Tag: tax

Real Estate Taxes – 1st Half Due

In the state of Kansas, real estate taxes are paid in arrears. This means that the taxes for 2018 are not payable until the end of 2018. The county issues the tax statements in the beginning of November each year. The 1st half is due on December 20th and the 2nd half the following May.

How does this affect real estate sales?

As soon as the new tax statement is available at the county treasurer’s office in November, we obtain a copy of it. For all closings that happen between early November through the end of May, our closing agents ensure that the taxes are paid in full during closing. The only exception to this rule is when the Lender will pay the taxes directly out of the escrow account. For example, if a closing happens in February, the seller will pay the 2nd half taxes during closing, even though technically they are not due until May.

Why we do it this way:

In most counties, the new owners will not receive a 2nd half tax statement. So, it would be very easy to forget to pay the 2nd half in May. The treasurer’s office would think that the previous owners are responsible and send notices to them. However, the previous owners have already given a credit to the new owners to pay the bill (through the tax proration), so they actually aren’t responsible. As you can see, this can cause a lot of unnecessary stress on all the parties.

Things to tell buyers to reduce the stress:

  1. If there is an escrow account with the Lender, the taxes usually will be paid from it.
  2. The tax proration is a credit to the buyer for taxes that will come due in the future.
  3. We cannot be sure exactly how much the new taxes will be until the county tells us in November. But they usually are close to the amount due last year unless there was a building project.
  4. Realtors or buyers can always call our closing agents to ask questions. It doesn’t matter how many months ago the closing happened. We are happy to help you find the answers!

Intro to 1031 Exchanges

Sam and Mary Lou bought a pasture in 1972 for about $20,000. They are ready to sell it now and know that someone would pay about $80,000 for it. They will incur about $60,000 of capital gain and will be subject to tax on this amount. At the same time, they would like to purchase a pasture closer to their home. Luckily for this couple, the IRC (Internal Revenue Code) allows for real estate owners to defer capital gains tax through a like-kind exchange.

What are the steps involved in a 1031 exchange?

The first step is to hire an attorney or some other appropriate professional who can assist you with the exchange. There are certain documents needed to facilitate the exchange and you will need someone to draft those for you.
The second step is to complete the sale of your real estate. The real estate sold is called the relinquished property. If you are using a real estate agent, tell that person as soon as possible that you are doing an exchange. The most important part of the process is that you cannot receive the proceeds from the sale of your relinquished property. The title company will send your proceeds from the sale to a third party to hold until you purchase your replacement property. If the proceeds are given to you, they are immediately taxable.
The third step is to identify your replacement property and complete the purchase. During the closing, your title company will collect the proceeds from the third party, then apply them towards the purchase price.

What are some things to keep in mind about a 1031 exchange?

There are many rules governing 1031 exchanges. You do not need to learn all of them; a professional can help guide you through the process. Here are a couple of things to keep in mind:
A 1031 takes some time to happen. If you are thinking about doing one, you should talk to a professional as soon as possible. Don’t wait until the week before closing to talk to someone about it, because it could cause delays.
There are certain deadlines after closing that must be met. There is a deadline from the sale of your relinquished property to identify your replacement property. There is also a deadline from the sale of your relinquished property to complete the purchase of your replacement property and officially complete the 1031 exchange.
There are also requirements for the type of property that qualifies for this treatment. The basic rule is that the property must be “investment property”. The IRS has very specific rules for what qualifies as investment property.

A 1031 transaction can sound intimidating, with a lot of information to remember. At Tallgrass Title, our closing agents are specifically trained on how to handle your 1031 exchange.

Is the Mobile Home Part of the Real Estate?

A traditional dwelling house built onto a foundation or basement is part of the real estate and will transfer over by deed. However, a manufactured, mobile, or modular home built somewhere else and moved on-site may not automatically be transferred.

So, what are the differences between Manufactured/Mobile Homes and Modular Homes?

A manufactured, or what used to be called a mobile home, has the following specifications:
1. A structure which is built to the HUD code
2. Transportable in sections
3. Dimensions of 8’W x 40’L and 320+ sq. ft. or greater
4. Built on permanent chassis
5. Designed to be a dwelling
6. Can be attached to a permanent foundation
7. Certified by its manufacturer, evidenced by labels on the home
8. Has a title and owner pays personal property taxes

A modular home has somewhat different features:
1. Built in sections in a factory
2. Pieced together at building site
3. Cannot be moved from its foundation
4. Becomes real estate once attached to the foundation

Why Should We Care?

If you are getting financing, the bank will need to know whether or not the home is attached, since it affects what type of mortgage they can offer you. If the home is part of the real estate, a mortgage will secure it. However, if the home is personal property, such as a trailer, the mortgage is on the real estate. There would be a perfected security interest on the trailer, in the same manner as on a vehicle.

How do you convert a Manufactured or Mobile Home to Real Property?

You complete an Affidavit to confirm that the home has been permanently attached. This form is also the formal application to eliminate the title. Send the filled-out form to our office along with the original title. All liens and taxes on the home must be paid in full. We will then send the documents to the appropriate offices for approval. The title is considered eliminated when the affidavit form has been recorded in the Register of Deed’s office in the county in which the manufactured or mobile home is affixed.

What if the title can’t be found?

If the owner does not have a title for the manufactured or mobile home, he or she will need to obtain the title before selling the home. An owner of a manufactured or mobile home with a model year of 1979 or older may execute certain documents to establish ownership. If the manufactured or mobile home is a model year 1980 or newer, a quiet title suit will be needed in order to obtain title.

Though the process might sound a bit complicated, it doesn’t have to stress you out. Tallgrass Title has experience with the issues surrounding these prefabricated homes. Give us a call today to get the assistance you need!

IRS Tax Scam Phone Calls

It’s that time again! Tax Season!  With tax season, come the tax scammers.  Starting in late January and early February, these are the calls that go something like this:

This is the IRS. We are contacting you regarding money you owe to the IRS.  If this money is not paid within 24 hours, a warrant for your arrest will be issued.  To avoid any further legal action please call xxx-xxx-xxxx. 

Holy cow! That is panic inducing, but do not fear, it is only a scam! Here are some clues that it is not really the IRS.

*The IRS will NOT:

  • Call you to demand immediate payment. The IRS will not call you if you owe taxes without first sending you a bill in the mail.
  • Demand tax payment and not allow you to question or appeal the amount you owe.
  • Require that you pay your taxes a certain way. For example, demand that you pay with a prepaid debit card.
  • Ask for your credit or debit card numbers over the phone.
  • Threaten to bring in local police or other agencies to arrest you without paying.
  • Threaten you with a lawsuit.

The IRS will not call you if you owe them money. They will send you notice after notice regarding what you owe, and they will send it through the United States Postal Service a/k/a regular mail.  They will not email, call, fax, or use any other type of technological service. They will send it through good old-fashioned mail.

Their notices will include not only how much you owe, but where the discrepancy was, and how they calculated any interest or late fees. They will not just throw a number at you and expect you to take their word for it.  They give evidence and hard numbers to back up their claim, and they give you, the tax payer, a chance to appeal the claim or question the amount owed.

So, if you are on the receiving end of one of these scams, do not panic. Take a deep breath. Take note of their phone number. Get the spelling of their name (it may be a fake name), and hang up the phone. You can then notify your tax preparer, and/or you can contact the Treasury Inspector General for Tax Administration.  You should also report it to the Federal Trade Commission.

Contact the TIGTA at the “IRS Impersonation Scam Reporting” web page


Contact the FTC at the “FTC Complaint Assistant” on FTC.gov.  Please add “IRS Telephone Scam” to the comments of your report.

Taxes are stressful enough. Do not add to your stress this year by worrying about coming up with money to pay off the IRS scammers. Just keep telling yourself;

The IRS will not call and threaten me! 

*This information was taken directly from https://www.irs.gov/newsroom/scam-calls-and-emails-using-irs-as-bait-persist. Check it out for more information regarding Tax Telephone and Phishing scams! 

For additional information check out this IRS YouTube video.

Tax Consequences Resulting from the Sale of Your Principal Residence

It has often been said that there are two certainties in the world: death and taxes. However, with the sale of your principal residence, most of the time a seller can avoid paying tax on the proceeds received!  So, you have decided to sell your house and are concerned with paying income tax on the proceeds?  Are you about to attend your closing and this thought just popped into your head? Did you just deposit your proceeds check and now are scared the IRS will be coming for your bank account?

Simply put, the IRS requires individuals to pay capital gains tax on “gain” or money made in a transaction. This means that you will be taxed on the difference between what you paid for real estate and the sales price.  So, if you paid $100,000 for a house and sold it for $150,000 you have “gain” in the amount of $50,000.  Therefore, this $50,000 would be subject to tax.  However, the IRS has a law that states that if you sell your principal residence for a gain and you have had the house for at least two years, you can exclude up to $250,000 in gain from tax.  If you are married, the level is $500,000 in gain.  So, a couple selling their qualifying principal residence can take up to a half a million in profit without having to pay a single penny in tax!

With this advantageous tax rule, several people have attempted to use this rule for property that is not necessarily a principal residence. So, what is a principal residence?  Several tests are used to determine whether your house is a principal residence and subject to this tax free sale allowance.  Some of the factors used are: Where are you registered to vote?  Where do you receive your mail? What school district do your kids attend? What address is on your driver’s license? What address is on your state and federal income tax returns?  How often do you stay the night at the house?  The list is not inclusive but are definite factors looked at by the IRS.

Additionally, one must reside in the house as a principal residence for at least two years out of the previous five years in order to qualify for the exclusion. However, if the sale was because of a few reasons, you may still be able to qualify for at least a portion of the exclusion.  Some of the special exceptions include: work related move, health related move, divorce or unforeseeable events.  These exceptions each have their own rules that are too extensive to discuss here.  Therefore it is best to consult with your tax preparer or a qualified tax professional.

As you can see, this exclusion is a powerful tool for homeowners!

Real Estate Tax Proration in Real Estate Closings

A common question that arises during the closing process is how a real estate tax proration works in Kansas. Every county in Kansas, including Pottawatomie, Wabaunsee and Riley Counties, has a tax levied against real estate.  It is based upon the value of the property owned by an individual.  There are also different tax rates for residential, commercial and agricultural real estate.  Taxes are due for each year a person owns real estate and are charged against the owner of the real estate at the time the tax becomes due.  In Kansas, real estate taxes are not due until the month of December of the year of the accrued tax.  Additionally, the actual amount of tax is also not known until shortly before the tax is owed. So, basically, that year’s taxes are always paid at the end of the year in December.  To add further confusion, an owner of real estate may pay all the tax owed for that year in December or can pay one-half of the tax in December and pay the second half in May of the next year.

So, if you close a real estate transaction on any day besides January 1, the Seller will have occupied the real estate for a portion of the tax year and the Buyer will occupy for a portion of the tax year.  Therefore, to be fair, the Seller pays for the portion of the taxes that accrued while he occupied the real estate and the Buyer for his portion.  However, the actual tax amount is not known until around December, right?  If a transaction closes in July, how do we charge each side its amount?  As real estate taxes are based on value and value typically does not fluctuate wildly year to year, we estimate the amount of the taxes for that year based upon the previous year’s real estate taxes owed.  If your closing takes place when taxes are known, we will use the actual real estate tax figures from the county for that year.

Lastly, real estate taxes for that year cannot be paid until they come due in December.  Therefore, the Seller pays the Buyer the Seller’s portion of the taxes at the closing table.  The Buyer is then responsible for all of the taxes when they come due.  To simplify the process even further, we usually just show this as a credit at the closing table.  Meaning, we reduce the purchase price to be paid to the Seller by the Buyer by the amount of the real estate taxes that are the responsibility of the Seller.

Real estate taxes in Kansas can be quite confusing.  Therefore, if you have additional questions about real estate taxes in your closing, simply call our office for further assistance.  That’s why we are here!