Posts Tagged ‘property tax’

Final Tax Bill Passes: Effects on Home Ownership

Thursday, December 21st, 2017

The new tax bill finally passed both house and senate. Here are the ways it will effect homeowners and those planning to purchase homes in the near future:

1. Property tax deductions: If you live in a state with high property taxes, like California, you may be in for a higher tax bill. The deductions for state and local income, sales and property taxes will now be limited to $10,000. If your state, like California, allows advanced payment of property taxes, you may want to consider paying the second installment now before the end of the year in order to deduct them on your 2017 taxes – ask you accountant.

2. Mortgage interest deduction: This could be lost if you live in a state with high real estate values: Yes, California is one of those states. The current cap for mortgage interest deductions is limited to mortgages valued up to $1.1 million, but the new bill caps out at $750,000.

3. Home equity deduction changes. The deduction for home equity loans will be limited to $100,000.

4. Capital gain exclusion: Thankfully this has been left as is, which is a big boost for homeowners wishing to sell. The law remains that if you have lived in your home 2 of 5 years prior to the sale date, you WILL be able to avoid paying capital gains taxes on the sale (see below). The capital gain is the difference between what you paid for your home and what you sold it for. For example, if you paid $300k and sold it for $400k, the capital gain is $100k. If you lived in your home at least 2 years you will be able to avoid paying tax on up to $500k of the gain – which will be considered as income – ($250k for married couples filing separately).

5. Second home mortgage interest deductions: You will still be able to deduct interest on mortgage debt for both your primary and second homes, but the interest deduction has been reduced from $1M to $750k ($375k if married and filing separately).

6. Moving expense deduction: Under current law these are allowed for some moving expenses, if you are moving for job purposes. But the new law will allow ONLY active duty military members to use this deduction.

If you have any questions or concerns about the new tax laws, please contact your tax professional. Make sure you understand how you will be affected prior to purchasing or selling real estate.

RSS Feed

How the New Tax Reform Could Effect Real Estate

Thursday, September 28th, 2017

If you own a home or are thinking about purchasing one, you need to be aware of how the new proposed tax reforms could effect you and the effect they may have on the real estate market. Here are some of the proposed changes:

Tax Increases/Doubling of the Standard Deduction. Taxes could increase for hundreds of thousands of California homeowners, and this will hit the middle class hard. It would also put homeownership out of reach for many buyers.

Recently the National Association of Realtors stated that increasing the standard deduction and erasing others would “effectively nullify the current tax benefits of owning a home” for the majority of people. This could reduce housing demand and home values.

Elimination of State and Local Tax Deductions. These deductions make home ownership more affordable. This could include property taxes, and if implemented homeowners could see a rise of up to $3000 annually, leading to plummeting home values. Potential buyers may not be able to afford property tax increases, pushing them into lower price ranges. Homeowner equity would suffer.

If these new tax laws are implemented it will be a big hit to the housing market, with home purchases slowing  or even grinding to a halt; more importantly, we could face large foreclosures waves heading into the future, which of course could have big implications for the mortgage and banking industries.

Hopefully we will soon see some clarification regarding these proposed changes. Write your Congressional representatives and express your views on the new tax laws. Unless you exist in the 1% of the uber-wealthy you will not likely benefit from the expected changes.

RSS Feed

Qualified Home Owners – Save in Taxes on Next Home Purchase

Tuesday, May 30th, 2017

People are always asking me how they can save money on home purchases and sales, and legislation under California Propositions 60 and 90 is one of the best ways to do just that. BUT, you have to meet certain qualifications.

Proposition 60 and 90 help home sellers transfer their current residential tax base to the purchase of a new home, saving potentially thousands of dollars in taxes. Proposition 60 is for intra-county transfers (between the counties of San Diego, Orange Los Angeles, Riverside, Alameda, El Dorado, San Bernardino, Santa Clara, San Mateo, Tuolumne and Ventura. Proposition 90 allows for the same advantage with inter-county transfers.

This all sounds great, right? Here is the fine print…in order to qualify:

1. The home owner (only one of them) must be at least 55 years of age. Co-owners cannot both qualify.

2. The home being sold must be a principal residence

3. The present home must be sold and the new home must be equal or lesser market value to the original property

4. If the property is held in a trust the seller will need to be the beneficial owner of the trust, not merely the trustee

5. The replacement property must be purchased or built within 2 years (before or after) of the sale of the current property.

6. “Your original property must have been eligible for the homeowners’ or disabled veterans’ exemption either at the time it was sold or within two years of the purchase or construction of the replacement property.”

As an example let’s say you purchased your home many years ago for $400,000 and it’s current market value is $800,000. If you sell this home and purchase a home that is $800,000 or less, should you qualify under Proposition 60 or 90 you will be able to take your current tax basis (tax on the $400,000 home plus the increases that have accrued over the years) to a replacement home that is purchased for $800,000 or less. This is a huge savings because most counties tax about 1-1.25% on real estate purchases.

For more details on eligibility requirements to take advantage of Prop 60 or 90, click here.

RSS Feed

Beware: Property Taxes on Your New Home Could be Higher Than Anticipated

Wednesday, January 23rd, 2013

An investor client called me a few weeks ago and told me that the county assessor sent him property tax bills for an amount higher than the standard 1.25% on his recently purchased property. He didn’t understand why the taxes were higher, and needed advice on what he should do.

Most real estate agents correctly tell their buyers that property taxes in California are approximately 1.25% of the sales price, give or take a little depending on the specific location of the property. Normally this is sound advice. But what some agents do NOT know is that the assessor’s office has discretion to raise the property tax on your newly acquired property if it feels that you paid a low price. So your “great deal” may not be reflected in your taxes.

In all my years of selling real estate this is the first time I have seen this happen, which tells me that the assessor’s office is either starting to heavily scrutinize sales and related comparable sold properties, or that my client was very unlucky. One of his purchases was really an amazing buy, but the other fell in line with comparable sold properties.

Under California state law, Proposition 13, property is reappraised only when there is a change in ownership, or upon completion of new construction. Aside from these two situations, property taxes cannot be raised more than 2% annually. The tax rate in California is 1%, plus the costs of any additional fees, bonds, or special charges (thus the reason why agents tell their buyers taxes are “about” 1.25% – some areas/neighborhoods may have slightly higher or lower tax rates, depending on the additional fees, such as mello roos taxes, bonds, etc.).

Once a property changes ownership, the assessor determines whether the property needs to be reappraised. If an appraisal is ordered and comes in higher than the value the new buyer paid, the taxes will be assessed based on the appraisal. Note that a transfer between husband and wife does not require a reappraisal for property tax purposes, including those transfers resulting from death or divorce, nor does a refinance.

So what can a homeowner do upon receipt of a higher than anticipated property tax bill? The homeowner can appeal the value of his new taxes. Go to the assessor’s website and find out the steps for doing so, then get started. Keep in mind that it can be a drawn out process, but do not give up. Be sure you have all related comparables, and can show why those properties do or do not compare to yours – extra photos can help. Be prepared to really compare each one – I advise you use your real estate agent to assist you with this.

For further information on this and answers to related frequently asked questions in the San Diego county area, click here.

RSS Feed

As Home Prices Rise, So May Your Property Taxes

Thursday, September 13th, 2012

The decline in the real estate market these last several years led many California homeowners to seek reductions in their property taxes. All they had to do was show the decline in market value of their homes, via a comparative market analysis, and local tax assessors were generous in granting annual reductions. BUT… now that prices are increasing, homeowners must realize that so too can their property taxes.

Normally property taxes do not increase more than 2% annually, thanks to the voter-approved Proposition 13 (also passed by voters in 1978). However, just as assessors have the authority to temporarily reduce taxes when property values go down, so can they increase taxes, even more than 2%, when the values come back up (Proposition 8, 1978).

The 2% limit outlined in Proposition 13 only takes effect when the value of the property reaches the level it would have reached had the market never dropped. There are areas in California that have already been subject to tax increases.

If you live in an area that has seen market value increases, and you have had a property tax reduction, be prepared for possible property tax increases soon. It may not be welcome news to you, but it is good news for your county and the economy to see these improvements in the housing sector.

RSS Feed