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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But the personal exemptions for taxpayer(s) and dependents is repealed.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. 

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.

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.

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Displaying blog entries 1-3 of 3