Maureen Megowan's Blog

INCOME TAX BENEFITS OF HOME OWNERSHIP:The following link is a good summary of the tax benefits of home ownership, including a discussion of the tax deductibility of mortgage interest, property taxes, and other issues: http://www.finance.cch.com/text/c20s15d690.asp

To estimate the tax benefits of your proposed home purchase compared to renting, click here.You should use the "marginal" tax rate, which is the tax rate that your last dollar earned during the year is taxed at. Use the IRS tax table to estimate your marginal rate (look at the table and use the rate for your total taxable income you expect for the year) based on whether you are single, married or head of household.  This will give you an estimate of the  tax savings you will enjoy compared to if you were to take the standard deduction for federal purposes (the calculator includes points paid to the lender in the first year--your tax benefits in future years will be less). The program asks you to input the state tax rate. You should, of course, consult with your own tax professional in evaluating the tax ramifications of your home purchase and should not rely on these calculations in making your home purchase decision.

**NOTE: The information contained at this site is for educational purposes only and is not intended for any particular person or circumstance. A competent tax professional should always be consulted before utilizing any of the information contained at this site.**

The recent Rancho Palos Verdes fire that burned over 200 acres in the Portuguese Bend area, although a near tragedy, demonstrated many examples of the wonderful spirit of community that exists on the Palos Verdes Peninsula.

1) San Pedro horse trainer Callie Bell hitched up her trailer and loaded many horses in the Portuguese Bend area to move them to a safe haven.  Fifteen horses stayed overnight in the stalls at Ernie Howlett, where workers were busy Friday morning setting up for the upcoming Portuguese Bend Horse Show.

2) The Terranea Resort provided shelter for over a dozen families at no cost

3) Many local Palos Verdes Peninsula residents provided over night acommodations for their friends affected by the mandantory evacuation orders.

4) Los Angeles County fire Capt. Mike Brown credited residents for helping prevent injuries and keeping property losses to a minimum."Citizens in the area are extremely prepared and very cooperative," he said. "They assisted in the evacuation orders. It made things very easy."

5)  I heard several of the news reporters comment on the wonderful sense of community that they felt in covering the fires.

I am proud of the way my friends and neighbors handled this emergency.

CAPITAL GAINS ON SALE OF RESIDENCE: The Federal capital gains rate for long-term (property held for more than 1 year) capital gains for the sale of real estate for most tax payers is 15% ( See Capital Gains Rates for a discussion of Federal capital gains tax rates, particularly the 28% rate for depreciation recapture ). Capital gains in California are taxed at ordinary income tax rates (up to 9.3%). For the sale of a personal residence, if it meets certain requirements (see the links below), up to $500,000 of the gain ($250,000 if filing as a single) may be excluded from the gain on sale calculation for both Federal and California tax purposes. .For a few good links to an explanation of the Federal tax laws explained in plain english relating to the sale of a personal residence, and the exclusions from gain available see the following links:

http://www.fool.com/taxes/2000/taxes000428.htm
http://www.bankrate.com/brm/news/real-estate/20041018a1.asp

For a link to the IRS regulations regarding the sale of a residence, see the following link:
http://www.irs.gov/pub/irs-regs/td_9152.pdf
Note that in this link, there is a discussion regarding exceptions to the general rule that you can only exclude all or some of the gain for a home sold every two years. There are exceptions if the home is sold due to: a change in place of employment, Health, or unforeseen circumstances (as defined ). Note that this results in a "pro-rated exclusion" depending on how many months the property was sold compared to the 2 year allowable period.

For California tax purposes, see the following link: http://www.ftb.ca.gov/individuals/faq/ivr/219.html

**NOTE: The information contained at this site is for educational purposes only and is not intended for any particular person or circumstance. A competent tax professional should always be consulted before utilizing any of the information contained at this site.**

A Los Angeles Superior Court judge has ruled in favor of a nearly 20 year old Rancho Palos Verdes view restoration ordinance , rejecting an argument by property owners who the City required to clear trees on their property that their neighbors had waited too long to request that their views be restored.  Even though the judge ruled in favor of the ordinance requiring the removal of the trees, the judge called the ordinance "unfair"

The view ordinance, passed by voters in 1989, does not have any explicit or implied deadline by which residents must apply to the city to have their views restored or protected, and the court has no authority to dictate a deadline, the judge ruled.

The Rancho Palos Verdes Planning Commission voted on Tuesday night to have another public hearing regarding the proposed "Event Garden" on Jim York's property near Portuguese Bend.  After a roomful of local residents told the Planning Commissiners that they did not have an opportunity to be heard at the Planning Commission meeting earlier this month, where it was voted to allow Mr. York to apply for a permit, the Planning Commission voted to schedule another hearing on the matter for Sept. 22nd.

Planning Commssioners reminded those in attendance that the previous public meeting was well publicized. Before the Aug. 11 vote, York's plans and the related commission item were the subject of a front-page Daily Breeze story, a notice in the Palos Verdes Peninsula News and an e-mail to residents on one of the city's listservs. Several of the Commissioners were concerned that approving a new hearing would set a bad precedent,

"We had a hearing, an open hearing, two weeks ago. All of you were invited. It was a properly noticed public hearing," Commissioner Edward Ruttenberg said, causing murmurs from audience members that they had not been notified."To simply now come in and say that, `We don't think we were heard' - are we going to to have to re-hear every meeting?" Ruttenberg added.

Mr. York has stated that he is confident that the local residents concerns can be addressed and mitigated. Some residents may not be aware that Mr. York is planning to have access to the "Event Garden" limited to a private road with direct access off of Palos Verdes Drive South. Access will not be through the private Portuguese Bend gates or private roads. He has also stated that the parking and garden area are well away from any neighbors, and that previous private events he has held there have not resulted in any noise issues.

If noise and access issues can be addressed , do you believe that Mr. York should be able to hold public events on his property?  I welcome your comments.

Terranea Resort's Construction Lender, Corus Bank, joined it's mezzanine lender in filing a notice of default, which is the first step in foreclosure proceedings.  Corus Bank is just a few days away from being sold or taken over itself due to the majority of their loan portgolio being in trouble. They still have not funded the last $13 million construction draw due on the property.

Lowe Enterprises, the developer of the resort, is frantically negotiating to restructure its credit arrangements. The Resort's financial problems are being made worse by the fact that it has been unable to close most of the sales of the Casitas and Villa units due to a lack of financing available for the purchase of these type of limited occupancy units ( approval by the California Copastal Commission provided that occupancy by the owners are limited to either 60 or 90 days a year and must be made available for rent for the rest of the time ).

Some vocal apponents of the Resort are speculating that the resort will be forced to close, however in these situations where financial problems may lead to a change in ownership, resorts almost always stay open as it is in the best interests of the lenders to keep the property operational. Upon an ownership change, there may very well be a change in operator of the Resort.

There can be no denying that the Resort is a beautiful project and which will be a valuable resource for the Palos Verdes Peninsula for many years to come.  It is just unfortunate that the Resort was finally completed and opened during the worst financial environment since the Depression.

South Bay Median Home Prices in the South Bay of Los Angeles rose last month. Carson, Inglewood, Rancho Palos Verdes, Redondo Beach and Torrance all saw month-to-month increases in their respective median home prices, according to a report released Tuesday by the California Association of Realtors

One reason for the increase in the median home price is that a greater percentage of home sales are taking place in the higher priced home segment due to greater availability of Jumbo mortgage loans.

In the table above, you will notice that the cities on the Palos Verdes Peninsula have faired fairly well compared to the rest of the South Bay and Los Angeles County

Reverse Mortgages:

For seniors, there is a relatively new mortgage available called a reverse mortgage. This type of mortgage is useful for people who have a large equity in their home, but who live on a fixed budget and find it difficult to live on their current income. Many seniors in this situation are forced to sell their homes. Instead of selling your home, a reverse mortgage pays the home owner a fixed amount each month while they own the home, with the mortgage amount thus increasing each month for the amount of the payment, plus interest. There are several types of reverse mortgage products, one of which, the Home Equity Conversion Mortgage which is used by 90% of reverse mortgage borrowers, is federally insured. All reverse mortgages are due and payable when the last surviving borrower dies, sells the home, or permanently moves out of the home. (Typically, a "permanent move" means that neither you nor any other co-borrower has lived in your home for one continuous year.)  For those homeowners who are sophisticated, they can effectively accomplish the same thing by obtaining a home equity line of credit, which is relatively inexpensive to obtain, and designing their own monthly draw program on their loan by utilizing a payment calculator using various assumptions about their age, home value etc.

An excellent web site for borrowers is one run by Jack M. Guttentag, Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania, which is called Mortgage Professors' Web Site. This site contains many excellent articles and advice on obtaining a mortgage and also includes many very useful calculators.

Sources of Funds for a down payment:

Sources of funds to make a down payment on a home can come from one of several sources:

1) Savings
2) Home equity line of credit on your existing home
3) Borrow money from your 401(K):  You may borrow money from your 401(K) for a down payment on a home purchase, if the plan allows for it without a penalty. You may not borrow money from your IRA for a down payment, however 1st time buyers, may withdraw funds one time with out paying a penalty, up to $10,000, however you would have to pay income taxes on the withdrawal.
4) Equity from the sale of your existing home or investment

Between the turn of the 20th century and WWII, the White Point area of San Pedro was home to a thriving Japanese community of abalone fisherman and farmers. In 1899, Japanese fisherman leased beach front property at White Point from Ramon Sepulveda with the intention of establishing an abalone fishery at that location. By 1903, they had earned enough money to construct a cannery at the fishery. After the fishery closed, the area became a Japanese farming community and a resort locale. In 1917, Japanese constructed a sea side resort centered around a sulfur sulphur spring at the base of the cliffs. The resort consisted of a two story hotel and restaurant, three salt water plunges, an enclosed boating area, and a bathhouse. In 1933, however, an earthquake sealed off sulfur sulphur springs, and depressed economic conditions forced the closure of the resort.

 
White Point Health Resort -  Circa 1920's


Diver at White Point Reso0rt

 Locking in an Interest Rate when Applying for a Home Loan:

When applying for a loan, the borrower should obtain a "lock-in" of the quoted interest rate for a period adequate to close escrow. Lock durations can vary for mortgage financing, but most lenders lock in the interest rate for 60 days from the date the loan application is submitted. As long as the loan is closed within that lock-in period, the lender honors the agreed upon interest rate.

Some consumers are misled by advertising that quotes unrealistically low rates based on 15- or 30-day lock durations. This is called 'short-pricing.' The lender basically knows the borrower doesn't have time to meet their conditions and have all the necessary paperwork in order within that brief time period. As a result, the lender is not obligated to honor the low rate that was listed in their advertising.

For simple refinance transactions, a 45-day lock-in period is more realistic. For purchase transactions, which are typically much more complex, you're much safer going with a 60-day lock, even though the interest rate might be a little higher than the rate you see quoted on billboards and the Internet.

Borrowers should make sure they have a written rate lock agreement, and allow themselves a reasonable amount of time to close their loan.