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The Tax Cuts and Jobs Act in a Nutshell

by Bill Nelson - Broker

On December 22, 2017, the tax bill known as the Tax Cuts and Jobs Act was signed into law by the President. The following is a brief summary of the general issues relating to real estate in California and is not specific tax advice.  Specific questions about any individual tax situation should be directed to a tax professional.

SALT and Mortgage Interest Deductions

Two of the most discussed provisions in the TCJA affecting California are the state and local tax (SALT) deductions and the mortgage interest deduction.  The TCJA imposes a $10,000 combined cap on all SALT deductions whether they are for real property taxes, or state or local income taxes, or sales taxes.  This will primarily affect high-tax states such as California. The $10,000 limit applies to both single and married filers and is not indexed for inflation.

The mortgage interest deduction for existing mortgages of up to $1 million taken out before December 15, 2017, will not be affected. Homeowners may also refinance mortgage debts existing on December 14, 2017, up to $1 million and still deduct the interest, so long as the new loan does not exceed the amount of the mortgage being refinanced.

For any new loans, however, the cap for deduction will be $750,000.  Deduction of interest on loans secured by a second house will still be allowed subject to the $1 million and $750,000 caps. 

The interest on home equity loans will only be deductible if the proceeds are used to substantially improve the residence.

Tax Rates, the Standard Deduction, and the personal and dependency exemptions

There will continue to be seven tax brackets, but the marginal tax rates in each bracket will be slightly lower. The standard deduction will be nearly doubled to $12,000 for individuals and $24,000 for joint filers.

But the personal exemptions for taxpayer(s) and dependents is repealed. Under prior law, tax filers could deduct $4,150 for the filer and his or her spouse, if any, and for each dependent, but they will no longer be able do so under TCJA.

Qualified Business Deductions

A provision that may be helpful to real estate licensees is the deduction for qualified business income. It will allow an off the top (above the line) deduction of 20% of business income, subject to certain provisions.  It will be available not only to certain pass-through entities, S corporations and Limited Liability Companies, but also for certain sole proprietors, such as independent contractors.

While personal service businesses, (which likely include real estate agents and brokers) were initially ineligible for the 20% deduction, the final bill has a personal service exemption.  In other words, many real estate professionals will be able to take advantage of this deduction. There are income limitations of $157,500 for single taxpayers and $315,000 for joint filers.  Above these income levels, phase out provisions apply.

The National Association of REALTORS® (NAR) has prepared a summary of the TCJA with some examples of how REALTORS® might be able to take advantage of this provision.  Click here to access NAR’s summary.

Sale of Principal Residence – Exclusion of Gain

TCJA does not change the $250,000 for single filers and $500,000 for joint returns exclusions from capital gains tax for the sale of a principal residence when the homeowner has owned and lived in the home for two of the last five years. 

Capital Gains

TCJA retains the current long-term capital gains rate of 15% generally but 20% on those in the highest tax bracket. Depreciation recapture for real property remains at 25%.

Like Kind Exchanges

Tax deferred IRC section 1031 like kind exchanges for real property will be retained in the TCJA. Personal property 1031 exchanges are no longer allowed.

Other Provisions

Moving expenses will no longer be deductible except for those in the military. Certain certified historic structures will still receive a tax credit. The child tax credit will be increased from $1,000 to $2,000. Casualty loses will be deductible only in a presidentially-declared disaster.  

Disclaimer

As with any tax law, the specifics of the taxpayer’s situation make a great deal of difference in the outcome.  This summary is general in nature and you are advised to speak to your own tax advisor. 

Homeowners Insurance: Things to Consider

by Bill Nelson - Broker

Anyone who owns a home knows that homeowners insurance is essential. It’s coverage you need to have in the event your home suffers significant damage. But understanding just what your insurance covers is not as simple as it sounds, and reviewing your coverage regularly is a prudent idea.

Are you covered for floods? Fires? Earthquakes? All three? Does your policy provide guaranteed replacement cost—which, for obvious reasons, since houses appreciate in value, may be almost prohibitively expensive? And what about exclusions? Many homeowners aren’t sure exactly what their coverage will pay for.

Financial advisors at consumer resource The Motley Fool suggest asking yourself three pointed questions when purchasing or renewing homeowners insurance:

  1. What does it cost to build in your area? There’s no way to price disaster insurance effectively without knowing what it would cost to rebuild your home. You need to know the per-square-foot average construction cost for your zip code—a number you should be able to get from a reputable insurance agent—then multiply that by the total area of your home to get the replacement cost. Insure for that amount, and then recheck the pricing regularly.
  2. What risks does your home face? Exclusions and riders are common for homeowners insurance. In Colorado, for example, policies frequently exclude damage from mold, since mold doesn’t thrive in the state’s dry climate. Other common exclusions apply to older homes, where outdated plumbing or fixtures may lead to greater risks. Be sure you understand exactly what risks your insurer will be covering.
  3. What’s my back-up fund like? The best way to save money on a homeowners policy is by taking on a higher deductible. But the higher your deductible, the less likely you will be to put in a claim for any lesser damages that may occur. You will need to have an emergency fund large enough to cover the gap in the event you ever need to.

Interested in housing and real estate tips? Feel free to contact me directly.

Clean Machine: Tackling the Fridge and Freezer

by Bill Nelson - Broker

If there’s a funky smell coming from the depths of your refrigerator or small icebergs forming in your freezer, it’s time to bite the bullet and do a deep clean. Not only will this make for an odor-free, organized environment for your fresh and frozen foods, more importantly, it will ensure your food’s safety. Follow these tips from the National Frozen & Refrigerated Foods Association to make the task easy and effective:

1. Prepare. Unplug the refrigerator to save energy and to safely clean coils. Empty ice from your freezer into a cooler where you can store food you plan to keep. Fill the sink with warm soapy water for cleaning shelves and drawers. Set out dishtowels on counter tops for drying. Fill a spray bottle with a cleaning solution of 1cup water, 1 teaspoon of white vinegar and 1 teaspoon of dish soap.

2. Purge. Empty the refrigerator, then the freezer, and place items on counter. Take time to sort and discard old, unwanted foods, drinks and condiments. Check expiration dates and beware of moldy and freezer-burned foods. When in doubt, toss it out!

3. Clean. Remove drawers and shelves and clean them in the sink with warm soapy water; set aside to dry. Spray the interior with cleaner, and wipe from the top down with a warm, wet sponge or towel. Thoroughly dry and replace drawers and shelves. Wash the exterior door and handles. Replace water and ice-maker filters if needed. Clean the grill on bottom front of refrigerator. Consider cleaning the condenser coils for optimum cooling efficiency (refer to manufacturer directions).

4. Check Temps. Food kept too long or at improper temperatures can become contaminated with bacteria, which can cause foodborne illness. Your refrigerator temperature should be at or below 40 degrees and your freezer 0 degrees or less to ensure food safety. You can check the temperatures with an appliance thermometer.

5. Organize. When restocking your clean refrigerator and freezer, organize according to usage and group like items together. Label and date new foods so you know when to use or throw out. Do not store perishable foods in the door as temperatures fluctuate there. Place meat, poultry or seafood in containers or sealed plastic bags and keep fruits and vegetables in separate drawers away from the meats to avoid cross-contamination.

Source: National Frozen & Refrigerated Foods Association 

How FICO 9 May Increase Credit Scores

by Bill Nelson - Broker

How medical debt and other collection items are tallied in a credit score is changing, potentially increasing the credit scores of millions of people.

Called the FICO 9, the new credit score changes how medical collections are treated from non-medical changes, such as credit cards. A medical debt will now damage a credit score less than paying a credit card bill on time, for example.

FICO 9 came out in 2014, but the improved credit scores could just now be coming to fruition for many consumers because it can take a few years for banks and other lenders to implement the new system.

The new FICO 9 score should give responsible borrowers better access to credit and lower rates on existing credit once the changes are accepted by the industry.

Part of the thinking behind the changes is that for many people facing medical debt collections, it isn’t something they have a lot of control over. People get sick or are in an accident and can’t control how high their medical bills are, and may not even know that their medical debt is in collections.

More than 64 million Americans have some kind of medical collection record on their credit reports, according to Experian, a credit bureau. Almost all medical debts are reported to credit bureaus by collection agencies.

The FICO score is the most widely used credit score in the country, and is used by companies selling mortgages, credit cards, personal loans and more.

Another change with FICO 9 is that older collection items will have less impact on a credit score. Other types of debt that are sold to a collection agency—such as an unpaid utility bill or phone bill, school loan or rent—can still be reported to a credit bureau, but older collections will have less impact on a credit score. If the collection item is paid back, the score will improve.

I hope you found this real estate information helpful. Please contact me for all your real estate needs today!

Use Color Trends to Stage Your Home

by Bill Nelson - Broker

 

A favorite trick of home stagers is to pay attention to the hottest colors and incorporate those hues into the design and look of a home. That’s something that anyone who is selling a home should consider, and all it takes is a little research. To help people with ideas on how to decorate rooms, paint companies and designers announce their colors of the year along with trends in color palettes.

For 2017, Benjamin Moore has chosen Shadow 2117-30 as its Color of the Year. The color is a deep, rich violet or amethyst and is described as “exhibiting a variety of nuanced undertones as the light in a room shifts during the day.” This color has already made its way into various industries including textiles, home accessories, fashion, fine art and automotive.

Sherwin-Williams’ color palette trends for 2017 focus on renewed spirituality, body and soul nourishment and a determination to define a sense of self. Each of its four palettes (each of which consists of 10 colors) tells a distinct color story, offering opportunities for homeowners to explore color in new and exciting ways.

The first palette, Noir, is driven by baroque and romanticism trends, a renewed interest in faith and spirit, and a celebration of the night. The Noir palette is rich with colors that evoke vine-ripe fruits, Nordic blues, moody neutrals and golden yellow.

The company’s Holistic palette includes arctic neutrals, blush rose, wild browns and forest-floor green.

Intrepid is a palette inspired by impatience for social and political change and includes fiery oranges, vibrant kimono colors and the simplicity of black, white and gray. Finally, Sherwin-Williams Unbounded palette is influenced by global immigration and how it redefines national identities. Captured in this palette are earthy mustards and browns as well as ocean blues and corals.

Other colors that designers seem to be gravitating towards in 2017 include colors that bring a feel of the outdoors— greens, blues and earth tones, though a splash of royal colors of purple and orange seem popular as well. Green invokes nature, tranquility, and being more peaceful, and earth-toned taupes make you feel more grounded.

Now that you’ve come up with the colors, it’s time to put them to good use. Painting rooms is the most obvious way to incorporate them into the home, but you could also bring in furniture, rugs and decorative accessories in trend colors to help your home stand out from the rest.

I hope you found this information helpful. Contact me for your real estate needs today!

Moving Checklist

by Bill Nelson - Broker

Moving can be a hassle, especially when we fear were forgetting something. This moving checklist infographic will help keep you on track as well as informing you of deductibles that could apply to you.

How Not to Sell Your Home

by Bill Nelson - Broker



While the fundamentals of home staging, like de cluttering, and removing family photos, are critical when it comes to getting your home sold, it’s just as important to focus on what not to do as certain factors can act as immediate deal breakers to would-be buyers. Make sure your for-sale home doesn’t include any of the following turn-offs:

Odors. Whether it’s pet odors, last night’s stir fry or that musty basement, any type of strong odor can be an immediate deterrent to a buyer, no matter how beautifully your home is decorated or staged. We usually get accustomed to our home’s unique scent, so have a professional cleaner do the necessary work to make the environment odor-free.

Artwork. While all art is certainly subjective, keep in mind that not everyone will appreciate artwork with severe subject matter or nudity. Stick to subtle landscapes and still life subject matter, or remove artwork altogether. Sparsely decorated walls will make your home appear more spacious.

Collections. Your shelves of antique dolls or Norman Rockwell plates might be your most prized possession, but for prospective homebuyers who don’t share the same affinity, collections can skew their opinion of your home - not to mention, make it appear very cluttered. Pack away your beloved collectibles in preparation for their new home.

People. Sometimes, being present during showings can be a plus - you can provide buyers with certain details about your home and what you love most about the neighborhood. But most people don’t want the owners present when they tour a home. So clear out and give them the freedom to pour over every detail of your home and make honest comments to the REALTORS.

Weeds. Curb appeal really is everything, so if your yard isn’t up to snuff, buyers may turn around before they ever step foot inside. There’s no need to break the bank - just make sure the basics are covered: mow the lawn, weed borders and beds, trim bushes and trees, and remove all sticks, leaves and debris.

For more tips and advice on getting your home in perfect condition to list, contact me. 
                         


 

5 DIY Projects You Can Take on With Your Significant Other

by Bill Nelson - Broker

Do you remember the first date you ever went on with your significant other? The beginning, butterfly stages of any relationship are all fun and games until it becomes serious and you’re sitting on the couch in pajamas on a Saturday night.

Rekindle the flame, see the fireworks again and fall even more in love. No couple is perfect, but DIY projects can bring you and your sweetie closer than before. Here are some great DIY projects for you and your love to do together.

1. Refurbish Furniture 

Upcycling is all the rave lately. Just face it, you both dream of new furniture to give your home a fresh look, but brand new furniture can be so expensive. Save the money for a special night out with your significant other, and refurbish your old furniture instead.

To get started on this project, you should decide together which pieces of furniture you want to give a makeover. If you two would rather replace it and start from scratch, search at yard sales and thrift stores for cheap outdated furniture.

Decision making and coming to an agreement is a challenge for couples but helps the relationship get to a deeper connection. You’ll both have to choose the type of paint you want and your color, too.

You and your significant other will be so proud of the work you did together to turn something old into something new. That’s half of what you need for wedding luck right there — something old, something blue, something borrowed and something new.

2. Wooden Coffee Table 

table

There’s nothing sexier than a man showing off his handyman skills, right? Take on a weekend project and make a coffee table for your living room. When it’s finished, you two can cuddle on the couch, put your feet up and relax.

A small DIY project such as a coffee table is an easy way to spend time together while being productive. Make this project out of repurposed materials to give it a unique look.

Did you know spending quality time together is one of the secrets to a healthy relationship? Building the coffee table is a shared activity that you’ll enjoy making together, and gain satisfaction out of using it when it’s complete.

Related: High-Resale Value Projects You Can Tackle In A Weekend

3. Retaining Wall 

A relationship can get pretty stuffy when all of your time is spent indoors. Get outside in the fresh air with a hardscaping project. Build a retaining wall and turn your backyard into a romantic oasis. Cook a special dinner and eat it on the patio when the project is finished.

Retaining walls are great for turning a plain backyard slope into a gorgeous landscape. You can shape a garden out of the retaining wall, add lighting features for elegance, or simply add value to your property.

To get the perfect measurements in your backyard, GNSS can be used for landscape or hardscape layout. You and your honey can bring the vision of your backyard to life with the proper tools and techniques.

4. Movie Room 

Adding an addition onto your home is a pretty big project for the two of you to handle alone. You don’t have to build an entire new room onto your home to create a home theater. A simple DIY project of turning any wall into a projector screen will do. You’ll have the fancy feel of a movie theater from the comfort of your couch.

You and your significant other can work together to paint your wall for projection. You’ll want to paint the wall an off-white or gray depending on what projector you have or purchase. The entire wall will have to be free of any decorations, with any visible holes spackled before painting.

Grab some comfy throw blankets for the couch and cuddle up for movie nights with the one you love. Physical touch is one of the five love languages, so if you or your significant other fall under that category, this is the perfect project for you two.

5. Backyard Vegetable Garden 

veggies

A fun project with many beneficial factors is building a DIY vegetable garden for your backyard. This is a good project to do after work, when you want quiet time but also want to spend time together. Planting a garden can teach you both patience, which is something every couple needs.

From the fresh produce you grow in your backyard, you can come up with great recipes to cook dinner together. Your relationship will see growth as you both tend to the garden and appreciate the fresh vegetables you planted together. Spice things up in the kitchen with your love and fresh produce.

Get back into the groove with your lover after some quality time making a project together. No matter what project you take on, you and your significant other can enjoy the bonding experience. Even if you have to fake it until you literally make it, you will love your project and your significant other more in the end.

The Homebuyer's Mortgage Dictionary

by Bill Nelson - Broker

Knowing that you are ready to buy a home can be an exhilarating feeling, except it is often followed by panic. While experience is the best teacher, there are some things you can do to regain control of the home buying experience. One of them is getting accustomed to the terminology, especially when it comes to the various types of available mortgages.

LearnVest offers a list of mortgage terms any first-time homebuyer should add to their dictionary:

  1. ARM: This acronym stands for adjustable rate mortgage, which in vernacular means a home loan with fluctuation interest rates. ARMs are very much a game of chance, starting off with a period of 3 – 10 years of low fixed rates, followed by an adjustable roller coaster-rate period. In short, your interest rate will reflect whatever’s happening in the market. This might be highly anxiety-inducing if you are not planning to sell by the time the rates adjust higher, but there is a chance that you will end up paying less if market trends are in your favor.
  2. Fixed-Rate Mortgage: This is the total opposite of the ARM. Instead of offering a fluctuating rate, you sign on for the same rate throughout the course of your mortgage loan. There are no surprises here, but the downside is that you must pay the same fee even if the market rates drop. There is some wiggle room thanks to refinancing, but fees and potential hassles come with it.
  3. Assumable Mortgage: This is a wild card that only becomes possible once in a blue moon. For this kind of mortgage, you take on the seller’s mortgage loan instead of taking out a new one for yourself. This helps when the market rate is higher than what the seller had it fixed at, plus it cuts some fees in the process. Yet, be aware that the seller’s lender must give you the green light as well. The other curve ball is that the home-selling price might surpass that of the mortgage balance.
  4. Balloon-Payment Mortgage: This mortgage option is like playing a game of Super Smash Brothers in which you are given 5 – 7 years of low monthly payments followed by a sudden death knockout match where you must make a giant final payment. Homebuyers tend to pick this type of loan because they expect to sell their home before the final payment while enjoying low interest rates during their ownership years. Another solution is applying for a new loan, but of course, who’s to say you’ll get it? And that’s where the sudden death part comes in: the balloon may just explode.

With this knowledge, you can now start planning your next move. What type of mortgage loan better suits your situation?

First American’s proprietary Real House Price Index (RHPI) looks at January 2017 data and includes analysis from First American Chief Economist Mark Fleming on the decline in affordability as consumer house-buying power dipped due to rising rates.


“While affordability is lower compared to a year ago, the level of affordability in most markets is still high by historical standards, which is why demand is expected to remain strong this spring.”


“Real purchasing-power adjusted house prices declined 0.1 percent in January, as mortgage rates did not meaningfully change and income growth continued. Despite the monthly increase in affordability and continued strong wage growth, homes are less affordable across the country compared to a year ago,” said Mark Fleming, chief economist at First American.

 

For Mark’s full analysis on affordability, the top five states and markets with the greatest increases and decreases in real house prices, and more, please visit the Real House Price Index.

 

The RHPI offers an alternative view of the change over time of house prices at the national, state and metropolitan area level. The traditional perspective on house prices is fixated on the actual prices and the changes in those prices, which overlooks what really matters to potential buyers - their purchasing power, or how much they can afford to buy. The RHPI adjusts prices for purchasing power by considering how income levels and interest rates influence the amount one can borrow.

 

The RHPI is updated monthly with new data. Look for the next edition of the RHPI the week of April 24, 2017.

032717 RHPI.jpg

Displaying blog entries 1-10 of 31