Selling a California Property and 1031 Exchanging Out-of-State

Suppose that today, January 27, 2014, you closed escrow ("sold") your California property due to be part of an exchange in the state where you currently live (not California).  Did you know that the State of California now wants its money, if any is to be made? 

So, effective January 1, 2014, California Assembly Bill 92 now adds a new annual tax reporting requirement for those taxpayers who exchange California property under federal Internal Revenue Code Section 1031 for non-California replacement property.  This means "all individuals, estates, and trusts, and all business entities regardless of their residency status or commercial domicile" must report the amount of the gain (or loss) on the property which is deferred in the 1031 exchange.  If it isn't reported, then the Franchise Tax Board will estimate and decide for you what your amount of income is from the sale of your property, and assess tax, interest, and penalties due it. 

No more taking your property and then avoiding California tax by doing an out-of-state exchange, and then a later sale. Read more here about the new law.

Can I help you decide on the market value of your property? Whether it's one unit (home, condo, townhome), duplex, triplex, 4-units or more, I can help you with an income/expense analysis, plus free information about 1031 exchanges.  Please contact me at 562-896-2609, julia@juliahuntsman.com.

Chocolate chip cookie recipe

Here's a fun way to start off your year with a quick, easy, chocolate cookie recipe, with a calendar for January 2014.

Happy New Year.

Housing Equity 2013--The Gap Narrows

Housing Equity 2013

A borrower who purchased a median priced home in 2004 and held it for nine years, the current median tenure of a homeowner according to NAR’s annual Profile of Home Buyers and Sellers, would have $28,114 in equity from the combined benefit of price appreciation and paying down the mortgage principle. A borrower who bought a median price home in 2012 would have more than $23,000 in equity.

Borrowers who purchased in 2006 and 2007 at the peak of the market and thus those who experienced the sharpest price declines are now nearly in positive equity. A person who purchased in 2006 and owned through 2012 (not pictured) would have been underwater by roughly $28,200, but by 2013 this gap was down to $4,700. Continued price growth in 2014 will help to further ameliorate this gap. Homeowners who purchased since 2007 are in positive equity.

Even through the vicissitudes of the great recession, for most homeowners housing remains an effective vehicle for building equity and wealth.

Do You Have a HELOC Line of Credit Loan due for a Reset in 2014?

Starting about 10 years ago, it was not unusual to obtain a home loan with a 10% down payment from the borrower, an 80% first mortgage, and then a home equity line of credit (HELOC) as a 10% second mortgage. 

For some borrowers who have not refinanced in the meantime, and have been paying interest only on that HELOC loan, their time is coming due.  Credit lines usually have mandatory "resets" after 10 years when borrowers must now pay up or pay an amortized principal and interest payment.  For some people, who may have been paying an interest only payment of $200-$250 on a $100,000 loan, their monthly payments will probably increase significantly: they will now be paying principal and interest, along with interest rates now being set at a higher level. It was not unusual for lines of credit to be as high as $150,000.  A jump up to another $500-$600 in monthly payment may not be unexpected in these cases.

The bank that owns the note, if the borrower does not or cannot pay the new payment, can demand full payment and foreclose if there is enough equity in the property. Borrowers, depending on the bank, may be able to refinance or modify these loans.

However, with new mortgage rules coming into play in January 2014, refinance may not be possible because the homeowner may not qualify, interest rates will be higher, their credit scores may not make the grade, or the combined loan amount on the mortgages may exceed the value of the house. 

Owners should prepare themselves now by checking for the reset date in their loan documents, the amount of increase, their ability to refinance, and also finding out if they have equity in their property.  Should the borrower consider foreclosure (because after all, it's only the second), that's really not advisable: in California if the line of credit was made as part of your purchase loan, then you may be exempt from a deficiency judgment, but you would still have a foreclosure on your record, which could cause problems for years every time you applied for insurance, a job, or anything else where your credit is checked.  Even if you could avoid paying, and the bank did not spend money foreclosing because you still don't have equity in your property, your credit score would suffer with each non-payment.  Late pays/delinquencies have huge impact on your credit score, and again, it would be something to impact you for years into the future.

Borrowers should review their loan documents, and contact their banks to find out what a reset increase amount would be, and then what their other options might be.

Note:  About $30 billion in home equity lines dating to 2004 are due for resets next year, $53 billion the following year and a staggering $111 billion in 2018.

In order to find out the value of your home, please contact me.  Equity in your property could be your friend in this situation. For an easy online request, click on Long Beach Real Estate Homes and Condos for Sale here.