California REALTORS® applaud the bill to raise capital gains exclusion and free up housing inventory...
The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) today issued the following statement in response to the “More Homes on the Market Act,” reintroduced today by House Representatives Jimmy Panetta (D-CA) and Mike Kelly (R-PA). The bipartisan bill increases the capital gain exclusion amounts on the sale of a principal residence to $500,000 for single filers and $1 million for joint filers and indexes the exclusion for inflation.
“California REALTORS® thank Congressman Panetta for reintroducing the ‘More Homes on the Market Act.’ This bill will provide necessary tax relief for California homeowners, particularly senior citizens, who have been unable to move because of the tax burden that could result if they were to sell,” said C.A.R. President Jennifer Branchini, a Bay Area REALTOR®.
“For working Californians, a home is their biggest and most important investment. However, because the capital gains exclusion was passed 25 years ago with no indexing for inflation, fewer and fewer families have been able to downsize and access the equity built up in their homes. This has resulted in fewer homes being available for younger and first-time homebuyers to move into, which has driven up demand and home prices even more.”
The National Association of REALTORS® estimates that in California, as many as 95 percent of single homeowners and 68 percent of married homeowners who purchased their homes before 2000 could face capital gains tax if they sold their home this year.
Here are the top 10 things to know to optimize your investment real estate portfolio
As we start off the New Year, this is a great time to provide a list of things to consider that might help your real estate investments be more profitable and your life less stressful.
#1 - Set Up a Trust
The main advantages of setting up a Trust is to avoid probate and keep your estate private. What is probate? Probate is a court supervised legal process that includes determining the validity of your will, gathering your assets, paying your debts (and taxes) and distributing the remaining assets to your heirs. Probate is part of the public record and probate fees are set by law (and are not cheap). Spending a bit of time now setting up a Trust will certainly pay dividends later. Some people mistakenly think that setting up a trust will help eliminate taxes. It will not (although there are some tax benefits to a Charitable Remainder Trust).
#2 - Adding Family to Title
Don’t add your son/daughter/niece/nephew/etc. to the title of your property unless absolutely necessary. Adding someone to title may be as simple as filing a quit claim deed, but it may have unintended tax consequences. When you add a person to title, the IRS views that as a gift. If a son is now a 50% owner of a $1MM property, he just received a $500K gift. The gift giver (you, the owner) may now be responsible for a gift tax. A more cost-effective solution may be to simply set up a Trust and name the son as the beneficiary of the Trust. Once you pass away, the son will receive the property (and at a step up in your cost basis – more of which is discussed below).
#3 - Don’t Ever Sell
‘Buy and hold’ can be a good strategy for building wealth and also keeping it. Real estate investors who own property until they die will pass the property to their heirs at a "stepped up cost basis". Under Section 1014(a) of the IRC, an heir’s basis in a property will equal the fair market value of the property at the time the descendant dies, which can effectively eliminate all capital gains and depreciation recapture taxes saving the heirs a capital gain income tax bill.
#4 - Defer, Defer, Die
Conducting a 1031 Exchange will allow for the deferral of capital gains taxes. Doing another 1031 Exchange will allow for tax deferment again. An investor who cashes out, after doing a series of 1031 Exchanges, will pay taxes on all past transactions. Smart investors, however, take advantage of the step up in basis discussed early and defer, defer and then die. Having never cashed out of real estate all capital gains taxes will be eliminate for the heirs.
#5 - Utilize Equity Lines Strategically
In many instances, accessing an equity line may be a smarter decision for raising cash than selling real estate. Cash from an equity line is non-taxable whereas the sale of real estate may trigger capital gains taxes. Obviously, the investor needs to be cautious of the extra debt burden on the property, but access to tax free cash via an equity line may be a very smart move.
#6 - Make Strategic Acquisitions
The next 1031 Exchange replacement property you acquire may have a pool, an ocean view and a large yard where the grandkids can play. Those amenities may be nice for your tenants, but even better for you after you boot the tenants out and move in. Acquiring a future primary residence via a 1031 Exchange is not illegal, but needs to be done with caution. It is possible however and making a strategic acquisition of that sort can be a nice way to purchase your dream home.
#7 - Make Strategic Moves
Moving into a rental property, converting it into a primary residence and then selling it will allow you to reap the benefits of the Homeowner’s exemption. If you are married up to $500K of gain will be tax free. Time of residence and ownership rules may apply, but the strategy has been used effectively by our clients throughout the years.
#8 - Diversify
Wall Street has been advocating the benefits of diversification for decades. A diversified portfolio allows you to reduce the volatility of your portfolio and either increase return for a given risk or decrease risk for a given return. Often it isn’t prudent to have all of your eggs in one basket. With real estate you can diversify either by geography, by asset class or both. It may be time to start thinking like Wall Street.
#9 - Enjoy Your Investments
Your investments should work for you. If, at some point, they become too burdensome on your life, it may be time to rethink your strategy. This doesn’t necessarily mean cashing in all of your chips (and paying taxes) but it may mean transitioning out of difficult to manage properties and into easier to manage ones.
#10 - Build a Solid Team
Building a solid team is going to pay dividends over the long term. We have over 38 years of real estate expertise and resources for 1031 tax deferred exchange intermediaries. We would love to be part of your team.
If you'd like to discuss a 1031 Exchange please feel free to contact us…
Pete Sabine - call or Text 925.787.2548.
Leslie Whitney – call or text 510.388.5794
Compass. DRE 300889760; 01950037
The average 30-year home loan interest rate jumped from 3.22% in January, 2022 to a high of 7.08% at the end of October 2022. As a result, most home buyers have suffered a 30 percent decrease in their home purchasing power and the overall real estate market trend has substantially tempered over the past year.
Learn how to qualify for a below-market home loan interest rate to lower your monthly payment plus save thousands of dollars on mortgage interest expenses.
If you have a home to sell in today's challenging real estate market, you will learn how to attract home buyer competition to get the highest possible sales price.
Discover creative financing strategies for buying your next home before selling your current home.
Here are some of the valuable pro tips you will learn:
Mortgage Interest Rate Buydown (discount) options
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Share this with anyone you know who is planning to buy their next home.
Saturday, January 14, 2023 - 9:30 am to 11:30 am
Wednesday, January 18, 2023 - 3:30 pm to 5:30 pm
Heather Farm Community Center - 301 North San Carlos Drive, Walnut Creek
Bill Freeborn, Vice President of Mortgage Lending - OriginPoint
Pete Sabine, Real Estate Consultant - Compass
Leslie Whitney, Real Estate Consultant - Compass
You could save a substantial amount of money if anything covered under a home warranty policy is in need of repair or replacement during the coverage period.
Here are the top 10 frequently asked questions about home warranty policies:
1. What is a home warranty?
A home warranty is typically a one-year service contract designed to protect the family budget from unexpected, costly repairs on home systems and appliances.
2. What is covered in the plans?
There are several plans and options to choose from to best suit the home’s specific requirements. Basic plans typically include coverage for: kitchen appliances, water heaters, plumbing, plumbing stoppages, electrical, heating system, ducts, instant hot water dispenser, whirlpool bath motor and pump assemblies and more.
Optional covered items can range from pool/spa equipment, washer/dryer, kitchen refrigerator, air conditioning, well pump and more. Plans and optional covered items vary in geographic areas and are detailed in home warranty contracts.
3. What is a service call fee?
This is the fee paid to the service technician at the time of the appointment.
4. Is it safe to assume there are no costs other than the service fee when a covered item breaks down?
Unfortunately, no. A home warranty covers only items listed as covered and excludes all others. For instance, costs could arise for the homeowner from modifications or code upgrades when a system or appliance is replaced.
5. Who do I contact when covered items fail?
Anytime a covered item fails, contact the home warranty provider to request service. It is important that the home warranty provider is contacted first, as they do not reimburse for services performed outside of their vendor network without prior approval.
6. How does the claim process work?
Once the home warranty provider receives the request and coverage is confirmed, a local service technician will call the homeowner to arrange a mutually convenient day and time to go to the home and diagnose the failure.
7. How quickly are claims handled?
Once coverage is confirmed, the contractor typically receives the claim dispatch within four hours during regular business hours. Normally, the services will be initiated by the technician within 48 hours after the request is made.
Simple repairs are usually made on the first visit, however, if items must be ordered an additional visit(s) may be needed to complete the repair or replacement.
8. What is an emergency repair and how are these claims handled?
Most home warranty providers consider it an emergency when the failure of a covered item renders the home uninhabitable; in these circumstances, the home warranty provider will make all reasonable efforts to expedite emergency service.
9. How is it determined if a failure is covered or not?
In general, coverage is limited to failures caused by normal wear and tear and limited to the terms of the contract. For example, cosmetic defects are not covered.
10. How are known pre-existing conditions determined versus unknown pre-existing conditions?
Unknown conditions are covered if, at the time coverage begins, the defect or malfunction is not known or could not have been reasonably observed by looking at or operating the system or appliance.
Pete Sabine & Leslie Whitney
Call or text 925.787.2548
Visit our website
Mortgage expert Barry Habib, founder and CEO of MBS Highway accurately predicted that inflation would rise further and that mortgage rates would go up, creating a rough patch for the mortgage industry and homebuyers.