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THE FINANCIAL BENEFITS OF OWNING RESIDENTIAL REAL PROPERTY We often discuss the legal aspects of real property. The following are some of the financial benefits of owning residential real property: 1. The interest that you pay on your residential mortgage is tax deductible. This includes the interest that you pay on any home equity loan. For people with moderate to high income and few deductibles, this could mean significant tax savings. The tax deductions would reduce the amount of taxes you actually pay. In a sense, the state and federal government is indirectly subsidizing part of your purchase. 2. The real estate taxes that you pay are also tax deductible. 3. Real property in Hawaii has, over the long term, historically appreciated and has been a good investment. 4. Since May, 2003, you pay less on your long term capital gains. The tax rates for long term capital gains have decreased. 5. There can be a substantial exclusion of gain if you sell your primary residence. Home owners who occupy their homes for two of the last five years and who are married and who file jointly can exclude gains of up to $500,000 on the sale of their primary residence. Those who are single or a married person who files separately can exclude up to $250,000 of gain. You should consult with your tax advisor for your particular situation. 6. When you pay off the mortgage, your cost for housing is essentially reduced to the costs of maintenance, insurances and taxes. 7. In Hawaii, your real property tax exemption increases with your age. Typically, most people pay off their mortgage in the later years of their life. As we indicated in a previous article on home exemptions, you get the following tax increase in exemption when you reach the following ages: 55 years of age before June 30 of the preceding year - $40,000 8. Paying for a home can be viewed as forced savings. With the likely appreciation in value in your home and with your ultimate pay off of your mortgage, you will have accumulated substantial equity (money value) in your home. There are negative aspects to owning real property, such as the amount of capital typically required for a down payment and the commitment, especially here in Hawaii, of a large percentage of your income for housing. For most people though, the positives far outweigh the negatives. The historically low interest rates has led to a boom in home renovations. Unfortunately, there is also an increase in complaints with respect to contractors. The following article is not intended to disparage the many reputable contractors. The following are some suggestions to minimize the possibility of problems: - Get three estimates. Your choice of a contractor should not always be the lowest estimate. The quality of the work should be taken into consideration. - Ask the contractor for references and contact those references. Ask the references if they were satisfied with the contractor's work. - Call the DCCA Regulated Industries Office at 587-3222 and the Better Business Bureau at 536-6956 to check for complaints against the contractor. - Put your agreement in writing. The agreement should include specific details as to the work to be performed, the price, the scheduling and a set of the plans. The agreement should be written clearly and should include a process for resolving disputes. - Protect yourself from non-paying contractors. People who perform work or provide materials for your property and who do not get paid may be entitled to place a mechanic's or materialman's lien on your property. You could pay the contractor and the contractor could not pay the subcontractors. Protect yourself from such liens. Require lien releases from the contractors and the subcontractors at the time you make payment. You don't want to pay twice for the same work. - Don't use unlicensed contractors. Unlicensed contractors may be initially less expensive, but you cannot later seek relief from the Contractor's Recovery Fund or the Contractor's Licensing Board. Your ability to recover any money will depend upon if you can locate the unlicensed contractor and if the unlicensed contractor has assets. The unlicensed contractor often does not have insurance. If there is an injury or accident on your property, you, the homeowner, may be liable since it occurred on your property and the unlicensed contractor has no insurance or assets. Call the Contractor's Licensing Board just before the work commences to confirm the status of the contractor's license. - Set up progress payments. Avoid paying the entire amount at the outset. By doing your homework and by being careful, you can minimize the possibility of unpleasant surprises. REMINDER If you are planning any transfer of title and you need to have it recorded this year, we strongly encourage you to not wait until the month of December. Government offices traditionally slow down in the month of December. Given the dates for Christmas and New Year, we anticipate very little would be done after December 13, 2004. We strongly encourage you to plan ahead to minimize the possibility of disappointment. The recent boom in home renovations has raised some concerns about contractors. In this issue, we have some suggestions to possibly minimize problems with contractors. Act 119 went into effect on July 1, 2004. This allows the contractors the opportunity to inspect and propose a remedy or solution before litigation. If you are entering into a contract with a contractor, you may wish to see the article in this newsletter and request a copy of this new law. There are many financial benefits to owning real property. We have listed some of the benefits. These benefits may factor into your decision to own real property. The article also serves as an informal checklist to ensure that you are taking advantage of the more common benefits. We are nearing the holiday season. If you need to complete any transfer of real property before the end of this year, plan ahead. During the holiday season, all governmental agencies seem to slow down. ACT 119 The term “contractor” is broadly defined and appears to include design professionals, developers and sellers of new structures. A written contract must include a provision providing a notice of the contractor's right to resolve alleged construction defects before the homeowner can pursue litigation or arbitration. This clause is not much different from the provisions presently in the DROA which encourages the buyer and seller to pursue mediation and/or arbitration. If you would like to receive a copy of this Act, please send us a stamped self-addressed envelope with .60 cents in postage and we will send you a copy. DOWN PAYMENT ASSISTANCE PROGRAM Home buyers may be eligible to have down payment assistance through a program established by the Department of Housing and Urban Development. The program, the American Dream Down Payment Initiative, provides assistance for individuals who are first time home buyers. The real property must be a house, a condominium, or manufactured housing and it must be suitable for a family of one to four people. There are limitations. Your income must not exceed 80% of the area's median income. For Honolulu, that is 80% of $65,700 or $52,560. It is slightly less for outer island properties. The program provides first time home buyers assistance of up to $10,000 or 6% of the home's purchase price, whichever is greater. Given the prices here in Hawaii, in most cases, the assistance would be 6% of the purchase price. If you are interested in this program, the person to contact would be Dan Tully of the City and County of Honolulu, Department of Community Services. His telephone no. is 527-5907. A young woman brought her fiancé home to meet her parents. After dinner her father asked the young man into his study for a chat. “So, what are your plans?” he began. “I'm a theology scholar,” the young man replied. “Admirable,” the father said, “But what will you do to provide a nice home for my daughter?” “I will study and God will provide,” he explained. “And how will you afford to raise children?” “God will provide.” The men left the study and the mother asked her husband, “How'd it go?” “He has no money or employment plans,” the father said. “But on the other hand, he thinks I'm God.” WHAT ABOUT THAT NEIGHBOR'S BRANCHES? What duties and liabilities does a tree owner in Hawaii have to his or her neighbors? Can a neighbor trim the tree when the tree owner refuses to do so? In 1981, the Hawaii Appellate court in Whitesell v. Holton , considered these issues. Holton's vehicle was damaged by Whitesell's tree. Holton asked Whitesell, the owner of the tree, to take care of the branches that were dangling into his carport due to a recent storm. When Whitesell did not respond, Holton cut the tree branches back to the property line between the two neighbors. The court found the owner knew or should have known that his tree was a danger. The Court found 1) the owner of the tree is liable if there is damage caused by the tree, 2) the owner has a duty to remove the danger before any damage or further damage occurs, and 3) a landowner (neighbor), at his own expense, can cut the tree up to the property line, both above and below the ground. The neighbor, however, must be careful to not cause damage to the tree or injure the tree. We cannot leave this topic without providing some words of caution. Each situation is different and you should consult with your attorney about your particular situation. Also, many times neighbors can resolve their differences without incurring the high stakes of litigation. NOTICE During November, December and January, our offices will be closed on the following dates: • Tuesday, November 2, 2004 • Thursday, November 25, 2004 • Friday, November 26, 2004 • Thursday, December 23, 2004 (from 12:00 noon) • Friday, December 24, 2004 • Thursday December 30, 2004 (from 12:00 noon) • Friday, December 31, 2004 Attorney : Publisher/Editor : Secretaries: Printer: Telephone: (808) 523-7544 |
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Copyright © 2009 by Harold Chu. All rights reserved. The information you obtained at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation. |
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