Prior to 1997 and the Taxpayer Relief Act, only persons over the age of 55 could take advantage of capital gains tax exemption from the sale of their homes, but now age is irrelevant and anyone can participate. That’s right: anyone. People in their twenties without children can now claim exemptions.
There is no longer a rule that states the money must be rolled over into another home purchase within two years of selling the previous one. This was called the “rollover rule,” but it too was laid to rest in ‘97. Now you may do whatever you wish with your money and still may claim the exemption.
The only factor involving time indicates a minimum of five years of ownership, not occupancy. The owner must have occupied the unit for at least two years out of that five. There are many misconceptions about this rule, with some assuming that the owner must live in the unit at the time of sale – but there can even be a tenant in the house at the time of listing and no rules will have been broken. There are, however, some other things to keep in mind:
You can only claim exemption on one residence at a time. The house must be identified as your primary residence, even if you aren’t living in it at the time of sale, as mentioned above. This means you can’t purchase a new house, lease out your old residence for a few years, and then sell both of them at the same time, claiming the exemption on both. You can, however, claim the exemption on your old house while living in your new one, then proceeding to live another 2 years in the new house in order to begin meeting all the minimum necessary criteria for another exemption. Fun, isn’t it?
When it comes to preparing your house for sale, any cash that you put into it such as new paint, drapes, cleaning, etc., cannot be deducted from the sales price. Significant investments in the capital improvement of your home, however - anything that adds permanent value - can be deducted. Examples of this might be the addition of a garage or a second story. This can be a slap in the face to people who have put several thousand into prepping their residences for the market, expecting to have it returned to them in the form of a tax deduction.
With the passage of Obama’s Affordable Care Act, a new tax has been placed on the sale of all real estate: a 3.8% Medicare tax will be placed on the investment/unearned income of all high income taxpayers. High income taxpayers are individuals reporting more than $200,000 annual income or married couples filing jointly reporting more than $250,000. The interesting part here is that the $250,000 capital gains exclusion applies with regard to the Medicare tax no matter what your income level is. If your income is below the threshold, the Medicare tax won’t enter into the equation. If your income is above the threshold but your capital gain is below the exclusion, the Medicare tax is also out. If your income is above the threshold and your capital gain from the sale of your home is above the exclusion, the Medicare tax will be imposed but only on the portion of the gain that exceeds the exclusion amount.
With a housing market like that of inner Houston, with high property value and a perpetually low inventory of listings, there is almost never a time when properties in this part of the city aren’t incrementally increasing in one manner or another. In the inner loop area of Houston, or around Tanglewood, Hunter’s Creek, Piney Point or Bunker Hill Village, owners can easily wake up one morning and discover that their properties have appreciated well beyond the $250,000 threshold. As one can see, there are a number of ways to take control of the situation long before this ever happens if one wishes. Call an Allen Brothers Realtors agent today to talk about your options.
So many people these days are seeking a home inside the loop, near Houston’s downtown district. Young professionals in particular are eschewing the old pattern of inhabiting the suburbs/commuting into town, and are instead moving into the inner loop section of Houston in greater numbers than ever. In recent years, possibly due to the global financial crisis of 2008-09 and partly due to a generational change of preference, a great many young professional people have elected to rent something in the Montrose, Midtown and Heights areas instead of buy a big house in the suburbs. Banks changed their lending practices at this time, lowering interest rates and making mortgages more difficult to obtain. The pattern of increased renting in Houston probably reflects both these factors along with the fact that property inside the loop is extremely expensive compared to property in the suburbs. People looking to live near downtown want a place quick, and they want something within their budget. They know their budget won’t come close to the houses and bungalows for sale near downtown, so they rent an apartment or condo and consider themselves happy. The number of people doing this is a huge figure – thousands of people weekly move to Houston in the current thriving economy and begin searching for rental properties near the center of town. They all go out and look at the same duplexes, apartments, condos and small townhouses, and these all quickly disappear off the already tight rental market. Many people are forced to seek rental units elsewhere at the end of the day – units in areas that were their second or third choices, because they simply couldn’t locate anything in the highly coveted areas inside the loop. They begin taking units in areas like the Galleria and much further west around Westheimer and out toward the energy corridor.
What many of them don’t realize is that there are always a few units inside the Houston loop for sale that are just as nice as the ones they were seeking to rent. There are 1 bed/1 bath condo units located right in the center of Montrose, in the 670 square foot range, selling for $218,000. With a $44K down payment at 20% down, the monthly mortgage payment on such a unit would come to around $1087 with a 3.73% interest rate, which is better than with the current market rental rate for such units. Similar 2 bed/1 bath units are around 900 square feet and selling for around $295,000, which could be secured for a $1600/month mortgage at the same interest rate and a $44K down payment at 15% down. Once again, this is cheaper per month than renting a similar unit in a prime location. The bigger difference, of course, is that every payment you make on a mortgage is partial payment toward the equity of your own purchase, whereas a rental payment is more or less money that goes into the landlord’s pockets and is never seen again. If anything, this is a reason for any young professional who has money saved for a down payment to buy instead of rent. If you find yourself high and dry after searching Montrose and the Heights for a good rental unit, have good credit and $20-40K to spare for a down payment, you can afford any number of units for sale in the same area. After a few years, they will probably have appreciated in value and can be sold for a profit as well, something a rental unit won’t give you. You can also lease your unit out when you aren’t living there and enjoy an extra stream of monthly income based on the difference between your mortgage payment/expenses and the amount you are charging the tenant for rent.
Audubon Place: Montrose’s Beautiful Oak-Lined Historic District
Montrose, the most desirable destination for many young professionals today, as well as many homebuyers who want to live near downtown in one of Houston’s most eclectic and culturally rich districts, has many pocket districts within it. In future blogs we will explore all of them in greater detail. One of the only areas within Montrose that is immune to Houston’s lack of zoning is the large block of historic districts just east of Montrose Blvd., south of Westheimer and north of West Alabama. Houston actually has 12 designated historic districts.
Audubon Place reminds some people of San Francisco with its cheery colors and turn of the century architecture. It has beautiful esplanades along Lovett, Yoakum and Audubon Place Boulevards. Along Hawthorne Street near Stanford, each house is painted a different color, much like the city by the bay. This community has a history that goes back to 1911, with the creation of the entire Montrose Addition, which was the city’s first large-scale calculated subdivision at the time it was platted. Its boulevards and esplanades were the most recognizable thing about it. Even Montrose had a fine esplanade which was eventually removed to increase traffic flow. The Montrose addition was platted by John Wiley Link, who formed the Houston Land Corp. to do the development. The name Montrose was a reference to an historic town in Scotland, found in the writings of Sir Walter Scott1. Link commissioned the firm Stone & Webster, one of the oldest and most established builders in the present day, to do the construction. This included all of the mansions along Montrose Blvd. (Link’s own mansion is today an administrative building for the University of St. Thomas.)
Montrose was not intended as an exclusive haven for the rich alone, however, and many lots were as small as 5,000 square feet along streets running off the main corridors. Architectural styles for middle-class bungalows and two-story houses in Audubon Place ranged from Bungalow, Mission Revival, Prairie, Colonial Revival, Cape Cod, Queen Anne and Craftsman, which was the most widespread style.
The names chosen for the streets in Audubon Place were Audubon Place, Terry (now Roseland), Hawthorne, Oxford (now Marshall), Kipling, Connor (now Stanford) and West Alabama. Edward Teas Sr. landscaped the boulevard esplanades; he would later found Teas Nursery. Historical documents2 indicate that many loads of palm trees, evergreen, camphor and shade trees were brought to the new development.
At the beginning of its history, there was a rail line going through the area: the Galveston, Houston and San Antonio Railroad. This was eventually replaced by more lots. There was also originally an electric car system in place, taking residents downtown. The car went down Roseland, turned east at Hawthorne and took a north turn at Taft3. This electric car was in service for 25 years until it finally ended in March of 1937.
The Montrose Addition was an entirely residential area when it was platted in 1911, but commercial and establishment encroachment over the years has given most of Montrose a less entirely residential feel than it once had. Audubon Place is one of the last remaining residential sectors within the established boundaries of Montrose that is protected by historic designation status. It was awarded this status in 2009, along with some adjacent districts in roughly the same years, giving this insulated Montrose borough a truly vibrant and unique character. There are many other areas of Montrose that are also highly sought-after besides Audubon, or the Westmoreland Historic district immediately to the east, but Audubon will always be the quintessential middle-class residential jewel of Montrose; untouched, classic and just as it always should be.
Era Of High-End Apartments In Inner City Houston
Josh Foster, inner loop sales
has been a renaissance of high end apartment development going on in Houston
that has not been seen in years. This will lead to some fantastic changes as
more people than ever continue to move to the Houston area, spurring the local
economy, with no end in sight. According to the Houston Chronicle, 125,000
people moved to the city in 2013, with a similar number having arrived this
year. What brings them? Houston leads the nation in job growth, to name one
reason. It added 119,400 new jobs over the last 12 months according to
realtynewsreport.com. These jobs are what pushes the multifamily market
combines with another trend, which is taking place across the nation:
urbanization. Houston is filled with young professionals fresh from other parts
of the country, and they are not interested in homeownership. This trend is
reaching its peak, as apartment occupancy rates in the city of Houston hit 91%,
almost an all-time high.
Montrose area and all of the inner loop west of 288 has seen a kind of high-end
construction boom since at least 2012. An old complex on 1920 West Alabama, as
well as complexes on 2810 McDuffie and 1924 Marshall - where residents had
enjoyed very low rents for years - are in the process of being demolished and ground
will soon be broken for a huge luxury mid-rise. The eclectic area will feel the
change, as property values will be increased and a more urban feel will
continue to sweep Montrose. This will be in addition to a 20-story apartment
tower on Chelsea Boulevard being built just south of 59.
in the year, according to prnewswire.com, The Muse Museum District was built on
the cusp of Montrose and the Museum District by developer Behringer Harvard Multifamily
REIT I, Inc. The development, on 1301 Richmond Street, is four stories,
features eight-foot doors, ceilings of over nine feet, and full size washers
and dryers. Flooring includes hard-surface planking in the living and dining
areas and stone flooring in the kitchen and bathrooms. The luxury kitchens
feature stainless steel appliances, with flat-top stoves, granite countertops,
double-door refrigerators, 42-inch hardwood cabinetry with under-cabinet
lighting, tumbled-stone backsplashes, kitchen islands, and under-mount sinks.
Baths feature framed mirrors, oversize Roman tubs with tile surrounds and
separate showers in select units. The units start at $1400.00.
end, high budget multi-family apartment buildings are springing up in areas
surrounding downtown that haven’t been touched by developers in years, as well
as downtown itself. 10 new apartment buildings are in the works for the downtown
area this year. The new construction will more than double the current population
of the downtown area, which may completely transform it from the ghost town it
is now into something of a more inhabited region. That is a status Houston’s
central business district has been seeking for decades to have to no avail.
to the Chronicle, Houston’s Camden Property Trust is expected to break ground
in Midtown to the south with high-end multifamily units even more desirable
than the ones that have already been appearing everywhere in the past couple of
years throughout Montrose, Upper Kirby and the Heights. There is a proposed
eight-story building of units in one project, and another separate project,
both of which are qualified for tax breaks the city offers to builders
developing in the inner city. Such development has already been the trend in
other major metropolitan areas, according to the chair of the company.
further to the south, next to Hermann Park, Tema Development Inc. has just
begun construction of a really big $75 million luxury apartment project, and it
isn’t expected to reach completion until late 2016. It will contain 224 units
and stand seven stories. It will include five penthouse suites, all overlooking
the nicest view of the park. There will be a 12,000-square-foot courtyard
containing a fountain, and a 9,000 square foot area with lounge, bar, club,
conference area, fitness center, yoga area, swimming pool with a sunbathing
ledge, fire place, barbeque spot, common Wi-Fi zone, bicycle storage and
electric car charger.
In Inner Houston Townhouse Development And Its Potential Impact
by Josh Foster, inner loop sales
The 1930s was the
decade of the bungalow in Houston. To many buyers in the present Houston
market, it is still an attractive vintage option in the oak-lined streets of
Montrose and the Heights. Sturdy, dependable, and if properly maintained over
the many passing years with good updates, just as handsome a structure now as
the day it was built. But no builder today would touch the plans for one. This is
the decade of the townhouse, and it stands lean and four stories tall over all would-be competitors.
The townhouse has also
begun to make its indelible mark on inner city Houston just as the bungalow did
in the mid twentieth century, sweeping away the past along with it. In January
of this year the far north Heights saw a townhouse boom. In the area surrounded
by Yale, Shepherd, 610 and 23rd there was massive construction. The
Sullivan Brothers builders did a project on 23rd. Twelve new
townhouses on 26th and Ashland appeared. Eight more at the same
corner, and twenty more came soon thereafter between 26th and 27th
streets. Eight single family townhomes in a project at 26th and Rutland
were built. Twenty units at 24th and Lawrence. In addition to this
there were twelve or so 2-to-6 house projects in the area. On 27th
street and Rutland at least another dozen townhomes went up. This kind of
development is going on all over the Heights, and into Montrose as well.
Areas in Montrose that
have had the same feel and flavor for decades are changing now, due not only to
townhomes rapidly replacing the former infrastructure but also a sudden development
of multi-family high rise apartment projects in numerous locations throughout
coveted inner city areas that have remained unblemished by this level of investment
for the better part of a generation or longer.
Midtown is also a hot
area for townhome sales and construction, a former warehouse district
transformed into the SoHo of Houston over the past fifteen years or so. There
are also concentrations of townhomes in the Timbergrove and Shady Acres
neighborhoods, near I-10 and along the Washington Avenue Corridor. EaDo, the
area directly east of downtown, has been revitalized in recent years and
townhome construction is a part of it. It would appear in preliminary analysis
that even lots in the Greater Third Ward area to the south of this are being platted
into areas under 3,200 square feet.
According to the
Houston Chronicle, Linda Jamail Marshall of Linda Marshall Realtors Inc. says “Townhomes
are popular because they occupy less of a footprint. They require less
maintenance, but they offer the amenities of a single-family home.”
There have even been
legal battles over development in areas such as Boulevard Oaks, the most
notable of which is the Ashby High Rise. While this project is not a townhouse,
it should be mentioned here because it represents the same root cause of
development in the region. Houston is in the midst of its greatest economic
expansion in generations, and soon there will be inevitable changes to the inner
city; the existing suburban landscape is not protected by deed restrictions.
As this new phase in
inner city construction began to manifest itself, many existing residents in
Montrose and the Heights were understandably disquieted. Townhouses totally
change the urban landscape. They are everywhere now, surrounding the single
family homes on all sides in most neighborhoods without deed restrictions.
Since then, many have
begun to see benefits. Their presence raises property values considerably. Not
all people who wish to live in the vicinity of downtown wish to do so in a
condo, apartment or townhome. The existing freestanding single family units are all in lower
inventory and thus more valuable now. Townhouses add variety to the inner city
landscape and more square footage to the structures they replace.
Townhouses are a facet
of the inevitable process of inner city urbanization, as a greater number occupy
the area within the loop. Streets will become more congested, infrastructure
will grow inadequate by degrees and gradually be replaced fragmentally, and at
some point the inner loop will resemble Manhattan or Chicago. Houston is a young
city and such density is inevitable with a world-renowned medical center, Rice
University and Fortune 500 headquarters all situated within a few square miles
of each other.
The question people must ask is: Do I find Greenwich Village or
Chelsea Garment District unappealing? Are certain residential areas of Chicago
in the vicinity of downtown unpleasant? It’s not that inner loop Houston has to
become degenerate, devoid of nature or chaotic with the arrival of massive
amounts of new development. It’s simply a transitional phase on the path to urban
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