 to assist with relocation expenses, and it will pay second-lien holders who release their claims up to $1,000. Lenders are now giving the short sale process a second look as a less costly means to rid excess inventory and many sellers are finding a quicker and potentially less self-destructive way to get out from under over-encumbered property.

On February 18, the Obama Administration announced the Making Home Affordable (MHA) Program, a comprehensive plan to stabilize the U.S. housing market. As promised, two weeks later on March 4, the Administration published detailed program guidelines.

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It may also be prudent to start the formal appeal process as well as filing the quick online  property tax appeal forms on the links listed below.

Here are the direct internet links to the San Francisco Assessor’s Office for property tax appeals of  SINGLE FAMILY HOMES and CONDOS or for TIC units ONLY.

Questions and more options about the propery tax appeals process:

Do I have any recourse if I disagree with the valuation placed on my property by the Assessor?

Yes. If you disagree with the assessed value of your property you may contact the Office of the Assessor/Recorder at (415) 554-5596. They can provide you with information on how the value was established.

If you still disagree with the assessed value of your property after reviewing it with the Office of the Assessor/Recorder, you may contact the Assessment Appeals Board for the purpose of appealing your assessment.

If you choose to appeal your assessment, you must still pay your property tax in full by the appropriate deadlines; otherwise, you will incur penalties while the case is on appeal. If your appeal is granted, a refund will be issued to you.

Appeal applications and further information about the appeal process can be obtained by contacting the Assessment Appeals Board. Please call if you have any questions. I can also provide you with recent sales to support value changes in your area.

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Did you know that even couples with over $150,000 income may qualify for a partial tax credit refund?

The National Association of Home Builders website explains the First-Time Home Buyer Tax Credit.

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How to calculate the Cost basis?

Two Year ownership requirement?

Time limits – Holding period for the house to qualify for the exemption?

Do Vacation Homes qualify?

Q: Can you please define “capital gain”? You mentioned the term in one of your previous articles, but I did not quite understand how it would benefit me. My husband passed away five years ago and I am ready to sell our home and downsize to a smaller one. The house is 30 years old and the mortgage was paid off two years ago. I would appreciate any information you could give me on the subject.

A: Capital gain is the profit you have made on your house. You take your original purchase price, add to it the cost of any improvements you may have made, and you add certain expenses that you paid when you first went to closing. These expenses can be found in IRS Publication 523, Selling Your Home. This is called the “tax basis” of your house.

Then you take the selling price of your house and deduct any real estate commission you may have paid, as well as other expenses such as advertising, legal fees associated solely with the selling of the house, and any loan charges you may have paid for your buyer. This is the adjusted selling cost. To get your gain you subtract your tax basis from the adjusted selling cost.

This is a very oversimplified explanation. I have not discussed your situation about where your husband died because you will get a stepped-up basis that will differ depending on where you live.
Furthermore, I have not discussed the up-to-$500,000 exclusion of gain (up to $250,000 in your case because you cannot file a joint tax return) that you can take if you have owned and used the house for two out of the five years prior to its sale.

You should carefully review the IRS publication, and if you still have specific questions, talk with your own tax and legal advisers.

Q: I want to buy my brother’s home (essentially for the amount of the mortgage), which I would allow my brother to continue to live in, and which I would use as a second (vacation) home. When my brother leaves the house (death, nursing home, etc.), I plan to sell the house and use the IRS $250,000 capital gain exclusion (assuming at least two years of ownership). Are there any potential problems with this plan? Would it be wise to place the house in a trust?

A: You have to talk with your attorney as to whether to put the house in trust. There are many variables, which are individual and possibly unique to your situation, so I don’t believe it would be appropriate to give you advice on this issue.

I see no real problems with your proposed plan. However, you should know that the new Housing and Economic Recovery Act of 2008, signed into law by President Bush on July 30, 2008, puts some restrictions on your ability to claim the full $250,000 exclusion of gain.

This is complicated, but suffice it to say, if you sell a second home (whether it be a rental property, a vacation home or the type you are describing) the exclusion will be allocated between the time you owned the property and the time that you actually lived in it. In simple terms, the period of time you used the property as your principal residence will be eligible for the gain exclusion; the time that it was not your principal residence may be taxed.

Q: My wife and I are considering renting our current primary residence for a short time after we build a new house with the idea of letting the housing market stabilize before we sell our current home. What are the tax rules regarding renting a primary residence and still counting it as a primary residence when sold?

A: In order to be eligible for the up-to-$500,000 exclusion of gain ($250,000 if you are single or do not file a joint tax return), you have to own and use (live in) the property for two out of the previous five years before the house is sold. In your example, if you already have owned and lived in the house for at least two years, you can rent it out for one day less than three more years.

Be careful, however. If you rent out your house, will potential buyers be interested in buying when there are tenants? Will you be able to get the tenants out of the property in time to sell before the three years are up? Perhaps an investor can be found to buy and let the tenants stay in the house, but you cannot count on finding such a buyer.

If you decide to rent, my suggestion is to make sure that the lease completely expires in two years. This will give you one full year in which to find a buyer. Otherwise, you will have to pay capital gains tax on any profit you make, unless you either hang on to the house as a long-term investment or do a 1031 (Starker) exchange.

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.

This article appeared on page L – 1 of the San Francisco Chronicle 11-2-2008

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