Fil 260-Topic 14

Front 1

What is Ownership?

Back 1

the right to residual values, how can someone take pride in a point in risk/return space?

** much more useful expression is greed of ownership, short-term residents of a community care about issues like schools and crime if they own homes cuz the redisual they will receive on resale will be affected by buyers feelings about the community's desirability

Front 2

How can we, as a society choose to enact (or end) policies that promote home ownership before we come to terms with what ownership is?

Back 2

Financial costs and benefits of home ownership

Front 3

What are some financial Costs?

Back 3

1. Illiquidity of Investment- down payment and principal payments are tied up
2. No periodic returns (interest, dividends) are earned on residence
3. Some Maintenance expenses- do not provide a measurable financial return
4. Property taxes and transaction costs can offset inflationary gains- Assets that are non-standardized, such as real estate and art objects, tend to have high transaction costs)

Front 4

What are the Financial Benefits?

Back 4

1. Interest paid on money borrowed to buy a home, and property taxes paid in connection with home ownership, are deductible from the income on which federal income tax is paid
2. capital gain on a home sale (from reselling at a price higher than the original purchase price) gets favorable income tax treatment; unless gain exceeds 250,000 (500,000 for a married couple filing joint return), there is never an income tax to pay (unless home owner sells at a gain less than two years after previous sale incolving an untaxed gain)
3. Home owner- not taxed on the imputed rental value of a home; home owner gets some investment benefits such as interest and property tax deductibility, w/o the need to treat the related benefit as income

Front 5

NOT TAXED ON THE IMPUTED RENTAL VALUE OF A HOME:

Back 5

**if you owned a house but rented it out to me and I owned a house but rented it out to you, each of use would be an owner each would have a place to live and each would get interest and property tax deductions, but each of us would also be taxed on the rental income received. But simply change the names on the deeds and we both still get the deductions while not having to declare any rental income

Front 6

Interesting point to note up front on Home Ownership and the Federal Income tax:

Back 6

For federal income tax purposes, your "home" can be a traditional free-standing house, a condominium unit for your proportional share of a cooperative building, a mobile home, or even a houseboat.

**it must have power, along with cooking and bathing facilities to qualify

Front 7

A basic equation for federal income tax computation:

Back 7

*GROSS INCOME (other than excludable items)
*Minus Adjustments
*Equals Adjusted Gross Income
*Minus Deduction
*Minus Personal Exemptions (3,500 per family for 2008 returns)
*Equals Taxable Income
*Times Tax Rate
*Equals Tax Owed
* Minus Credits (1st home buyer, residential energy, college tuition, earned income, dependent care)
*Equals Final Tax Liability

Front 8

Owner-occupied residential real estate has an effect on its owner's federal income tax in various ways, including:

Back 8

1. Capital gain on the sale of a home is taxed only if the gain is extrememly high: selling the house for a price that is more than 250,000 (or 500,000 for married filing jointly) above what you paid for it
**exception was that a taxpayer aged 55 or older could choose, once in the life of a single taxpayer or of either spouse, to exclude forever the tax on a gain of up to 125,000 from sale of personal residence- but once either member of a married couple had claimed this exclusion, the other spouse couldn't
2. mortgage loan interest, real estate taxes, and mortgage insurance premiums are deductible from adjusted gross income; federal government, in that way, subsidizes home ownership

**EX: taxpayer must itemize deductions in order to gain an income tax benefit from mortgage loan interest and mortgage insurance premiums (and typically to deduct property tax payments, though a temporary provision, discussed below, allows non-itemizers to claim an inocme tax benefit for property taxes paid

Front 9

More specifically we get tax breaks from:

Back 9

1. Interest
2. Property taxes
3. Mortgage insurance
4. 1st home buyer credit
5.Residential energy efficient property credit- US resident (single or filling jointly) can claim a credit of 30% of the amt spend during the relevant tax yr on certain solar, wind, geothermal, or fuel cell energy upgrades
6. Some one who moves to a new primary residence cuz of a job change generally can treat the moving expenses as an adjustment to income
7. Personal residences do not qualify for depre. deductions

Front 10

What is is Fair Housing Laws?

Back 10

It is illegal to coerce, intimidate, threaten or in any other way interfere with a person's attempts to buy or sell (or rent) real estate

Front 11

What is the Fair Housing Act of 1968?

Back 11

makes it illegal to discriminate with respect to a buyer's or renter's race, color, national orifin, religion (religious groups can give preference to their memeber s if they dont discriminate in other ways), gender, or having children or being disabled in activities involving selling, renting advertising, or financing real estate

*8requires brokers and lenders to prominently display "Equal Housing Opportunity" posters
** doesnt apply to individuals selling their own single-family homes without broker assistance (or to owners of 1-4 unit building who live on-premises

**In Illinois Human Rights Act closely parallels the Fair Housing Act, but also provides for state enforcement, Cook County also ha an ordinance)

**over time, however, enforcement of the FHA has come to focus less on race and more on disability or family status

Front 12

What is "blockbusting"?

Back 12

encouraging someone to buy, sell, or rent specifically to change the racial makeup of the neighborhood

Front 13

What is the interesting Illlinois case in the west-suburban Bellwood in 1979?

Back 13

Plaintiffs felt that 2 real estate brokerage fimrs were trying to maintain a certain racial breakdown in the town, by "steering" white buyers to primarily white neighborhoods and minority buyers to an integrated neighborhood
**Supreme Court ruled that testers that lived in the local area did have standing to sue cuz community had been harmed by efforts to interfere with housing opportunities

Front 14

Another Illinois Case south-suburban area in 1991:

Back 14

Several suburbs enacted ordinances that required "affirmative marketing" which means trying to encourage whites to move into certain integrated neighborhoods (while discouraging racial minorities). Realtors sued the communities, on the gorunds that complying with these laws would require them to engage in illegal steering. But a federal appellate court in Chicago upheld these "intergration maintenance plans" and the US supreme Court declined to hear an appeal

Front 15

What is the Civil rights Act of 1866?

Back 15

prevents houosing discrimination based on race, this law applies to individuals selling their own houses

ex: individual selling his own home could discriminate based on a buyer's age, national origin, religion, or gender under FHA exceptions, but not based on race cuz CRA doesn't allow for exceptions

**how far should the Fair Housing Laws go?

Front 16

Using income tax laws to promot home ownership is controversial:

Back 16

poor renters are subsidizing more affluent home owners, it is interesting that a feature of some flat-tax proposals is the termination of deductions for home mortgage loan interest