For tax purposes, the IRS classifies those who invest, or work in real estate into four distinct and separate classifications. The tax laws for real estate investors won’t work for dealers, developers, or agents. The same tax laws that for other professionals do not always work for those that look to profit from real estate transactions. Investors need to know where to maximize tax savings and minimize tax liabilities.

According to the IRS, a real estate investor is someone who passively invests in real estate for long-term periods; that is, longer than one year. Any type of real estate investment can occur, single family homes, condos, industrial parks, undeveloped land and many other types. There can be properties involved in rent-to-own programs. The properties can have a sitting tenant and/or there can be an ongoing purchase option.

To be categorized as a real estate professional, there needs to be 5% or more ownership of a real estate business, or a minimum of 750 hours per year working exclusively on real estate activities, or more time on real estate activities spent than anything else while still meeting the 750 hours per year rule.

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Florida’s homeowner insurers brace for an outbreak of home arsons set by cash-strapped homeowners looking for insurance money to escape from foreclosure. Homeowners are convicted of setting fire to their property face felony charges including arson, conspiracy and fraud. The charges could be much greater if someone is harmed. If the charges stick, homeowners who set their homes ablaze likely will be jailed.

The Coalition Against Insurance Fraud fears current market conditions could trigger an arson outbreak beyond normal levels. Falling home values and tighter lending rules are making it difficult for many people to refinance their way out of trouble, get loan work outs or otherwise escape foreclosure.

Central Florida law enforcement officials have tied an unusual crime spree of auto arsons to the housing market as homeowners try to “burn off” excess debt in order to make the mortgage payment. The right way to approach an impending default on a mortgage payment or foreclosure isn’t with a box of matches. At the first sign of trouble, work closely with the lender for a workout or refinance or seek other assistance, consumer experts advise.

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The depressed real estate market now seems to claim another victim—local governments. As with many government entities, city, county and state governmental units across Florida have invested in a fund containing mortgage-backed assets.

Florida’s State Board of Administration, which oversees the local government investment pool, recently froze the fund after worried investors sapped $10 billion from it within two weeks. That created financial bedlam for some investors, particularly small municipalities and school districts that rely on the fund to make payroll, bond payments and other obligations.

The plan that Governor Crist has approved will split the fund into two parts, the largest containing its securest assets. Investors will be able to withdraw $2 million or 15 percent of their holdings. They will have to pay a fee to withdraw more than the cap, which will expand gradually and eventually be lifted. This “clean” portion of the fund will comprise 86 percent of it. The plan also calls for establishing a public-private partnership with financial institutions to allow pool investors to borrow against their shares in the fund.

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Many South Florida real estate owners won’t benefit from the White House subprime mortgage plan because they’re investors or homeowners at least 90 days late on their house payments. To qualify for help under the program , residents must be living in their homes and current on their mortgage payments.

Some economists say there’s nothing in the president’s proposal that will trigger a rebound in a South Florida housing market that has been mired in a slump for almost two years. It’s not going to help areas that need help the most, and Florida certainly is one of those. Palm Beach County had 1,387 residents behind on their home loans last month, up from 515 a year ago.

Relief is designed for homeowners holding adjustable-rate subprime mortgages they took out between Jan. 1, 2005, and July 31, 2007, and are facing a steep increase in their interest rates before July 31, 2010. People facing foreclosure typically are behind on their mortgage payments at least three months and have been notified by lenders that they intend to take back the properties.

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The recent President Bush plan unveiled to help subprime mortgage holders is criticized for not doing enough. The thousands of subprime borrowers eligible for the rate freeze are still being “punished” for reckless behavior in the past. But the punishment is just not by as much as they would if their adjustable-rate mortgages were allowed to move to unaffordable levels.

Subprime borrowers had higher rates to begin with and will still pay more than those who took out more conventional mortgages. Estimates vary on how many borrowers would be eligible for the freeze from around 150,000 to 240,000. Some 2 million subprime borrowers have ARMs that will reset to higher levels in 2008 and 2009.

To qualify for assistance from their lien holders, backed by the Federal government, those borrowers have to be current on their loans and lenders have to determine that the owner can’t refinance or afford an adjustment. The freeze will only affect those whose payments would increase by more than 10 percent with an adjustment.

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For more information on this and other real estate matters, your first source for Palm Beach real estate should be licensed agent and long-time resident Caesar Parisi.

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Donald Trump is helping Gov. Charlie Crist raise money Thursday for a ballot question that could cap all property taxes. The same amendment would also provide cuts for most homeowners. Trump is on-board the amendment bandwagon as he pays $1 million a year on his Palm Beach County mansion.

During the campaign trail last year, Crist promised to reduce property taxes and has made the issue one of his highest priorities since taking office in January. The governor will be making a significant push to get support for the Jan. 29 ballot question that would double the homestead exemption and place a 10 percent assessment cap on all properties.

The amendment would also double exemptions on primary homes to $50,000. And, it would cap assessments on other properties. Businesses, rentals and second homes like Trump’s Palm Beach mansion, which is appraised at $58 million would have their taxes lowered. In 2005, the assessed value of Trump’s mansion was $41.4 million. It jumped to $56 million the next year, or a 35 percent increase. Had the cap been in place, his tax would have been based on a $45.5 million assessment in 2006.
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Central Florida has a record inventory of pre-owned homes for sale but that’s not stopping builders from unleashing a flurry of town-home lots and Florida townhouse construction. Local builders have about 2,000 town-home units under way in a three-county Orlando area and are “sitting on a supply of more than 10,500 developed town-home lots in over 100 active communities,” according to a new report by Charles Wayne Consulting Inc. in Orlando.

New single-family homes in the region have been averaging about $388,000, and town homes sell for less, generally starting at $160,000 and topping out at about $500,000. Town homes are “attached” units, generally four to eight for each structure. The buildings most often are two to three stories in the Orlando market, and count as multi-unit housing.

Park Square Homes reports an increase in European buyers at two of its Osceola County communities: BellaVida Resort, south of U.S. Highway 192 in Kissimmee, and Encantada, on Secret Lake Drive just west of the new State Road 429 tollway interchange in Kissimmee. Both have tons of amenities. Locally based Park Square is selling units to Europeans for Florida vacation homes

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Rampant speculation was the primary reason for the meteoric rise in South Florida real estate prices. The frenzy started when economic growth increased housing prices and property owners profited big when they sold. More people bought houses or condos, by the dozen, figuring that they’d earn a bunch of quick bucks instead of just one.

Real estate developers, sensing a potential for quick profit, got in on the act by building thousands more homes. Eventually, speculators were merely selling to one another at ever more inflated prices. And when the last to buy or build can no longer flip those houses, prices plummet. That’s what happened in Miami and other South Florida towns where investors ran out of buyers who could afford to pay.

At the height of the Miami real estate bubble, prices Miami were rising by 3% to 4% a month. Now only about 10% of homes in Miami are affordable for residents earning the area’s median income, according to the Housing Opportunity index, published by the National Association of Home Builders and Wells Fargo.

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Hope Now Alliance, a coalition of lenders, servicers, investors and community groups, put together by the Treasury Department, is working on a version of a rate freeze to forestall upcoming ARM resets. Details of the Hope Now plan have not been finalized, according to Kurt Pfotenhauer, a senior vice president for government affairs with the Mortgage Bankers Association, which is part of the Alliance.

For a borrower with an adjustable rate mortgage (ARM) at 7 percent on a $200,000 loan, a freeze would mean substantial savings. If the loan were to reset to 10 percent, the monthly payment would jump from $1,331 to $1,755. Judging from other lenders’ plans, a reset freeze would be available only to those borrowers judged unable to make payments at the reset rates.

A freeze was proposed in early October by Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation (FDIC), according to FDIC spokesman, Andrew Gray. It has been well received. Both the Wall Street Journal and the New York Times endorsed it. Bair first had the idea in April, said Gray. But in September, Moody’s revealed that only 1% of ARM borrowers with loans that reset to higher interest rates in 2007 were modified in any way.

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Affordability is a huge issue in many parts of the country. Lower conforming loan limits may be good for Fannie and Freddie but it’s bad for homebuyers, considering that credit has tightened for jumbo loans and home prices haven’t dropped but five percent after 100 percent gains since 2000.

Housing sales have dropped over 20 percent to less than a half-million housing units sold year over year. That’s the October report from the National Association of Realtors. The NAR blames less than aggressive lending. If people can’t get loans, they can’t buy houses. The news was worse from states where home values fall within the “jumbo” limits.

The Office of Federal Housing Enterprise Oversight kept 2008 conforming loan limits purchased by Fannie Mae and Freddie Mac at $417,000, but it’s considering lower limits if housing prices continue to fall. Meanwhile, The House is trying to get higher Enterprise loans limits passed, but the Senate won’t cooperate.

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For more information on this and other real estate matters, your first source for Palm Beach real estate should be licensed agent and long-time resident Caesar Parisi.