I don't know what is in the air but a couple of my friends had their places burn down in a house fire. First off if you rent buy renter's insurance. If my friend did then they would not have lost not only thier personal items but a homebased soap business. Renter's insurance is only about $25-$35 a month. With State Farm my insurance person Sue Ann Lu stated that she could have written them a check right there on the spot to help buy clothes or find a place to live. There is a bunch of us that are doing a fundraiser to help my friend and his family. If you are interested in donating or coming to the even on Thursday, June 25th in Kailua, HI let me know. Email me at YourRealtor@AudreyHutton.com.
Now for the other story on a house fire. This was on the mainland. My friends were remodeling and were almost done when the house caught fire and the whole thing burned down. Luckily they were always talking to their insurance agent on the progress of the remodel and the insurance agent would come by for updates and new pictures. They are one of the lucky ones to be smart enough to do this. So when you are updating any part of your home make sure your insurance agent knows. Keep them informed. Otherwise you would have put all this money into the home but the insurance company can only pay out what you have insured. If orignal and not remodeled then they only pay out for orignal house.
Monday, June 15, 2009
Thursday, June 11, 2009
Selling a home with zero profit doesn't mean zero capital gains
I was sent an email today from Julie Tumbaga of Orexco 1031 Exchange. It was a good reminder for me that many sellers in this difficult market are selling with no profit, however, many taxpayers do not understand is that property may be sold with no profit can be subject to significant taxable capital gain.
How is it possible simply because gain results not just from appreciation in value, but also results from depreciation deductions taken during ownership of the property, gain deferred from previous transactions, and from borrowing against appreciated equity in a declining market. These adverse tax consequences can be avoided by engaging in 1031 tax deferred exchange.
How to determine gain is the sales price less adjusted basis=taxable gain.
Here are three situations resulting in no profit, but taxable gain
1. Depreciation Recapture: If a taxpayer takes depreciation deductions, those deductions reduce the taxpayer's basis, thereby resulting in gain.
2. Carryover Gain: If a taxpayer sells property previously acquired in an exchange at no profit or even at a loss the taxpayer may still be faced with significant taxable gain.
3. Excess Borrowing: If a taxpayer borrows against appreciated equity in their property, tax consequences can also result if the property thereafter declines in value and the taxpayer is forced to sell the property for little or no profit.
Before selling in a down market, taxpayers and their advisors should first determine the taxpayer's basis in the property to be disposed of and thoroughly discuss upfront the potential tax consequences. Taxpayers can avoid any of the tax consequences noted in their example by engaging in a IRC 1031 tax deferred exchange.
So thank you Juilie! This came at the perfect time! Not only to share with others but specifically this one client of mine who I had advised to speak to a CPA and they were not interested!
If you want more information on 1031 exchanges let me know and I can have Julie contact you!
How is it possible simply because gain results not just from appreciation in value, but also results from depreciation deductions taken during ownership of the property, gain deferred from previous transactions, and from borrowing against appreciated equity in a declining market. These adverse tax consequences can be avoided by engaging in 1031 tax deferred exchange.
How to determine gain is the sales price less adjusted basis=taxable gain.
Here are three situations resulting in no profit, but taxable gain
1. Depreciation Recapture: If a taxpayer takes depreciation deductions, those deductions reduce the taxpayer's basis, thereby resulting in gain.
2. Carryover Gain: If a taxpayer sells property previously acquired in an exchange at no profit or even at a loss the taxpayer may still be faced with significant taxable gain.
3. Excess Borrowing: If a taxpayer borrows against appreciated equity in their property, tax consequences can also result if the property thereafter declines in value and the taxpayer is forced to sell the property for little or no profit.
Before selling in a down market, taxpayers and their advisors should first determine the taxpayer's basis in the property to be disposed of and thoroughly discuss upfront the potential tax consequences. Taxpayers can avoid any of the tax consequences noted in their example by engaging in a IRC 1031 tax deferred exchange.
So thank you Juilie! This came at the perfect time! Not only to share with others but specifically this one client of mine who I had advised to speak to a CPA and they were not interested!
If you want more information on 1031 exchanges let me know and I can have Julie contact you!
Rent verses Sell
Today I had a new client meeting on whether to rent or sell her new 2/1/2 condo. What would you do? Bought property in 2008 for $600,000. Today's market condo is worth $525,000 to $550,000. Knowing this is a Buyer's market price is VERY important. Showing immediate value to potential buyers creates activity and possibly multiple offers. There are 24 active listings that compete with her property. Average sale per month is 2. There is 10-12 months of inventory on the market. So once again price is important if she wants to sell fast. However, her loss will be more if sold at the low price.
Original down payment was $120,000. She wants to recoup her initial down payment so she is thinking of renting. Rents for this type unit furnished is $2300- $2500. Her loss per month renting is $1465 per month. times that by 12 then 5 years if the market comes back then. She wants to sell the place later on for $640,000 to recoup her $120,000 down payment and cover her closing & real estate fees. Her loss both ways end up the same. Do you keep on hanging in take your loss, realize you made a financial mistake in buying this property and move on or do you sell get out from under it, no more headache and heaviness in your lifeand get the cash now to begin to save for your future now verses later?
Love to have your answer. Of course I always recommend talking to your CPA or Financial Advisor for tax consequences. In this case, she does not have either. I recommended she gets one.
Original down payment was $120,000. She wants to recoup her initial down payment so she is thinking of renting. Rents for this type unit furnished is $2300- $2500. Her loss per month renting is $1465 per month. times that by 12 then 5 years if the market comes back then. She wants to sell the place later on for $640,000 to recoup her $120,000 down payment and cover her closing & real estate fees. Her loss both ways end up the same. Do you keep on hanging in take your loss, realize you made a financial mistake in buying this property and move on or do you sell get out from under it, no more headache and heaviness in your lifeand get the cash now to begin to save for your future now verses later?
Love to have your answer. Of course I always recommend talking to your CPA or Financial Advisor for tax consequences. In this case, she does not have either. I recommended she gets one.
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