Archive for the 'Legislation' Category

Comments Off on South St Paul Mulls Whether To Prevent Property Owners From Renting

duplex rental restricitonCan a Twin Cities neighborhood have too many rental properties?

Some on the South St. Paul city council think so.

A proposed ordinance limiting single family rental units to just 10 percent of the properties on each block could prevent some home owners from putting tenants in their homes.

The rental density cap would cause the city clerk to approve rental licenses based, in part, on whether anyone else on the block already rents a home.

There are already four cities in Minnesota with such restrictions in place: Winona, West St. Paul, Mankato and Northfield.

The proposal was brought before the city council because some area residents raised concerns that there were too many rental properties on their blocks.

Opponents of the ordinance, maintain rental restrictions would limit their fundamental property rights, as well as their ability to sell their home to investors if there were already existing rental properties on the block.

The ordinance would not effect duplex, triplex and apartment complexes.

Residents may attend a discussion meeting January 4, or should reach out to Mayor Beth Baumann, or city council members with feedback.

Minneapolis May Allow Grandma To Live In The Garage

said on September 22nd, 2014 categorized under: Legislation

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granny flat minneapolisGranny flats. Mother-in-law apartments. Non-conforming units.

We’ve all seen them. Many of us have either thought about adding them or gone ahead and done so without addressing the city’s required rezoning requirements. After all, the hurdles a property owner  must clear to change a duplex to a triplex, for example, can require almost an entire neighborhood to agree to the plan, as well as bringing the whole property up to current building code.

And yet, the need for housing in the Twin Cities has become so great that the city of Minneapolis is actually discussing an amendment to current zoning code that would establish regulations for Additional Dwelling Units (ADUs) and permit them throughout the city.

According to Minneapolis, an ADU is a self-contained living unit that may be within the walls of an existing property, an addition to the building, or a freestanding structure like a carriage house or garage conversion.

Allowing these units would provide benefits like allowing seniors to live near relatives, improve housing affordability, accommodate growth without disturbing a neighborhood’s character, improve walkability, diversify housing stock and generate income for homeowners.

The city of Minneapolis plans to put a draft of this amendment to the City Planning Commission and City Council sometime this fall.

St. Paul is considering similar changes.

In the last few decades, cities like Denver, Seattle and Portland have already changed standards in order to allow ADUs. Locally, cities like Bloomington, Plymouth, Faribault, Minnetonka and Long Lake have already done so.

Stay tuned for how this plays out.


Government Shutdown Could Delay Duplex Loans

said on October 3rd, 2013 categorized under: Financing, Legislation

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duplex loans stalledSometimes, it seems like a federal government shutdown doesn’t impact our lives. After all, we’re still getting the mail, and most of us are still going to work every day.

However, if you’re in the process of buying or refinancing a duplex or single family home, the government shutdown may actually stop your plans.

When you apply for a duplex loan, the lender asks for a copy of the last two years of your tax returns. To make sure you’re telling the truth, they use something called a 4506T, which allows them to verify with the IRS that the tax returns you provided match the ones you gave the government.

Guess what?

Thanks to the government shutdown, the IRS is closed. And following all of the mortgage fraud committed during the real estate boom, the lenders aren’t likely to just take you at your word.

So, until the IRS opens back up, you may not be able to get a loan.

Call your Congressman. No matter what side of the debate you’re on, sooner or later, this will affect us all.

Real Estate Makes Like The Roadrunner

said on January 2nd, 2013 categorized under: Legislation

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A Real Roadrunner

A Real Roadrunner

Whew. Real estate didn’t go over the fiscal cliff.

Just like the Roadrunner, a last minute Congressional dash helped avoid what could have been a disaster, when late yesterday, the U.S House of Representatives passed the Senate’s legislation to avert any further damage.

What this means to people who own or are selling real estate is:

  • Mortgage debt cancellation, which was a non-taxable event under the “American Taxpayer Relief Act of 2012”, will be extended. In other words, if you sell your property as a short sale or lose it to foreclosure, you may not be taxed on the debt forgiveness. (Duplex owners should consult with their tax professionals, as part or all of your debt forgiveness may, in fact, trigger tax consequences.)
  • The capital gains tax rate will remain at 15 percent for most households. Anyone earning more than $400,000-450,000 a year, however, will pay a rate of 20 percent.
  • Taxes for gains on the sale of a principal residence of up to $500,000 for married couples and $250,000 for individualts remains in effect. Only homesellers who earn more than than $450,000 a year may face tax consequences on the sale of their homes.
  • The tax deductions for mortgage insurance pemiums and state and local property taxes have been extended.

This is good news for a still recovering real estate market.

Will You Pay Sales Tax On Your Minneapolis Duplex?

said on October 18th, 2012 categorized under: Legislation

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IRS Tax CodeThe  other day a client told me she was worried if she didn’t buy a duplex before the end of the year, she’d have to pay a 3.8 percent “sales tax”.

Of course, she was referring to the provision passed by Congress as part of health care legislation last year.

To be frank, there’s a lot of misinformation around this tax, so let’s clear it up.

If you’re single and earn less than $200,000 a year from all of your revenue streams (including rental income), or married and combined you earn less than $250,000, you’ll never pay this tax.

If you sell your principal residence, you will still receive the benefit of the $250,000 capital gain exclusion if you’re single, and $500,000 if you’re a married couple.

If you make more than that on your residence, you would be taxed on any gain above the excluded amounts, but only if you earn more than the described income thresholds.

If you’re one of the lucky few who earns more than $200,000-$250,000, your investment income from rents could be subject to the tax. However, the rental income you report is net rental income. In other words, you’d only be taxed on the income you report to the IRS, which is calculated after you pay expenses, and take deductions for depreciation and interest.

In other words, if you qualify, it really shouldn’t be that much on a small multi-family property.

It’s also important to note this tax applies to all investment income, not just real estate.

If you’re a Minneapolis duplex buyer or seller, however, in all probability, you don’t need to worry about it.

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Ricky_Rubio determines Minneapolis duplex taxesI’m looking forward to seeing Ricky Rubio play for the Minnesota Timberwolves.

Even though he’s partially responsible for the high duplex property taxes in Minneapolis.

OK, to be clear, he alone isn’t responsible for it.  The Target Center is.

In 1995, the city of Minneapolis bought the Target Center. As part of its agreement with the Timberwolves, the city is required to maintain the building as a first class facility.

In order to do so, the city created a special tax district that generates about $10 million a year to pay off, improve, and maintain the place. Some of the same fund is also earmarked for neighborhood revitalization projects.

But even that doesn’t explain how Minneapolis duplex taxable market values can decline, but the amount of taxes property owners are paying keeps going up.

According to a recent story in Downtown Journal, cuts in Local Government Aid at the state level, as well as a tax burden shift from commercial to residential properties during Gov. Jesse Ventura’s administration, resulted in homeowners paying 56 percent of all property taxes in 2011.

In 1997, homeowners paid just 33 percent of all property taxes.

Of course, it’s important to remember that 2011 property taxes are based on market values determined by non-distressed duplex sales in 2009.

Even after Minneapolis increased its levy by 4.7 percent in 2011, it will collect just $281 million in property taxes in 2011.

Th city has an annual budget of $1.36 billion.

So what do duplex property tax revenues pay for?

A big chunk of it goes into the city’s general fund. Of that pool of money, 21 percent goes toward paying for police, 17  percent for parks, 14 percent for pensions, 9 percent for fire, 7 percent for capital projects and 5 percent for public works.

I hate our high duplex property taxes but, I hate the thought of one less cop or fire station even more.

Let’s hope Rubio puts on a good show. It might help ease the pain.

Can Minneapolis Duplex Market Survive Without The Tax Credit?

said on September 18th, 2009 categorized under: Legislation

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Hourglass. The sand falls forming the dollar sign.As the sand in the hourglass of the $8000 first time home buyer tax credit begins to run out, an article in the New York Times this week reported there are doubts that the housing market can function without it.

The Times article estimates that as many as 40 percent of all home buyers this year qualify for the credit. In fact, the National Association of Realtors estimates the credit is responsible for 350,000 in sales this year alone. Moody’s, however, is still more optimistic, putting the figure at 400,000.

Evidence to support this may be found in the fact that mortgage applications for the week ending September 3, showed the largest gain since early April.

Home builders and the National Association of Realtors want Congress to extend the tax credit through at least next summer. The groups are suggesting the program be expanded to $15,000, and the credit granted to all buyers.

Republican Senator Johnny Isakson of Georgia, the sponsor of the original Senate bill, is working on just that. Isakson is submitting a new bill that would give a maximum $15,000 tax credit to any buyer who stays in the home for at least two years.

A former Realtor, Isakson accurately states that “The problem now is not first-time buyers, it’s the move-up market…”

Don’t hold out for the $15,000 credit, however. Washington, being the contentious place it is, is sure to hotly debate any additional stimulus package. If a new housing tax credit is passed at all, expect it to be a watered down version of Isakson’s original idea.

Eight Ways to Paint Your Minneapolis Duplex Green

said on August 3rd, 2009 categorized under: Legislation, Tax Credits

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Environmentally firendly houseIt’s not easy going green.

Oh, we all know there’s a push to do it. But let’s face it. It’s downright expensive. Where are you going to get the money?

Well, thanks to a salad bar full of recently passed and pending green legislation, it will soon be easier to finance these projects than ever.

Let’s start with the green opportunities already available to Minneapolis duplex owners:

  • Energy Efficient Mortgage (EEM) -Already in place, this FHA-backed mortgage allows a buyer to purchase or refinance a principal residence of one to four units and incorporate the cost of energy efficient improvements into the mortgage. Best of all, the borrower does not have to qualify for or make a down payment on the additional funding.

The energy efficient improvements must be cost effective. In other words, you have to prove the cost of the improvement is less than the total value of the energy it will save you over its useful life.

As part of the American Clean Energy and Security Act now before Congress (more widely heralded for it’s cap-and-trade” carbon emmissions program), proposed additional incentives include:

  • The FHA would directed to insure a mimimum of 50,000 new Energy Efficient Mortgages during the next three years, with the definition of an energy-efficient house being one where energy consumption is reduced by 20 percent after renovations.
  • Freddie Mac and Fannie Mae would be required to increase the qualifying incomes of mortgage applicants by at least one dollar for every dollar of projected energy savings from efficient design, green construction or renovations. (Think of this as somewhat like being able to use 75 percent of a property’s rental income to help you qualify for a loan to buy it; except this is dollar for dollar).
  • Loan applicants who live close to mass-transit lines or employment centers would receive similar concessions on their qualifying incomes.
  • Appraisers would be required to consider energy improvements as part of a duplex’s appraised value.
  • State governments would ensure property owners who go “off grid” by no longer using utility companies to provide power are not denied property hazard insurance.

Comments Off on Using Tax Credit As Downpayment Would Jumpstart Duplex Market

moneyWhile things seem to be heating up in the Twin Cities duplex market, some states are cranking up the thermostat even further by implementing bridge-loan programs that advance first time home buyers the cash they need to purchase a property.

For all intents and purposes, the loan acts as a second mortgage that becomes due whenever the buyer of the property receives their first time home buyer tax refund from the IRS.

I have encountered numerous credit-worthy first time borrowers out there. However, many do not have enough money saved for the minimum 3.5 percent FHA down payment requirement. While parents have always been a resource for many first time home buyers, many parents have seen their availability of extra funds shrink with their 401(k).

States that have created some variation of a down-payment loan program are: Missouri, Colorado, Delaware, New Jersey, Tennessee, Idaho, Washington, Ohio, Pennsylvania and New Mexico.

While I have not heard of an equally innovative program in the works for Minnesota residents, it never hurts to suggest one to your representatives in the state legislature.

Minnesota Legislature Offers to Prolong Housing Crisis

said on April 23rd, 2009 categorized under: Legislation

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minnesota state capitalIn the midst of the greatest housing crisis in U.S. history,  Representative Ann Lenczewski has introduced a bill to the Minnesota House of Representatives that’s sure to prolong the pain.

HF2323 is a measure intended to address the state’s looming budget shortfall.  It seeks to reduce spending and raise taxes in order to balance the budget.

But guess where that tax revenue is going to come from?

Your property and more directly, your wallet.

The House Tax Plan raises revenue by eliminating three major real estate tax deductions: the Mortgage Interest Deduction (MID), Real Estate Property Taxes and the Relative Homestead Tax.

For decades, home and duplex owners have been able to deduct a sizable amount from their income taxes due to the interest paid on their mortgages. The House Bill replaces this deduction with a maximum “housing credit” of $420, or 7 percent of up to $6000 in mortgage interest paid. However, no credit is applied to the first $4000 of interest paid.

As a result, a property owner must pay $10,000 in mortgage interest to qualify for the full $420 credit.

Dumb enough? Wait. It gets better.

Since 1933, the tax code has allowed taxpayers to deduct property taxes from their income. HF2323 eliminates the deductibility of property taxes.

Finally,Lenczewski says in an effort to thwart parents from buying homes for their college students, the bill contains a provision eliminating an owner’s ability to qualify for homestead property taxes when a relative resides there.

Personally, I didn’t know buying houses for your kids to live in while in school was such a nuisance. (Yes, I’m being sarcastic. )

Of course, none of this will help stimulate a housing recovery in the state. In fact, it’s likely it will only prolong the crisis.

Contact your representative and let them know how you feel.

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