Tax law changes: Homeowners are likely paying more You’re not alone if you think 2018 taxes for homeowners seem odd, scary, and costly. Projections on the new tax law estimate that property owners will pay an additional $668.4 billion in the next few years. This is due to eliminating deductions such as: Taxes not paid or accrued in a trade or business (except for up to $10,000 in State and local taxes), Interest on mortgage debt in excess of $750K, Interest on home equity debt, Non-disaster casualty losses So what can you expect when you file 2018 taxes? Itemized deductions Taxpayers are allowed to write off either their standard deduction or itemized deductions — but not both. Under tax reform, interest on home equity debt is only deductible if the money is used to make a “substantial improvement” in the property. Third, it used to be that taxpayers could write off both property taxes and state income taxes. Under tax reform, state and local taxes (i.e. property tax and sales tax) remain deductible. Homeowners with high property and sales tax states like Washington, Louisiana, Texas and others will likely exceed this limit. Those who paid mortgage insurance in 2018 must file their taxes before the deadline, then, can submit an amended return if Congress approves the deduction later in the year. Most homeowners will elect to take the standard deduction.
But are these newfangled alternatives to reverse mortgage loans safe—and sensible? In a shared equity agreement, the company gives you cash in exchange for a portion of the upside in the home’s value. Under the agreement, the company gives you cash in exchange for a portion of the upside in the home’s value at some point in the future. In essence, they become co-owners of your home (though you will still continue to pay the mortgage and property taxes). Shared equity agreements have a fixed term, often as little as 10 years but sometimes as long as 30. At the end of the term, you have to pay back the equity you received, plus the company’s share of appreciation, which most people do by selling the home. Converting to a rental Another option is called a sale-leaseback, offered by New York City-based start-ups Irene and EasyKnock. Then they rent your property back to you for as long as you want. Sale-leaseback companies also charge fees, of course. To repurchase your home, you’ll pay the funding amount you initially received, plus a premium of 5% in the first year or 2.5% in subsequent years.
(Photo: Max Ortiz, The Detroit News) Detroit — Nearly 1,300 home buyers took out mortgages in the city in 2018, a number not seen here since before the Great Recession. More than six years later, most home sales still are all-cash, and many Detroiters cannot obtain a loan. “Undoubtedly, Chemical’s presence will help residents access these tools.” (Photo: Max Ortiz, The Detroit News) Bertha Alexander relied on one of those tools after she lost her home insurance on the Morningside bungalow she purchased through a land contract in 2013. Since then, the bank has joined other efforts to increase financial literacy and lending. Maurice Cox, city of Detroit planning and development director, said Chemical Bank's move to Detroit is an endorsement that the city's recovery can be sustained. In 2018, residential properties gained more than $400 million in value and 90 percent of Detroit’s 194 neighborhoods saw increases in residential home values. While it is down from 97 percent in 2014, according to the Urban Institute, the national average is 36 percent. It offers low-interest mortgages and second loans up to $75,000 above the property’s appraisal for repairs. “We want people to know you can get a mortgage in the city of Detroit,” Pate said. Quicken Loans, Detroit's largest home lender in 2018 with 439 mortgages, provided $5 million to partner with Home Depot to renovate 70 homes in the city since 2015.
To shed light on these differences that reflect the relative purchasing power of Americans in every state, 24/7 Wall St. calculated the value of a dollar in each using data from the Bureau of Economic Analysis. For example, with Hawaii’s relatively high housing prices, a dollar spent on rent there is worth only 61 cents. States with large shares of residents living in expensive housing within urban areas account for the vast majority of the states where a dollar is worth the least. A dollar is generally worth much more in states, particularly in the South, where a smaller share of residents live in cities. North Carolina More:Economic climate: The best (and worst) states for business 34. South Dakota More:Financial security: Best (and worst) states to grow old in 42. For example, with Hawaii’s relatively high housing prices, a dollar spent on rent there is worth only 61 cents. In states where a dollar is worth less (those with the highest cost of living), many residents have higher incomes. While residents of New Jersey state see only $0.88 in value for each dollar they spend, the annual per capita income there is also almost $20,000 higher, more than enough to offset their lower purchasing power. For this reason, in most states with high resident incomes and steep consumer prices, the people living there can generally afford to fork out more for goods and services than can their counterparts in states with cheaper prices and lower salaries.
Ms. Hering’s case highlights how a flavor of mortgage once panned for its role in the housing meltdown a decade ago is making a comeback. Lenders issued $34 billion worth of these unconventional mortgages in the first three quarters of 2018, a 24% increase from the same period a year earlier, according to Inside Mortgage Finance, an industry research group. Even so, some regulators, consumer advocates and others worry that the growth in this type of mortgage and rising competition to make such loans could lead to renewed risks for the housing market. But traditional lenders, which are doing less conventional business as interest rates rise, are turning to borrowers with harder-to-document creditworthiness as a new source of revenue and are helping to drive the growth. Tom Jessop, the loan consultant at New American Funding who handled Ms. Hering’s loan, said he has seen demand for unconventional loans double over the past 18 months and they currently makes up more than one-third of his business. “As more companies enter the space you’re going to see more competition, and with more competition, you’re going to see loosening of underwriting” standards. Photo: Jessica Pons for The Wall Street Journal In many unconventional loans for which it is difficult to document income, borrowers use bank statements like Ms. Hering did to show they are making money. Newsletter Sign-up Ms. Hering, who is 30 years old, received a loan at a rate of just over 6% for the first five years; it adjusts after that. She used the money to fully buy out her grandfather’s house in San Clemente, Calif. She jointly inherited it with other relatives and said she needed a loan to pay them for their shares of the property. “It was scary because if it didn’t work out then I would have had to give up the house, but I was determined to keep it,” said Ms. Hering, who is renting out rooms in the house to help pay the mortgage.
If you’re wondering where to move for lower taxes, consider that you may be paying: State and local income taxes Property taxes Sales taxes One way or another, you’re taxed at the federal, state, county and city levels. Verify your new rate (Oct 6th, 2018) Study provides clues about where to move for lower taxes A new report from Redfin shows there’s a growing trend of people moving out of high-tax markets and into lower-tax markets. “Prior to tax reform, we were already seeing migration away from expensive metros to more affordable metros. That means it’s easier for people to find a job in another city.” Ptaszynski noted that some people who migrated have the potential to save thousands a year in income, property, and state/local taxes. And they pay about eight percent in local sales taxes but no state income tax. “But in Los Angeles, they’ll pay, on average, $3,600 in property taxes, about a nine percent sales tax rate, and an eight percent income tax rate.” Moving makes sense to many Real estate attorney and Florida International University instructor Suzanne Hollander isn’t surprised that many people are researching where to move for lower taxes. So moving to a state with a lower tax rate may be smart, too,” Hollander says. That’s because it does not have a state income tax or state estate tax,” Hollander adds. “Consider the cost of housing, the overall cost of living and the job market in your next destination,” Ptaszynski suggests. Whitman says the costs to sell, buy and move from that could add up quickly.
People who own just one or two rental properties might not qualify for the new 20 percent federal deduction that big-time real estate investors and other pass-through entities will get starting this year. The proposed regulations do not specify how many or what type of properties you’d need to own to qualify as a trade or business under this definition, except in one specific case: A business that owns property that it rents to itself can treat that property as a trade or business. The proposed rules made it clear that if you own shares in a real estate investment trust — a pass-through entity that owns and manages large-scale properties — you can deduct 20 percent of your dividends. This is a lease in which the owner collects rent and the tenant is responsible for everything including maintenance, property taxes and building insurance. Kenneth Weissenberg, head of real estate services for accounting firm EisnerAmper, said that if you own a 10-unit apartment building that requires ongoing maintenance and tenant dealings, you most likely would qualify, even if you have a property manager. “I thought because they would give you a deduction for REIT dividends, and a deduction if you invested in a real estate partnership, that they were going to help out the small guy and give you a deduction if you have a rental or a couple rentals.” Levine said renting out half a duplex could qualify as a business, “but you would have to show it’s regular and continuing. It was not their intent in the proposed regulations to treat all real estate rental activity as a qualifying trade or business.” Real estate investment has always been a tricky business for the IRS, because “it doesn’t require a lot of day-to-day, hands-on activity,” said Dustin Stamper, a managing director with accounting firm Grant Thornton. “But that doesn’t mean it can’t be a trade or business.” Elsewhere in the tax code, the IRS has established more specific and quantifiable regulations for real estate, such as the definition of a “real estate professional” and “material participation” in its passive-activity rules. Many tax pros hoped the IRS would incorporate those rules — or some like it — into their proposed regulations for the pass-through deduction. “It would be extremely helpful if they could come up with a similar test, an objective criteria rather than a subjective criteria,” said Bob Keebler, a CPA in Green Bay, Wis. Real estate investors who do qualify for the deduction will still have to contend with some limits to the deduction that apply over certain income levels, but these rules are more generous for real estate than other types of businesses.
McConnell said IAC has 20 employees who have moved already or are committed to moving to Goodyear. California residents pay nearly twice as much in state income taxes. The individual income tax rate is 4.54 percent in Arizona. According to North American Moving Services, in 2017, California was one of the top five leading states in the U.S. for people moving out of the state. Arizona is the top state for inbound moves, with 60 percent of people moving to Arizona last year. Joel Kotkin, presidential fellow in Urban Futures at Chapman University, said the migration of people and businesses from California to Arizona will result in more jobs. “Your big concern is going to be ‘How do I keep my equity at a high enough level so that I can live off my savings?’” Kotkin refers to people who move from states with high costs of living to states with low cost as “equity refugees.” Equity refugees have more money to buy and invest in less-expensive housing in states like Arizona. When you compare home prices of California to Arizona, Wei said, “California is about 60 percent higher than Arizona in general in terms of the state median price.” According to NerdWallet, the cost of living in Orange County is 56 percent higher than living in Phoenix. McConnell of IAC Industries said moving to Arizona will benefit the company as well because employees will get more property for their money. IAC will continue to operate out of Brea, but its manufacturing operations have completely relocated to Goodyear.
“Starting a new career as a real estate agent can be intimidating, to say the least. She spells out a few tips for part-time agents seeking to get into real estate full time and for workers jumping into the field while holding down another job. One key starting point is to find a broker who’s used to part-time or newer agents. “Obviously it’s not easy to be available for your clients at a time that is good for them if you work limited hours. “But if you work elsewhere during this time period getting things done might become quite difficult.” Another potential problem are situations when it’s not possible to meet certain timing requirements. “You already know that evenings and weekends are prime time for agents, and finding the time for a day off or vacation is going to be difficult if you want to succeed.” She says many prospective agents “decide to ‘test the waters’ before devoting themselves full time as a new agent.” Many associates begin as part-timers and some stay that way, Ford says, noting that it fits “single parents, persons looking to supplement an existing income, or retired persons who want to stay active and involved.” For potential real estate investors, there are income streams “to sustain you” while pursuing the career full time, says Jaren Barnes, writing for BiggerPockets.com. It takes “a little bit of a hassle” to get things set up, he says. “But once they are, you’re looking at making $200-$400 per appraisal.” Barnes acknowledged that becoming an appraiser “definitely takes a time investment.” The outcome, however, can be “working less than 10 hours and making a decent income.” Assistant Property Manager. Broker price opinion professional. Barnes says that becoming a stager “is something you can do right out the gate, without any professional experience.” Moreover, it can be fun, lucrative and fairly easy to develop a schedule so the work is part time.
The housing market has been losing momentum, with inventories rising to 2011 highs. Wage growth could help bridge the disconnect. From rising prices to the new tax law, economists say there are a number of conditions contributing to a slowdown in the US housing market. "Usually, consumers are used to seeing the housing market perform in tandem with the economy," said Jonathan Miller, an appraiser and market analyst. "But what's been especially confusing over the last year and a half or so is that they seem to be disconnected." Together with rising rates, an increasing number of Americans have been priced out of the market. That could be especially discouraging for Americans living in states with high taxes and expensive housing markets, like New York and California. "This isn't too surprising given the growing gap between what homebuyers can afford and where home prices stand today," BAML said. "What's clear in the responses is that consumers believe the housing market has favored the seller this year." "If you look at wage growth with inflation factored in and then at housing prices, there's a big disconnect."