Ways and Means Introduces Tax Reform Measure

On December 11, Chairman Dave Camp (R-MI) officially introduced HR 1, the “Tax Reform Act of 2014.”  A few of the interesting provisions which would affect individuals, as embodied in this first tax reform volley, about which we will expect to hear more from the new Congress, are:

  • Consolidate the present seven individual tax brackets to 3: 10%, 25% and 35%
  • Repeal the personal exemption.
  • Change the personal residence exclusion by requiring use of such for 5 out of the previous 8 years, and imposing a phaseout for higher income taxpayers.
  • Reduce the $1 million debt cap to $500,000 for the mortgage interest deduction.
  • Allow charitable deductions for contributions made between January 1 and April 15 of the year following the tax year in question.
  • Repeal the personal casualty loss deduction.
  • Repeal the deduction for medical expenses.
  • Repeal the 2% floor for miscellaneous itemized deductions.
  • Repeal the alternative minimum tax.

Wondering What Your Real Estate Agent Does All Day?

If asked to guess what tasks a real estate agent spends time on, one might answer, “driving around to properties,” “preparing marketing materials,” or more cynically, “rounding up new clients.” But such answers overlook the significant amount of time that a high-quality agent spends on crucial background research, studying the local real estate market and how its ups and downs affect each home’s worth.

htbh5_1_1Here’s how Daniel Stea, a broker/attorney in Berkeley, California (and one of the newest advisers to Nolo’s Essential Guide to Buying Your First Home, recently out in its 5th edition) explains it:

“I spend a great deal of my day simply talking with buyers and sellers, as well as evaluating properties for them. We‘re always running “comps.” Prospective buyers want to make sure they’re not paying too much; sellers want to make sure they’re not asking too little. We’re always looking at what other properties recently sold for, since that’s a key indication of where the market is currently at.

“Sure, many websites will give you real estate ‘comparables,’ but these are generally based on the average price per square foot of other properties that have recently sold—strictly objective criteria. But that’s just the starting point. It takes a human who has actually walked through all of those properties to start adding and subtracting for various subjective attributes such as location, condition, schools, and so on. That’s one of the values of what brokers bring to the table and why their services will always be in demand.

Also, beyond assessing dollar values, we try to help our buyers get a complete sense of a property’s strengths and weaknesses. Many times, for example, we advise them to park in front of the home they’re considering buying at 11:00 at night and roll down the windows. How does the neighborhood feel? Would you feel comfortable walking down that street? It’s all part of the calculation of both a home’s objective value and what it is subjectively worth to you, personally.”

NLRB Says Employees Have the Right to Use Work Email for Union Organizing and Other Protected Activities

Earlier this month, the National Labor Relations Board (NLRB) ruled that employees must be allowed to use their work emails for union organizing efforts and other protected activities under federal labor laws. In doing so, the NLRB reversed one of its previous decisions from 2007, which allowed employers to limit the use of work email to “business use” only. As of December 11, 2014, this is no longer the case.

As with many other NLRB decisions (including those on employees’ use of social media), the ruling will affect union and non-union employees alike. The NLRB has long held that the National Labor Relations Act (NLRA) protects not only employees who are in unions or actively organizing unions, but also non-union employees who get together to discuss the terms and conditions of their employment. For example, non-union employees have the right to talk about their dissatisfaction with their pay, or their concerns about workplace safety, without fear of being fired or disciplined by their employers.

While employees already  have the right to have these discussions through other means (such as in person or through personal emails), the NLRB’s new ruling extends that right to company email. Employees may now use work emails to have these discussions, as long as they happen during “non-working time,” such as rest breaks, meal periods, and the time before and after established work hours.

The NLRB set some limitations on its ruling.  First, the new rule applies only to employees who are given access to work email by their employers. It does not require employers to give work emails to employees who don’t already have them. Second, employers can continue to monitor email communications for legitimate business reasons, provided they tell employees that their emails will not be private. However, employers cannot change their monitoring practices to detect protected activities or discipline employees for engaging in protected activities.

The NLRB also created a limited exception to its rule in special circumstances. Employers may limit the use of work email to business use only where such a rule is necessary to maintain productivity or discipline. However, the NLRB was quick to point out that this exception would be the “rare case.”

Following the NLRB’s decision, employers will need to revise their Employee Handbook policies to remove any requirement that work email be used for business use only. Instead, employer policies should state that employees are permitted to use work emails to communicate with each other about union activities or the terms and conditions of their employment, but only on non-working time.

President Signs Bill to Extend Mortgage Forgiveness Tax Break Through 2014

tax_cut_imageOn December 19, 2014 President Obama signed H.R. 5771, the Tax Increase Prevention Act. One of the provisions of that Act extends the tax break for homeowners who have had mortgage debt canceled or forgiven in 2014.

When Is Mortgage Debt Forgiven?

Thousands of financially struggling homeowners had mortgage debt forgiven by their lenders in the past year.  Mortgage debt forgiveness might happen as part of a mortgage modification – lenders often forgive part of the principle in order to make a loan more affordable. It also sometimes happens after foreclosure. If you go through a foreclosure and still owe money to your lender (because your mortgage was higher than the value of your home), the lender might forgive that debt (in some states and under some circumstances the lender must forgive the debt). Your mortgage lender might also agree to forgive any remaining mortgage debt after a short sale. (Learn more about tax consequences after foreclosure or short sale.)

Forgiven Mortgage Debt as Income for Tax Purposes

Prior to 2007, if your lender forgave or canceled mortgage debt, the IRS would treat that canceled debt as income. That means you’d have to pay taxes on it.  Ouch.

The Mortgage Forgiveness Debt Relief Act of 2007

Congress changed that when it passed the Mortgage Forgiveness Debt Relief Act of 2007. The Act allows homeowners to exclude up to $2 million of forgiven mortgage debt on their principal residence from their taxable income.  Congress initially limited this tax break to debt forgiven between 2007 and 2010. It later extended the time period through 2012, and then again through 2013. (There are other important conditions that you must meet in order to qualify for this exclusion. To learn more, see Canceled Mortgage Debt: What Happens at Tax Time?)

HR 5771 Extends the Tax Break Through 2014

Congress’ latest extension (in H.R. 5771) extends the tax break to debt forgiven in 2014.

Permanent Relief on the Horizon?

So what happens if some or all of your mortgage debt is forgiven in 2015? As it stands now, you’ll be out of luck. However, relief may be on the way. Representative Alan Grayson introduced H.R. 5785 into Congress on December 3, 2014. It is now in the House Ways and Means Committee. If enacted, H.R. 5785 would make permanent the tax break for forgiven mortgage debt. Stay tuned.

California Court: Police Can’t Take DNA From Arrestees

Chemistry Background

A California law known informally as the DNA Act requires that law enforcement take a DNA sample from every adult arrested for or charged with any felony. The sample extraction—via cheek swab—is to occur soon after arrest. (Cal. Penal Code §§ 296.1, 296.)

The U.S. Supreme Court reviewed a somewhat similar law in 2013, with a case called Maryland v. King. (133 S. Ct. 1958 (2013).) The high court decided that the cheek-swab collection of a suspect’s DNA after arrest for a “serious” offense was reasonable. It also okayed the analysis of the collected DNA.

“No, Thanks”

Earlier this month, a California appeals court broke from the Supreme Court’s King holding. (People v. Buza, No. A125542 (Cal. Ct. App. 2014).) The second division of the California First District Court of Appeal was faced with a case involving a man arrested for setting fire to a San Francisco police car. Some hours after his arrest, while the man was in county jail, a sheriff’s deputy asked him to provide the requisite DNA sample. Despite a warning that he’d face a misdemeanor charge for noncompliance, the defendant refused.

A jury convicted the man of all counts, including the promised misdemeanor for sample refusal. As part of the sentence, the judge ordered that he provide the DNA sample. (He eventually acquiesced.)

Rather than follow the U.S. Supreme Court’s lead, the California appeals court reversed the misdemeanor DNA-sample conviction. It didn’t base its decision on the Fourth Amendment to the U.S. Constitution, which was behind the King decision. Instead, it relied upon a similar search-and-seizure provision from the California constitution. (The court explained that the “search” in the DNA-sample setting involves two parts: the cheek swab itself and the subsequent use of the DNA.)

What’s the Difference?

The California court noted several distinctions between the DNA Act and the Maryland law involved in the King decision. The court explained that the Maryland statute did several things that its California counterpart didn’t, like:

  • allowing processing of a DNA sample only after a judicial officer has found probable cause to believe that the defendant is guilty
  • applying only to arrests for “serious crimes,” rather than all felonies, and
  • requiring automatic expungement of DNA data where the arrestee isn’t ultimately convicted of the relevant crime.

Despite those differences, though, the California Court didn’t simply find the King decision inapplicable. Instead, it used the state constitution (article I, section 13, to be exact) to find the DNA Act invalid.

The decision underscores the ability of state courts to interpret their own constitutions in ways that afford citizens greater rights. (“[T]he federal Constitution thus represents the floor for basic freedoms; the state constitution, the ceiling.” (Traylor v. State, 596 So. 2d 957 (Fla. 1992).)  It also leaves the future of the Golden State’s DNA Act somewhat uncertain—at least until the state supreme court chimes in.