The May RMLS Market Action reported last week that both the average and median sale prices of Portland homes were down 13% from May 2008. West Portland (roughly the area between the Willamette River and Hwy 217, Lake Oswego and the Multnomah County line), however, has experienced different results. Using RMLS’s numbers and measuring methodology, West Portland saw an average sale price decrease of 4.3% and a median sale price INCREASE of 0.7% from May 2008 to May 2009. Price increases? In 2009? See the charts below. 
 

Median Home Sale Prices

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Portland State University’s Center for Real Estate, the closest thing we have to a real estate think tank, today released it’s PSU Center for Real Estate Quarterly & Development Journal for the 2nd Quarter of 2009. The lead article is an interesting defense of keeping Memorial Coliseum as a coliseum. Read about this Portland icon at Coliseum Choices: An Asset Too Valuable to Demolish.

Two other articles relate more directly to the Portland residential real estate market. The first, Bursting Bubbles: Portland’s Distressed Housing Market, is a very well-written, succinct summary of the where we are and how we got here, with a focus on the data for distressed properties. The second article,  Housing Market Analysis, is a detailed analysis of the Portland real estate market and how it compares to regional and national markets.

The remaining articles in this issue analyze the credit markets for commercial real estate and the Portland commercial, industrial, and multifamily real estate markets. The journal is well worth a look.

Then you need to know about this tax change!

Since 1997 Internal Revenue Code Section 121 has allowed married taxpayers to exclude up to $500,000 of gain from federal taxation on the sale of a principal residence ($250,000 for single taxpayers). To qualify for the exclusion, the sold residence must have been used as your principal residence for at least two of the five years preceding sale.

Currently the exclusion is available even if you convert a rental property or vacation home into your principal residence. This flexibility has allowed tax-wise owners of multiple homes to sell their principal residence for a hefty profit, exclude up to $500,000 from taxable gain, move into a rental or vacation home for at least two years, then repeat the process with the rental/vacation home turned residence.

Deep within July’s Housing and Economic Recovery Act of 2008 hides a partial plug to this loophole. Effective next year, Internal Revenue Code Section 121(b)(4) provides that gain from the sale of a principal residence that is allocable to periods of nonqualified use is not excluded from income.

So What Will Be Taxed?

The portion of the gain that is not qualified, and therefore taxable, is determined by multiplying the gain on sale by a fraction, the numerator of which is the aggregated periods that the residence was not used as a principal residence, and the denominator of which is the entire period of ownership. The resulting amount of gain is taxable, and the remainder is still eligible for exclusion (up to the maximum $250,000/$500,000 exclusion limits).

What Exceptions Are Available? Read the rest of this entry