Showing posts with label tax reform. Show all posts
Showing posts with label tax reform. Show all posts

2/28/2018

What California's Homeowners Should Know about Taxes After the 2017 Reform Act

  • The limit on deductible mortgage debt was reduced.
  • Mortgage debt may be refinanced up to $1 million and deduct interest if not higher than original mortgage.
  • Equity loan interest is deductible if proceeds improve the residence.
  • Second home mortgage interest deductible subject to limits.
  • Itemized returns may deduct up to $10,000 on applicable taxes.
  • Capital gains exclusions remain the same-$250,000 for single and $500,000 for married filers.
  • The California housing market may see a 2018 decline in inventory as owners stay put, but an increase in home prices.
  • Please contact your tax professional for your particular tax situation.

12/20/2017

Effects of Tax Reform on Homeowners

Here is an excerpt from today's message from the National Association of Realtors on the effects of the tax bill expected to pass into law:

"Although the final tax reform bill is far from perfect, it is significantly better for homeowners than previous versions. That’s thanks to the efforts you made. REALTORS® generated over 300,000 emails and telephone calls to members of Congress over two Calls for Action and held countless in-person meetings with legislators, all of which helped shape the final product.
Last-minute changes to the bill include the following improvements:
Capital gains exclusion. In a huge win for current and prospective homeowners, current law is left in place on the capital gains exclusion of $250,000 for an individual and $500,000 for married couples on the sale of a home. Both the House and the Senate had sought to make it much harder to qualify for the exclusion.
Mortgage interest deduction. The maximum mortgage amount for households deducting their mortgage interest has been decreased to $750,000 from the current $1 million limit. The House bill sought a reduction to $500,000.
State and local tax deductions. Both property taxes and state and local income taxes remain deductible, although with a combined limit of $10,000. Both the House and Senate bills sought to eliminate the state and local income tax deduction altogether.
Pass-through entities. The bill significantly reduces the effective rate of tax on business income earned by independent contractors and income received from pass-through entities. This change will lower the taxes of many real estate professionals."
"REALTORS® generated over 300,000 emails and telephone calls to members of Congress over two Calls for Action and held countless in-person meetings with legislators, all of which helped shape the final product."

10/18/2017

California Housing Market Forecast for 2018

The 2018 California Association of Realtors Housing Market Forecast was released at this month's annual trade show. 

As low housing supply and affordability constraints continue, the 2018 California market is expected to have a "nominal increase" over 2017, up to 4.2% increase in median price, and mortgage rates for 30 yr fixed rate mortgage going to 4.3%.

The proposed tax reforms under the Trump Administration are projected to lead to fewer sales, by 3.4%, accompanied by a decline in home values due to homeowner reluctance to put house on market as homeownership advantages disappear for homebuyers.  The housing supply could drop by 1.5% in the first year if this tax reform is implemented.

At the present, however, the California median price continues to rise, with the statewide median price at $565,330.  This is still not up to the overall market peak in May of 2007 of $594,230.  Orange County, however, has exceed that peak price by 1.8%, the only area in Southern California to do so.  In the Bay Area, five counties have exceed the peak 2007 price by as much as 42% (San Francisco). 
Housing inventory has declined everywhere, with the most inventory in the multi-million dollar market.  The California housing turnover rate is less than the U.S. rate for single family homes--longtime homeowners are staying put for reasons including capital gains hits, and "where can I afford to go"?  Another housing supply problem are the number of single family homes converted to rentals, in San Francisco estimated to be between 400,000 and 700,000 homes formerly owner occupied but now rented.

Housing affordability in California is now at 29%, and 28% for Los Angeles County, 21% for Orange County. 
  • Median age for buyers - 45
  • Median age for sellers - 57
  • One-third of transactions sold above asking price, 6 out of 10 had multiple offers.
  • The majority of first time and repeat buyers are in Southern California.
  • Fewer international buyers, fewer buyers from China.
  • Net cash gain to sellers highest since 2006.
  • More sellers are moving out of California, but 38% are staying in the same county.
  • List to sell ratio in Southern California at 98.9%.
  • Lack of inventory considered one of the biggest challenges for the 2018 market, affordability another challenge.  Total sales are projected to be only 1% higher than 2017.
For the complete presentation pdf, go to http://www.juliahuntsman.com/market-trends-report.html, where, by the way, you can also search for your new home or get an estimated value report on your existing one.

10/04/2017

A Tax Change in 1031 Exchanges Would Ultimately Affect Everyone

IRS Section 1031 Like-Kind Exchanges have existed since 1921 for the purpose of avoiding unfair taxation of ongoing investments in property, and to encourage active reinvestment in property.  While the most common image of doing a 1031 exchange is a transaction of selling one real estate property and exchanging into another real estate investment property, like-kind exchanges result in many types of property transactions. The exchanges are a stimulus to many sectors of the economy, i.e., not only for real estate professionals, but also contractors, title insurers, lenders, equipment dealers/manufacturers, transportation, energy and agriculture.  

The benefits of the current 1031 exchange allows for deferral of capital gains taxes on property sold when it is exchanged into "like-kind" property without cash being taken out (which would invalidate the exchange) and thereby allowing for new investment. Americans pay less for products and services because of this type of reinvestment on products such as single family and multiple family home rentals, public transportation fleets exchanged into new buses, trains, taxis, etc., airlines exchange their planes and rental cars--all of which dealt with through this 1031 exchange system which keeps costs lower for the consumer. Farm machinery, mining equipment, art collectible, boats, oil and gas equipment, and business asset trade-ins are all impacted by 1031 exchanges.

According to Fidelity National Finance Company, 
"The last major tax reform was in 1986. At that time, Congress repealed the ability to take passive tax losses in real estate.  An unintended consequence of this change was the ensuing real estate recession and the demise of the savings & loans industry. This eventually tipped the country into the recession of the early 90’s.  Section 1031 is bigger than passive losses. In some U.S. markets, real estate brokers claim that 1031 Exchanges touch at least 45% of the real estate investment transactions."
                                                                                * * *
"Ernst & Young, LLP released a macro-economic study on the impact of repealing or limiting 1031 exchanges in 2015 that quantified that the US economy would actually contract if Section 1031 was repealed or limited, finding that GDP would be reduced by approximately $8.1 billion per year."
Elimination, restriction or changes that would effectively block 1031 exchanges in any contemplated "tax reform" could negatively affect much of the current American economy.  The 1031 exchange is not only important on the large business economy scale, but is one of the few tools small business owners and small apartment owners have to maintain their capital investments over time.

 See more at these sites, which also include ways to contact your Congressional representative:
10 Reasons for a 1031 Exchange
Fidelity National Finance Company 
1031 Corp
Commercial Observer

10/02/2017

How Proposed Tax Changes Could Affect You, the Homeowner

On September 27, proposed tax reform information was released by Republican leaders known as the Big 6* which outlines the elimination of certain tax deductions while doubling the standard tax deduction and elimination personal and dependency exemptions.  The National Association of Realtors 'believes the result would all but nullify the incentive to purchase a home for most, amounting to a de facto tax increase on homeowners, putting home values across the country at risk and ensuring that only the top 5 percent of Americans have the opportunity to benefit from the mortgage interest deduction."
In other words, should such tax reform become reality, it's not good for homeowners.
  • It recommends a "backdoor elimination" of the mortgage interest deduction for all except the top 5% who would still be able to itemize their deductions.
  • The total effect would be a tax increase on most Americans due to a combined loss of state and local tax deductions
  • Lost incentive to purchase a home could result in overall loss of home values.
  • It could strongly affect new homebuyers and older Americans who rely on the equity in their homes for retirement. 
The tax code has historically favored homeownership but these proposals that would limit tax deductability of the mortgage interest deduction and property taxes would reverse that support. An analysis by PricewaterhouseCoopers states that "values could fall in the short run by more than 10 percent if a Blueprint-like tax reform plan were enacted. The drop could be even larger in high-cost areas.   It may take years for home values to rebound from such a significant decrease."  See a summary here.

The National Association of Realtors believes that repealing such deductions would in effect cause double taxation on the same income.  For further information go to the NAR site.

The discussion about tax reform has been present for much of 2017. To preserve your homeowner deductions, contact your Congressional representative.


*House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, Treasury Secretary Steve Mnuchin, National Economic Council Director Gary Cohn, Senate Finance Committee Chairman Orrin Hatch, and House Ways and Means Committee Chairman Kevin Brady
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