Guide to Delaware Taxes on Retirees, 2009–2010

The following information comes from Kiplinger.com.  Here are several reasons that make Delaware a great place to retire to.

The First State is one of the tax-friendliest states for retirees. It has no sales tax. Its income-tax rates are modest. Social Security benefits are exempt from state income taxes, and taxpayers 60 and older may also exclude $12,500 of investment and qualified pension income, including out-of-state government pensions. Homeowners 65 and older may get a real estate credit equal to half of the school property tax, up to $500.

STATE SALES TAX
None, although the state collects a gross receipts tax of 1.92%.

INCOME-TAX RANGE
2.2% – 5.95%. For 2010, the state has increased the top marginal tax rate to 6.95% on income over $60,000.

EXEMPTIONS FOR RETIREMENT INCOME
Social Security and Railroad Retirement benefits are exempt. Taxpayers 60 and older can exclude $12,500 of investment and qualified pension income. They may qualify for an additional tax credit of $110. Out-of-state government pensions qualify for the pension and retirement exemption. Under age 60, $2,000 is exempt. If you are 65 or older on December 31, you are eligible for an additional standard deduction of $2,500 (if you do not itemize).

PROPERTY TAXES
All real property in the state is subject to tax unless specifically exempt. Personal property, tangible and intangible property is exempt. Real estate is subject to county, school district, vocational school district and municipal property taxes. The state offers various property tax relief programs for residents age 65 and older and for residents with disabilities. Homeowners 65 and older can get a credit equal to half of the school property taxes, up to $500.

INHERITANCE AND ESTATE TAXES
In July 2005 the legislature eliminated the requirement to file a Delaware estate tax return for dates on which the federal estate tax law does not allow a credit for state death tax (currently 2005 through 2010). It also eliminated the special lien on the gross estate tax if the decedent dies on a date on which the federal estate tax does not allow credit for state death taxes paid.

State tax data courtesy Retirement Living Information Center. Visit RetirementLiving.com for a complete rundown of taxes in Delaware.

Real Estate Market Watch – Week Ending September 19, 2009

Our weekly Real Estate Market Watch gives detailed information on the current real estate market in eastern Sussex County, Delaware. Click on any of the links below to view the reports.

Lewes and Rehoboth Area Real Estate

Lewes, Rehoboth and Dewey Beaches Real Estate

Bethany and Ocean View Area Real Estate

Bethany Beach and Fenwick Island Real Estate

Angola and Millsboro Area Real Estate

Milton Area Real Estate

Georgetown Area Real Estate

Milford Area Real Estate

Short Sales – The Good, The Bad & The Ugly!

The short sale is becoming more common on the sales market today, but a few years ago, it was almost unheard of. But today, prospective home-buyers and home-sellers may hear the term and should be prepared for the pluses and minuses of such a transaction – the Good, the Bad and the Ugly!

The Good
A short sale is when the bank agrees to discount the loan balance for a seller who owes more on his mortgage than the home is currently worth in reference to its market value.  The advantages to the seller is that a short-sale transaction usually does less harm to the seller’s credit record than a foreclosure would.  For the buyer, the advantages of buying a property through a short-sale process is the selling price can often be at or below market value.  Another up-side of the situation is that the homeowners are generally still current on their payments and living in the home. Therefore many of these properties are not distressed, as some foreclosed properties are.

The Bad
Because the seller’s lender must approve the price and agree to take the loss, there are extra steps to negotiate. It may take three times as long as a regular home sale (up to 6 months).   Here is a link to an article that appearred in the USA Today about how short-sale transactions are starting to become very frustrating.

http://www.emailthis.clickability.com/et/emailThis?clickMap=viewThis&etMailToID=772781268

Both buyers and sellers must be prepared for this delay, and this can often be frustrating for both parties.  The seller is anxious to see if he can avoid foreclosure, and the buyer is nervous about losing the deal to another offer that the bank may accept.  Another pitfall for the buyer, is that a long delay waiting for a response from the bank can cause the buyer to lose an interest rate lock, or perhaps prevent them from purchasing another property while they’re tied-up in the short-sale transaction.

Sellers should also be aware that just becuase their bank accepts a short-sale contract, it does not necessarily let them off the hook.  Some banks may require the seller to take out a personal loan for the difference, or may attach a lien to other assets of the seller.

The Ugly
In many short-sale situations, the bank may require the seller to keep the property on the market and to submit other offers, even though the seller has already accepted a buyer’s offer.  To the buyer, this means that the signed contract that they have with the seller can be bounced out by the bank if another stronger offer is submitted to them.  I have found over the last several months in some of these short-sale transactions that the seller, and in most cases, the buyer, has misinformation on how the process works.  Every transaction is unique in its circumstances, and what you have heard happening in one deal may not have any effect on the transaction that you are presently negotiating.

The best advice that I can offer is make sure you fully understand what you are getting into, ask your REALTOR and your attorney for advice, make sure there is clear language in your contract regarding the short-sale, and most of all — BE PATIENT!

U.S. Home Sales Suggest Housing Bottom Is Near

By Lucia Mutikani
WASHINGTON (Reuters) – Pending sales of previously owned U.S. homes rose in March for a second straight month, while construction spending edged higher, according to reports on Monday that suggested a moderation in the housing slump.

The reports, which boosted U.S. stock prices, were the latest in a series that appeared to support views that the recession, which entered its 17th month in May, was close to finding a bottom.

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in March, rose 3.2 percent to 84.6 as first-time buyers waded into the market to take advantage of favorable prices and mortgage rates.

A separate report from the Commerce Department showed U.S. construction spending rose 0.3 percent in March, the first increase in six months.

Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut, said the pending home sales report added to evidence that sales have reached a bottom.

“That’s critical because once sales bottom, it’s only a matter of time before you work off excess inventories. That’s the key to stabilization in the financial system and the economy at large. We’re closer to that than people thought just a few months ago.”

U.S. stocks rose on the data and on hopes stress tests of the nation’s top banks will not reveal any unexpectedly large capital shortfalls. The blue chip Dow Jones industrial was up more than 2 percent in morning trade. Government bond prices were slightly lower.

The collapse of the U.S. housing market and the resulting credit crisis pushed the economy into deep recession and analysts have watched home sales for signs of an end to the economic downturn.

NAR Chief Economist Lawrence Yun attributed the rise in signed contracts for home purchases to first-time buyers taking advantage of the combination of low prices and mortgage rates, as well as an $8,000 tax credit, which made housing more affordable.

“We need several months of sustained growth to demonstrate a recovery in housing, which is necessary for the overall economy to turn around,” said Yun.

The NAR’s Housing Affordability Index edged down to 166.7 in March from a record 174.4 in February due to higher home prices in March. The index was 30.8 percentage points higher than a year ago.

The index is a broad measure of housing affordability linking the relationship between home prices, mortgage interest rates and family income.

A separate report from the Commerce Department showed that while construction spending rose, private construction slipped 0.1 percent, pulled lower by a 4.2 percent decrease in residential building.

However, public construction, which had tapered off in winter, increased 1.1 percent in March and 1.3 percent in February. Most of the boost came from state and local governments, whose spending rose 1.3 percent in March.

(Reporting by Lucia Mutikani and Lisa Lambert; Editing by Dan Grebler)

Delaware beach towns shine in Coastal Living magazine

If you want confirmation that moving to the Delaware beaches is a popular idea, pick up a copy of the May edition of Coastal Living magazine.

In that edition, two Lewes residents reveal their secrets for creating beautiful gardens and perfect settings for warm-weather social occasions. Patience, skill, good advice, and careful planning result in high-reward, low-maintenance blooms and greenery for spring, summer, and fall.

The magazine’s advice on making that move to the beach? Research the location carefully, ask your future neighbors about issues, and get your credit in order. Have your REALTOR explain the details of any special insurance needed to be near the coast.

Finally, the issue lists its favorite “seafood dives,” including: Ed’s Chicken and Crabs in Dewey Beach; Fenwick Crab House in Fenwick Island; Mickey’s Family Crabhouse in Bethany Beach; and the Purple Parrot Bar and Grill in Rehoboth Beach.

Is it the right time to buy a vacation home?

Owning a vacation home is a dream for many people, one that may seem out of reach or a lavish extravagance in these troubled economic times. But these times are different than those downturns in the past, so it is wise to remain open to all options of investment.

Many investors are viewing the stock market with a less than favorable eye. So where to invest? Consider that vacation home. No matter what the Dow Jones is doing, the things that attract visitors to Sussex County remain: beaches, small historic towns, rural expanses, a slower, friendlier way of life.

Home prices have fallen in coastal Sussex County, though not as drastically as in Miami, Fla., or Las Vegas, Nev. However, those homes that were out of financial reach two years ago just might be in your price-range now. Contact a Prudential Gallo, REALTORS sales agent to find out about your buying power.

Vacation homes in Lewes and Rehoboth Beach are renting for the summer season at a brisk pace. This affordable, family vacation is very attractive to the thousands of visitors who enjoy this area every year. And because fuel prices are remaining steady, below $2 per gallon, travel experts are predicting high numbers of both weekly and day visitors to the beaches.

What if you don’t know anything about how to find vacation tenants? Prudential Gallo, REALTORS offers full service to prospective buyers of vacation homes, with its sales and rentals departments in both Lewes and Rehoboth Beach. Experienced rental department agents can manage all aspects of this process, including: pricing the stay, contracting with guests, cleaning and maintaining the unit, collecting fees, and advertising the home.

Don’t miss an opportunity to get into an investment market, when prices and interest rates are in your favor. Contact a Prudential Gallo agent to see if this is the time for you to make your move.

Delaware Coastal Towns Seek to Increase Revenue

Towns in coastal Sussex County are seeking creative ways to increase their revenue to close budget gaps. Some are raising parking rates, some are raising taxes, some are raising fines.

The City of Rehoboth Beach has raised some of the lower-priced meters from $1 per hour to $1.25 per hour. The meters close to the beach and on Rehoboth Avenue are to remain at $1.50 per hour.

However, the City has raised the parking ticket fee to $30.

The City of Lewes raised its property-tax rate from 39 cents per $100 of assessed property to 49 cents per $100 of assessed property. The city’s change to twice-a-week trash pickup has been reduced by several weeks. City lifeguards will work one hour less each day.

The Town of Bethany Beach, which doubled its property-tax rate in 2007, raised the rate again this year by one-half of 1 cent. Parking meter fees changed from $1 per hour to $1.50 per hour.

For more details, visit the Cape Gazette newspaper or the News Journal online.

Rental tax and property tax hike look to be finalized in Lewes, DE

Since adopting a rental tax several years ago in our resort area, the tax on seasonal and year-round rentals has bolstered resort budgets. Because of the expected budget deficit for the 2009-2010 fiscal year, the Lewes Mayor and City Council have approved a budget, which includes a 2% increase in the gross receipts rental tax. The city expects to increase its revenue by $116,000 if the rental tax is raised from its current rate of 3% to 5%.

Compared to other resort areas, the Lewes tax is well below rates in other coastal resorts on the East Coast; for example, Maryland rates are 9%, New Hampshire rates are 8%, Maine rates are 7%, North Carolina rates are 11.75 – 12.75%.

The city collected $197,000 in gross receipts rental taxes in 2008, although compliance is not 100%. Because of the compliance rate, the city is considering increasing collection enforcement measures by attaching fines or penalties for taxes paid late or not at all.

Also included in the approved budget is a measure increasing property taxes by 25%. The hike moves property tax to 49 cents for every $100.00 of assessed property value. This is an increase of 10 cents from the previous rate of 39 cents per $100.00 of assessed value. These increases will be used to offset the projected $358,000 shortfall in the city’s $3.7 million budget for the 2009-2010 year. Lewes City Manager Paul Eckrich noted that although the budget has been approved, the actual increases would have to be approved in open session on April 20th. If these increases are approved, Eckrich noted that the increases would most likely be retroactive to April 1st, when new budget takes effect.

For details as the budget is finalized, visit the City of Lewes website or the Cape Gazette website.

Unsure about buying a second home? Consider investing in a lot

Recent events have made some investors think twice about putting their hard-earned cash into stocks, bonds, treasury bills, or money markets. This leaves many to wonder if real estate is a good investment. In the Lewes-Rehoboth Beach area, what attracted people to this area 200 years ago still remains: small, historic communities at the beach, surrounded by peaceful rural communities.

While prices have come down in some areas, real estate remains strong in eastern Sussex County. There is a variety of homes for sale in a wide price-range, from new homes inland to old homes at the beach.

But some are cautious, making payments on their first home a priority. So buying a second home might be too much at this point. But what to do to continue to invest for the future?

Investors might want to consider buying a parcel of land. Buying the lot through a loan – especially if it’s easily in your pricing category – can be a way to boost your credit. Paying off a loan on time or early can help repair or improve your own rating. Then when it comes time to build on your paid-for lot, your borrowing power is strengthened.

Prudential Gallo, REALTORS currently lists more than 140 lots, 40 of which are currently priced less than $100,000. This may be the perfect price-range for an investor, or someone who may wish to move in the future and is setting the groundwork step by step.

Contact a Prudential Gallo REALTOR for details about lots available in Sussex County. Our agents will be able to provide you with a market analysis that will help you make your decision.

Take action if your situation changes

The current economic situation presents new challenges to both the American worker and the banking institutions. Workers in good standing are losing their jobs, not because of their performance levels, but because the company cannot afford to pay them. So there are people in financial distress who never saw the situation coming.

As a result of the federal government’s plans to revitalize the economy, banks and lending institutions are making unprecedented efforts to keep Americans in their homes.

But the homeowners have to take responsibility. If one-half of a two-person home loses his job, it’s time to contact the lender – don’t wait until your savings are depleted and you are missing payments on bills and loans. The lender can only make concessions, such as changing financing rates, if it is apprised of what is happening.

Fannie Mae is responsible for about one-third of the nation’s home loans (some 18.3 million loans), but only 2.4 percent of those loans are in serious delinquency. Still, the institution is struggling with 440,000 loans and the families affected.

New rules are allowing the institutions to act proactively to ensure that homeowners remain in their homes, especially by cutting interest rates to the amount that homeowners are now able to pay. This also prevents Americans from damaging their credit scores: It’s become commonplace for job applications to include a credit check. This adds to the pressure to keep current on all loans and bills.

So if your financial situation changes, it’s critical to take action before things get out of control. Visit the Fannie Mae website for details.