I hope you had a productive week. For some reason this week there was a ton of articles on the spring housing shortage. Is there truly a shortage? Or have our expectations gotten out of control? Can you spend a little more time finding a house that needs some “TLC” in a good neighborhood? On the other side of the equation, mortgage rates are going up, but rates are still respectable to where homeownership is not out of reach. I know from our perspective that some markets are tighter than others, but we are always able to find houses to purchase. Is there a shift in mentality needed for homebuyers that are entering the market this year? I would like to hear your thoughts on the topic. Until next week, let’s all be part of bringing Wall Street to YOUR Street! Have a great week and I look forward to speaking with you soon!
Real estate investors were given a gift after Congress voted to maintain what are known as 1031 exchanges, a section in the tax code that allows for property to be sold tax-free as long as the proceeds are used to buy more property. Investors whose real estate holdings are comparatively modest — and their heirs — were given an added bonus: The estate tax exemption for couples doubled to $22.4 million, allowing those investors to conceivably pay no tax on their properties, ever. If the investor who bought real estate in San Francisco sold the property, the money could be used to buy another property in San Francisco — or anywhere in the country — without the seller’s paying a tax on the appreciated gains in the original property. Combine those tax-free gains with the higher estate tax exemption, and it is possible that a real estate investor would never have to pay capital gains or estate tax on tens of millions of dollars in real estate. Mr. Scheriff, who completed about 400 exchanges for his clients last year, gave this example: A person sells a building in New York for $1 million and uses 1031 exchanges to buy two rental houses on a golf course in Florida. In the last major tax overhaul, which occurred in 1986, a provision in the code allowed for a delay of 180 days between selling one property and buying another, without any tax on the gains from the sale of the first property. also allows people to do “reverse exchanges” — buying a property first and then picking other properties of equal value to sell without paying tax. To avoid paying tax, the client used the proceeds to buy the land on which a McDonald’s sits. Top collectors, who may spend millions of dollars for a single work of art, have taken advantage of 1031 exchanges that allowed them to use sales from their collection to buy new art — and save the nearly 30 percent tax on the gains. “I think many collectors, with or without the tax benefit, are going to buy and sell art,” he said.