Earthquake Insurance

Many people think that their homeowner’s policy protects them against earthquake damage, but most standard homeowners, mobile home owners, condominium, and renters insurance policies do not; instead, it must be purchased separately. By law, insurers must offer earthquake coverage to their policyholders, through the California Earthquake Authority (CEA). The cost runs approximately $4 per thousand of coverage, and typically has a 15% deductible.
There are government disaster-relief programs available, but they are intended more so to help you start getting back on your feet, not necessarily to rebuild your home and replace personal items lost in an earthquake. It is important to protect your home from earthquake damage because for most of us, it is our biggest financial asset.

Personal Property Coverage (Coverage C)

Personal Property coverage protects many items in the typical home, including furniture, TVs, audio and video equipment, household appliances, bedding, and clothing.

A base policy provides up to $5,000 to replace personal property, but you can increase your Personal Property coverage to as much as $100,000.

Dwelling Coverage (Coverage A)

Dwelling coverage helps protect the investment you have made in your home. It will help pay to repair or, (up to the policy limit) replace, an insured home when structural damage exceeds the policy deductible. You may select a 10% or 15% deductible for your Dwelling coverage.

The insured value of your home, as stated on the declarations page of your companion homeowners insurance policy, determines the Dwelling-coverage limit of your CEA earthquake policy. If your home’s insured value changes in your homeowners policy, the insured value for your earthquake coverage will change, too, and that will affect your earthquake-policy premium.

Personal Property Coverage: Increased-Limit Options
Base
Coverage
Option
1
Option
2
Option
3
Option
4
$5,000 $25,000 $50,000 $75,000 $100,000

Additional Living Expense/Loss of Use Coverage (Coverage D)

If damage from an earthquake prevents you from living in your home, your CEA policy may pay for necessary increases in living expenses you incur to maintain your normal standard of living.CEA Additional Living Expense/Loss of Use coverage on a property you own and rent to tenants can help protect your rental income, to the limit of that coverage.A base policy provides $1,500 of Additional Living Expense coverage or you can increase that coverage to as much as $15,000.

Additional Living Expense Coverage: Increased-Limit Options
Base
Coverage
Option
1
Option
2
$5,000 $10,000 $15,000

Additional Coverages

Limited Building Code Upgrade

In most California communities, repairing or rebuilding a home after an earthquake must be done according to current building codes. In addition to providing funds for repairing or replacing your home, the CEA base policy includes an additional $10,000 in Building Code Upgrade coverage.

Option to Increase Building Code Upgrade Coverage

For policies that renew or become effective on or after July 1, 2006, homeowners can choose to increase Building Code Upgrade coverage by an additional $10,000, for a total Building Code Upgrade coverage limit of $20,000.

Items Not Covered

Dwelling-Related Items

Your CEA policy excludes some items from dwelling coverage. A partial list of items that are not covered includes:

  • Detached garages and most other structures that are not part of the dwelling
  • Land damage (other than $10,000 in coverage for land stabilization)
  • Swimming pools and spas
  • Awnings and patio coverings
  • Fences, landscaping, and irrigation systems
  • Antennas and satellite dishes
  • Patios and decks
  • Walkways and driveways not needed for pedestrian or disabled access to your home
  • Certain decorative or artistic items such as mirrors, chandeliers, stained glass, or mosaics

Personal Property

A partial list of personal property items not covered by your CEA policy includes:

  • Animals, birds, or fish
  • Artwork, photographs, and ceramics
  • Motor vehicles (such as cars, trucks, and motorcycles), riding lawn mowers, trailers, golf carts, and watercraft
  • Glassware, crystal, porcelain, and china
  • Spas and hot tubs

Your CEA policy contains exclusions and special limits of coverage—read the entire policy to become familiar with what is and is not covered. If you still have questions about your CEA policy after reading the information on our Web site, please contact your insurance agent or your homeowners insurance company.

Coverage Sublimits

Sublimits – Dwelling Coverage

Once damage to your dwelling has exceeded your CEA policy’s deductible, the policy covers reasonable emergency repairs in an amount up to 5% of the insured value of the home as part of the dwelling limit of insurance.

As part of the dwelling limit of insurance, your CEA policy will pay up to $10,000, including engineering costs, to replace, rebuild, stabilize, or otherwise restore land you own that is necssary to support your home. The policy does not provide any other coverage for land.If your dwelling has one or more chimneys damaged by an earthquake, your CEA policy includes a single sublimit of $5,000 to repair or replace all dwelling chimneys.

Sublimits – Personal Property Coverage

Personal Property coverage sublimits include the following:

  • $1,000 for damage to electronic data-processing equipment such as computers and printers
  • $250 for money, bank notes, coins, and medals
  • $300 for business property

Your CEA policy contains exclusions and special limits of coverage—read the entire policy to become familiar with what is and is not covered. If you still have questions about your CEA policy after reading the information on our Web site, please contact your insurance agent or your homeowners insurance company.

My name is Dennis Dellinges, born and raised in San Francisco and have been a Farmers agent for over 30 years. If you should have any questions regarding this or any insurance matters, please feel free to contact my office, 415-585-2700.

For more information about earthquake insurance visit www.earthquakeauthority.com.

Obama, Dems Ready to Move on Housing

Goals: Boost lending, prevent foreclosures

Matt Carter
Inman News

Barack Obama will be sworn in today as the nation’s 44th president with a green light from Congress to unleash the second half of the $700 billion Troubled Asset Relief Program, and with legislation providing an additional $825 billion jolt to the economy on tap.

Before Obama took the oath of office, lawmakers had introduced a slew of measures in the new year aimed at spurring home purchases and preventing foreclosures. Some of those measures — including tax breaks for first-time homebuyers, and a return to the higher loan limits in place for Fannie Mae, Freddie Mac and FHA during 2008 — are likely to be part of a massive economic stimulus bill.

Are San Francisco Real Property Transfer Tax Rates Heading for a Hike?

Supervisors Peskin and McGoldrick propose rise

SF Realtors
Advantage Online
Two supervisors, Aaron Peskin and Jake McGoldrick, have proposed increases in the rate of the city’s real property transfer tax. Both proposals are intended to leave the rate for less expensive properties unchanged while focusing on properties in the mid- to high- price range.

State law requires tax increases affecting real property to appear on the ballot and to be approved by a two- thirds vote of the electorate for passage. It is not known at this time whether either or both of the proposals will appear on the municipal ballot in November.

To provide a basis for comparison, set forth below are the current transfer tax rates, as well as those proposed by Supervisors Peskin and McGoldrick. Changes to the transfer tax ordinance currently in effect are underlined.

Current Rate Structure:

· Over $100 and less than or equal to $250,000 = .50%

· More than $250,000 and less than $1 million = .68%

· Equal to or more than $1 million = .75%

Proposed Rate Structure (McGoldrick):

· Over $100 and less than or equal to $250,000 = .50%

· More than $250,000 and less than $1 million = .68%

· Equal to or more than $1 million but less than $1.25 million = 1%

· Equal to or more than $1.25 million but less than $1.75 million = 1.25%

· Equal to or more than $1.75 million but less than $2 million = 1.5%

· Equal to or more than $2 million = 1.75%

Proposed Rate Structure (Peskin):

· Over $100 and less than or equal to $250,000 = .50%

· More than $250,000 and less than $1 million = .68%

· Equal to or more than $1 million and less than $2 million = .75%

· Equal to or more than $2 million = 1.5%

· (Tax Reduced on Transfers of Residential Property by Up to One Third If, After January 1, 2009, Transferor Has Installed Active Solar System or Made Seismic Retrofitting Improvements or Improvements Utilizing Earthquake Hazard Mitigation Technologies)

· (Clarifies Application of Tax to Transfers of Ownership Interests in Legal Entities that Own Real
Estate)

The Association’s board of directors has voted to vigorously oppose all proposed increases in the city’s real property transfer tax as an unwarranted financial burden on buyers and sellers of real property in the city.

Daly Introduces Two Ordinances Aimed at Rental Property Owners

Supervisor Chris Daly has introduced two proposed ordinances that, if passed, will affect rental property owners. One would prohibit owner move in evictions for households with children under the age of 18 and amend the definition of disability so that it is the same as the definition of disability in the relocation section of the city’s rent ordinance. The other would amend the
city’s rent ordinance to define and prohibit harassment by landlords and provide for rent reduction fines for landlords who are harassing tenants. Both proposed ordinances have been assigned under the 30-day rule to the supervisors’ rules committee, consisting of Supervisors Daly, Dufty and Ammiano. Public hearings on the proposed ordinance are expected to be held by the committee next month.

Although the Association has not developed positions on the two proposed ordinances, it is a virtual certainty that it will oppose further restrictions on owner move in evictions.

Amendment of Payroll Expense Tax Ordinance Sought to “Clarify” Tax Liability of “Pass through Entities”

Supervisor Aaron Peskin has introduced a proposed ordinance to “clarify” the tax liability of “pass through entities”, including partnerships, Subchapter S corporations, limited liability companies, limited liability partnerships and other persons and entities not subject to Federal income tax.

While the Association has not yet studied the proposed ordinance in detail, its purpose seems
clear- to generate additional tax revenue for the city to fund a proliferation of spending programs.

Earlier this year, Mayor Gavin Newsom announced that the City and County of San Francisco was facing a budget of $338 million. Under the city Charter, however, the mayor is required to present a balanced budget to the Board of Supervisors–which he did two weeks ago. But, in his budget message, the mayor warned that the city’s fiscal forecast was so bleak that hundreds of city workers could be laid off and city services slashed in the near future. With the city’s
economy doing well, what’s the problem?

According to Deputy City Controller Monique Zmuda, the city doesn’t have a revenue problem. “Even though the economy has been good, city expenditures are growing at a faster rate than our revenues.” So, to keep up, the city needs to raise tax rates and fees-a lot of them!

Several weeks ago, we reported that the Department of Building Inspection was increasing fees for services, including the fee for reports of residential record. Similar fee increases are expected from other
city departments.

But for the payroll expense tax ordinance to be amended will require the approval of voters. The most likely time for the amendment to be presented to voters is this November. What is not known is whether the weakened state of the national economy will be a factor in voters’ view of the amendment. But the fact that the amendment involves a tax on business and will not affect the average voter will make it difficult to beat.

Daly Introduces Ordinance Placing Two-Unit Buildings in Condominium Conversion Lottery

Some of our readers may remember an article we wrote for these pages several weeks ago, entitled The World According to entitled Beyond Chron. Beyond Chron provides coverage of political and cultural issues on line. It is published by the San Francisco- based Tenderloin Housing Clinic. Clinic Director Randy Shaw is the paper’s editor.

The article quoted information appearing in Beyond Chron suggesting that a legislative battle could be looming over a provision in the city’s conversion ordinance that exempts owner-occupied two-unit buildings from the condominium lottery. The reason according to Beyond Chron: ” San Francisco ‘s skyrocketing condominium conversions.”

Last week, what was merely a possibility became a reality. Supervisor Chris Daly introduced a proposed ordinance that would place two-unit buildings in the condominium lottery and exempt two-unit buildings that are owner occupied as of August 1, 2008. The full text of the proposed ordinance appears below.

Under city law, ordinances must undergo a 30-day waiting period before they may be heard in committee. This is to allow interested parties an opportunity to study ordinances and take positions on them; so the first hearing on Supervisor Daly’s proposed ordinance will not occur until early July, at the earliest.

ARTICLE 7

SEC. 1359. PARCEL MAP.

(a) The requirements of Subsection (c) of Section 1356 of this Code shall apply to Parcel Maps.

(b) The Parcel Map shall conform to the requirements of Chapter 2, Article 3 of SMA and to the Subdivision Regulations regarding detailed format and contents.

(c) In the case of Conversions where a Tentative Map is not required, the requirements of Section 1314 and the requirements of Article 9 on Conversions shall apply, provided that hearings as provided in Sections 1313 and 1332 shall not be required, and the 10-
percent low and moderate income occupancy as provided in Section 1341 shall not be required, and provided further that Article 9 shall not be applied to two-unit buildings only where both units are owner- occupied for one year as of August 1, 2008 and where both units remain owner occupied by the same owner occupants as on August 1, 2008 up until prior to the application for Conversion. The Director of Planning, however, shall make the determination pursuant to
Section 1385 concerning preservation of low and moderate income housing.

(d) In addition to the requirements of Subsection (c), the owners of record of a two-unit building conversion that qualify for the exemption from Article 9 must certify under penalty of perjury and the Department must verify with the Rent Stabilization and Arbitration Board,
and with the Human Rights Commission as applicable, that since November 16, 2004, no eviction
as defined in San Francisco Administrative Code Section 37.9(a)(8)- (14) of a senior, disabled person, or catastrophically ill tenant as defined below has occurred, or if an eviction has taken place under Administrative Code Section 37.9(a)(11) or (14), that the original tenant reoccupied the unit after a temporary eviction. For purposes of this Subsection a “senior” shall be a person who is 60 years or older and has been residing in the unit for 10 years or more at the time of the lottery; a “disabled” tenant is defined for purposes of this Subsection as a person who is
disabled within the meaning of Title 42 U.S.C. Section 12102(2)(A); and a “catastrophically ill” tenant is defined for purposes of this Subsection as a person who is disabled as defined above, and who is suffering from a life threatening illness as certified by his or her primary care physician.

(e) If the owners of record cannot satisfy the requirements of Subsection (d), then the owners of record shall comply with Article 9, including its Section 1396.1(g)(3), prior to submitting an application for Conversion.

(f) If the Department determines that an applicant has knowingly provided false material information under Subsection (d) above, the Department shall immediately deny the application, or if the applicant has submitted an application for conversion, shall immediately deny the application for conversion. Moreover, the Department, the Director, or other authorized person or entity may also enforce the provisions of this Subsection under Section 1304 or any other applicable provision of law as warranted.

End-of-Year Tax Savings Tips

Six money-savings strategies to employ before December 31st

By Steve Kopff, CPA

Would you like to reduce your tax payment this April?  If so, December is the month to take steps toward that goal.

Most of the tax-savings tips you’ll want to employ in December center around “accelerating” payments and expenses, and “deferring” certain types of income. In other words, when you can, pay bills and incur expenses before December 31st, and claim income after that date.

Of course, this strategy doesn’t actually eliminate your tax liability, it simply defers it.  But as you may recall from college math, the time value of money means that $1,000 in your pocket now may only be worth $950 a year from now.  So this type of planning can pay off.

Tip #1: If you own your home, prepay the second installment of your property tax.  Most property taxes are due in April, but if you make the payment before December 31st, you can take the deduction on your 2007 tax return instead of waiting until 2008.

Tip #2: Make your January mortgage payment before the end of the year.  You can usually make the payment online, but if you decide to pay by check, be sure the bank actually receives your payment before December 31st.  You’ll then be able to deduct the payment from your 2007 taxes.

Tip #3: If you are self-employed and submit quarterly tax estimates, pay your fourth quarter state estimate before the end of the year and deduct it this year.

Tip #4: Business owners can also pay expenses and invoices early, thereby deducting the totals from 2007 taxes.  Many business owners, for example, load up on office supplies, stamps, and other items prior to December 31.  If you use a credit card to pay these expenses, you’ll realize an additional bonus – your card payment won’t be due until after January, yet you’ll still be able to write off the expenses when they incurred – in December.

Tip #5: Do you have any losing investments in your portfolio?  Sell them before the end of the year to offset any 2007 gains on which you might be taxed.

Tip #6: Business owners may also want to close major deals after January 1st to defer the income until 2008.  Alternatively, you can invoice your clients for goods and services at the very end of the year in anticipation that their payments will not reach you until after the January 1st.  Income is recognized only when it’s received, so in this way, you’ll defer the income to 2008.

A word of caution:  Be sure to check with your accountant before employing any of these tips.  There are certain instances when deferring tax liability may not be in your best interest.  For example, if you anticipate earning substantially more in 2008 than you did in 2007, you may want to defer your expenses, rather than your income.

If you would like additional information on end-of-year tax savings, please email Steve Kopff, CPA at [email protected]

Trade Apartments for Dream Home and Avoid Taxes

By Robert J. Bruss
Inman News

DEAR BOB: I know you answered a similar question several months ago, but I don’t recall the answer. I own a six-unit apartment building, in which my wife and I have a large profit. If we make an outright sale, we will owe a huge capital gain tax. My wife remembered an item in your column saying we could make a tax-deferred trade of the apartment building for our “ultimate dream home,” and then we could sell the house in a few years to claim $500,000 tax-free profits. Is there a minimum holding time for the house? –Harold J.

DEAR HAROLD: Yes. You first can make an Internal Revenue Code 1031(a)(3) Starker tax-deferred exchange of your apartment building for your dream home.

However, please remember the basic Starker exchange rules:

  1. You must trade equal or up in both price and equity.
  2. You can’t take any taxable “boot” such as cash or net mortgage relief out of the trade.
  3. Sales proceeds from the apartment building must be held by a qualified third-party intermediary accommodator.
  4. You have only 45 days after the sale to designate the replacement property.
  5. You must complete the title acquisition within 180 days.
  6. The house you acquire must be a rental at the time of acquisition.

Second, although there is no official IRS answer, most tax advisers suggest renting the acquired residence at least six to 12 months (to show investment intent) before converting it into your personal residence.

Third, to qualify for the Internal Revenue Code 121 principal-residence-sale tax exemption up to $250,000 (up to $500,000 for a qualified married couple filing a joint tax return), you must occupy the principal residence at least 24 of the 60 months before its sale.

Fourth, for residences acquired in an IRC 1031 tax-deferred exchange, effective Oct. 22, 2004, you must hold the principal residence at least 60 months to qualify for the IRC 121 exemptions.

This five-year rule applies only to residences acquired in a tax-deferred exchange. For other principal-residence sales, the minimum holding time is only 24 months (presuming the owner occupied the principal residence for the same period). For full details, please consult your tax adviser.