Tax Extender Act

Real estate investors are facing a squeeze play on Capitol Hill, with important tax incentives nearing an end-of-the-year deadline.

Last week the House approved what's known as the Tax Extender Act, a Christmas tree bill filled with nearly 50 tax program extensions beyond their December 31st scheduled expiration date.

Two of the extenders are especially significant for investment real estate: First is the so-called "leasehold improvements" provision, which allows owners of commercial, retail, hotel and office buildings -- large and small -- to use an accelerated 15-year depreciation schedule in writing off renovations and upgrades they make to their real estate.

The House bill extends favorable leasehold writeoffs for another year.

The second key one year extension in the bill involves depreciation writeoffs for developers who clean up so-called "brownfield" sites that have experienced environmental damage from toxic chemicals or pollution.

But the House bill also contains a massive penalty for real estate, a multi-billion dollar tax increase for investors in real estate partnership deals.

The House bill would remove favorable capital gains treatment that now exists for a type of compensation that general partners frequently receive, known as "carried interest," and instead tax it at ordinary income tax rates.

For many investors functioning as general partners, that would mean a crushing tax increase -- more than double their tax rates overnight.

Though strongly opposed by housing, real estate and other financial market groups, the extender bill with the "carried interest" tax change has now gone to the Senate for a vote.

And that's where the deadline squeeze comes in. The Senate already has a jampacked year-end schedule dominated by health care, and is not likely to take up the tax extender bill before December 31st.

As a result, the popular leasehold improvements and brownfields tax programs are likely to expire, effectively go into limbo, as of January 1st.

Real estate industry legislative analysts say the Senate could take up the tax extenders bill as early as January or February, but will probably not accept the House's controversial carried interest changes.

Should investors worried about the expired tax benefits get upset?

Not quite yet, lobbyists tell Realty Times. If the Senate can quickly cobble together some alternative tax increases to satisfy the House, the extender bill is likely to pass sometime early in the year with a January 1 retroactive date - minus the tax increase for real estate partnerships.

Then again, nothing is certain on Capitol Hill.

So talk to your tax advisor before committing to investment decisions that might be affected by the expiration.

source: http://realtytimes.com/rtpages/20091218_investorreport.htm

Where's The Bail Out For Home-based Businesses?

Isn't it time for a big fat tax credit for home-based businesses?

They've paid their dues.

Home-based business owners typically don't qualify for unemployment benefits, they can't buy job-loss insurance, they a greater share of Social Security and Medicare taxes than salaried workers and the demise of "stated-income" mortgages has priced many of them out of the home-buying market,

Yet they are old-school planet savers who drive less, reducing both traffic congestion and pollution.

A study commissioned by the Consumer Electronics Association (CEA) "The Energy and Greenhouse Gas Emissions Impact of Telecommuting and e-Commerce"found that the estimated 3.9 million U.S. telecommuters reduced gasoline consumption by about 840 million gallons, while curbing carbon dioxide (CO2) emissions by nearly 14 million tons. That's equal to removing 2 million vehicles from the road every year.

Give home-based businesses a break, a tax break -- if not more.

• The so-called "Cash for Clunkers" gave qualified car buyers $4,000 in tax credits for trading in old cars, for newer fuel-efficient models -- an approach to greening the highways.

• The new and improved $8,000 first-time home buyers tax credit and $6,500 tax credit for other home buyers is helping pull the housing industry out of a nose dive in the name of economic stability.

• And the American Recovery and Reinvestment Act comes with a relatively little-used tax credit of up to $1,500 on energy-saving products for the home.

The American Homeowners Grassroots Alliance is lobbying for a $2,000 tax credit for technology expenses used in teleworking (hardware, software, broadband access, cell phones, etc) that would go to whomever purchased the products/services (business owner, telecommuter, employer), among other long overdue benefits for those who work at home.

The effort is a part of AHGA's recent appeal to the Federal Communication Commission for a variety of incentives to promote "teleworking," home-based businesses or telecommuting with a heavy reliance upon modern technology.

"With the dramatic growth in two income families, time-starved parents find that teleworking helps them cope with the many responsibilities of child-rearing. As commuting distances and times lengthen due to suburban sprawl, teleworking also provides a way to recapture precious hours lost to traffic jams," said Bruce Hahn, AHGA president.

Virginia Governor Tim Kaine said when 2,286 federal and private sector employees as well as 1,765 state employees participated in Telework Day in Virginia on Aug. 3, they saved the state approximately $113,000 by not driving and reducing pollutants.

That could amount to a savings of $807 million in commuting costs it all eligible employees teleworked one day per week for a year.

A survey of Virginia's steelworkers also showed that 69 percent felt they accomplished more than a typical day at the office and 91 percent said that they would be more likely to telework again as a result of their experience.

To stimulate telework businesses, help the environment, and reduce state and local transportation infrastructure costs AHGA is also lobbying for

• Sales tax exemption on Internet buys because they reduce transportation costs associated with in-store shopping.

• Shortening the depreciation periods for technology products to two years to encourage teleworkers to maintain technological competitiveness.

• Greater broadband access, especially to unserved and underserved markets to maximize the number of homes that can receive broadband.

"Surveys consistently show that telecommuting programs are among the most popular employee benefits. A recent survey of members of the American Institute of Architects revealed that home offices are the most popular special function room of new home buyers for the third year in a row," said Hahn.

source: http://realtytimes.com/rtpages/20091217_bailout.htm

Fr the First Time - Mortgage Rates Rise in Five Weeks

After five weeks of declines, rates on most mortgages moved higher this week, following long-term bond yields that rose after an upbeat employment report, Freddie Mac's chief economist said Thursday.

The 30-year fixed-rate mortgage averaged 4.81% for the week ended Dec. 10, up from last week's 4.71% average, according to Freddie Mac's weekly survey of conforming mortgage rates. The mortgage averaged 5.47% a year ago.

Fifteen-year fixed-rate mortgages averaged 4.32%, up from 4.27% last week. They averaged 5.20% a year ago. And 5-year Treasury-indexed hybrid adjustable-rate mortgages averaged 4.26%, up from their 4.19% average last week. The ARM averaged 5.82% a year ago. But average rates on 1-year Treasury-indexed ARMs dropped slightly this week. The ARM averaged 4.24%, down from 4.25% last week and 5.09% a year ago.

"Following an upbeat employment report, long-term bond yields rose slightly and fixed mortgage rates followed," said Frank Nothaft, Freddie Mac chief economist. "The economy shed only 11,000 jobs in November, far fewer than the market consensus forecast, and the unemployment rate unexpectedly fell to 10%. In addition, revisions added 159,000 jobs to September and October."

Still, mortgage rates remain low compared with the same time a year ago, he said. "Notwithstanding, rates on 30-year fixed mortgages are almost 0.7 percentage points below those at the same time last year. This translates into an $81 lower monthly payment on a $200,000 conventional mortgage," he said.

Mortgage application volume was up a seasonally adjusted 8.5% for the week ending Dec. 4, compared with the previous week, the Mortgage Bankers Association reported on Wednesday. The weekly MBA survey also reported that rates on fixed-rate mortgages were on the rise.

Sell Your Home

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