Robinson Ranch!!! – This rare single story, view home has a big yard and resides on a culd-de-sac in the beautiful Robinson Ranch neighborhood. Close to schools, shopping and parks makes this an ideal residence. Your new home is surrounded by tall trees and nature walks. Three (3) bedrooms including one master suite, two 2 full baths, new carpets, freshly painted, living room, formal dining room, family room, modern kitchen, new air conditioner, a cozy fireplace and landscaping services makes this the perfect home to enjoy life. The landlord will consider making a refrigerator and washer and dryer available, if requested. The two car garage is spacious and has lots of storage. Additional cars can be parked on the front driveway too. Available now! ( Pets will be considered. ). Robinson Ranch Elementary, RSM Middle, Mission Viejo High (tenant to confirm data)
Question: I am having trouble figuring out what constitutes an improvement and what is ordinary maintenance. Thinking ahead to selling my house in a few years when the market rebounds, I have been keeping accurate records so that I can deduct these costs to lower the capital gains. Recently, I remodeled a bathroom, replaced a deck, replaced and upgraded the spa filter and motor, replaced the front door with a fiberglass model guaranteed to last more than my lifetime, and replaced a roof and rain gutters. Which of these can I safely regard as improvements, and which are just maintenance?
Answer: The line between repairs and improvements is fuzzy. The Court cases that have analyzed this issue are all over the place, with Judges deciding the exact same work going in opposite directions.
If your property is a rental, then in most cases you want to call the work a repair. Repairs can be deducted as rental expenses in the year that you pay them, thereby reducing your rental income. But discuss this with your tax advisors or your accountant first.
If this is your principal residence, however, while you obviously want to keep your house in good repair, the moneys you spend on ordinary maintenance provide no taxable benefits for you.
Improvements, on the other hand, may be very valuable to you when you sell your house, since they increase the tax basis in your house. The higher the basis, the less tax you have to pay.
Let’s look at this example. In 1985, you bought your first house for $100,000, and sold it for $200,000 in l990. That same year, you bought another house for $200,000. Prior to l997, an important tax break for homeowners was called the “roll-over”. Although you made a profit of $100,000 when you sold your first house, you did not have to pay any capital gains tax. Instead, the profit was “rolled-over” into the new house. The basis for tax purposes of the second property became $100,000.
You now want to sell, and have listed your house for $700,000. You know that under the current law, since you are married and have lived in the house for two out of the five years before sale, you can exclude up to $500,000 of your gain. You do the numbers and think that because you bought the house for $200,000, and will sell it for $700,000, you are home free on any capital gains tax.
Wrong: since you took advantage of the old “roll-over”, your basis was $100,000, and when you sell it for $700,000, you will have made a profit of $600,000. While you can exclude up to $500,000 of this gain, you will have to pay capital gains tax on the $100,000 difference. Currently, the tax rate can be as high as 20 percent, so you will have to send a check to the IRS in the amount of $20,000. You may also have to pay the applicable state tax.
For purposes of this discussion, I am not taking into consideration other expenses which you have paid, such as closing costs, real estate commissions, or legal fees. These expenses will, of course, reduce your overall tax obligation.
How can you increase your tax basis? Here is where improvements play a vital role. Any work which you do to your house that adds to its value, prolongs its useful life or adapts it to new uses (such as “going green”) will be considered an improvement and can be added to the tax basis of your property.
Let’s take your examples:
remodeled your bathroom: since this clearly prolongs the useful life, it is an improvement;
replaced a deck: this is a grey area. According to the IRS, “a repair keeps your property in good operating condition. It does not materially add to the value of your property or substantially prolong its life.” (IRS Publication 527, “Residential Rental Property” (available free from www.IRS.gov/publications). Since you can claim that the new deck will increase your property’s value, I would consider it an improvement.
replaced and upgraded spa filter motor: although it sounds like a repair, since you upgraded the motor, I would consider this an improvement.
replaced the front door: clearly an improvement, since the new door has a very long useful life.
replaced roof and rain gutters: the IRS publication specifically addresses rain gutters, and states “fixing gutters” is a repair. But since you replaced your gutters, once again you are in a grey area. However, since you replaced the roof (which clearly is an improvement), and had to remove the gutters during this process, I would call the entire job an improvement.
The IRS publication contains a list of “examples of improvements” but cautions: “Work you do (or have done) on your home that does not add much to either the value of the life of the property, but rather keeps the property in good condition, is considered a repair, not an improvement.”
If your profit will be less than the exclusion of gain ($500,000 for married couples; $225,000 for taxpayers filing a separate tax return), then it probably does not make a difference whether your work is a repair or an improvement.
However, for those who bought and sold homes before l997, and used the “roll-over”, and for those whose property values increased dramatically in the early part of this century, improvements will assist you in reducing your capital gains tax obligations to the IRS.
* THIS REPORT IS AN OPINION THAT MAY BE INACCURATE AND IS PROVIDED SOLELY AS AN INFORMATIONAL TOOL NOT DESIGNED TO PROVIDE DEFINITIVE ANSWERS. ALL ELEMENTS ARE OFFERED “AS IS” AND BLUEBOOK EXPRESSLY DISCLAIM ANY AND ALL WARRANTIES, REPRESENTATIONS, AND GUARANTEES OF ANY NATURE, EXPRESS, IMPLIED OR OTHERWISE, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABLITILY, NONINFRINGEMENT, TITLE, QUIET ENJOYMENT, ACCURACY, OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL BLUEBOOK (OR THEIR SUPPLIERS) BE LIABLE FOR ANY GENERAL, DIRECT, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY KIND, OR ANY DAMAGES WHATSOEVER (INCLUDING WITHOUT LIMITATION, THOSE RESULTING FROM USE OF THE PRODUCT, INCLUDING : (1) RELIANCE ON THE MATERIALS PRESENTED, (2) COSTS OF REPLACEMENT GOODS, (3) LOSS OF USE, DATA OR PROFITS, (4) DELAYS OR BUSINESS INTERRUPTIONS, (5) AND ANY THEORY OF LIABILITY, ARISING OUT OF OR IN CONNECTION WITH THE USE OR PERFORMANCE OF INFORMATION) WHETHER OR NOT BLUEBOOK HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
The California Association of REALTORS® (C.A.R.) has indicated a slower and weaker housing market in California in 2019. In its Economic and Market Forecast Report 2019, C.A.R. predicts that reduced affordability of the average home buyer will contribute to dampening of home sales in 2019.
In 2018, for the first time in four years, home sales in California will end at a lower level, while the housing demand for next year could be even weaker.The economic forecast by C.A.R. shows that in 2019, single family home sales will decline 3.3 percent to 396,800 units, down from the projected 2018 sales of 410,460.
Higher Interest Rates will Affect Sales
While the sales are projected to decline next year in California, the cause behind this trend will not be higher prices. According to the C.A.R. forecast, the median home price in California will increase only 3.1 percent to $593,450 in 2019, compared to a projected seven percent increase in 2018. C.A.R. estimates that home prices will temper in 2019, but the interest rates could go up, which will compound housing affordability challenges. Potential buyers may choose to wait on the sidelines in such a scenario, which will hamper home sales and curb housing demand in 2019. The C.A.R. forecast shows that in 2019, the average interest rate for a 30-year fixed home loan will increase to 5.2%, against an average rate of 4.7% in 2018.
While this may not be a very alarming jump in lending rates, but when coupled with the additional home price rise in 2019, it is bound to impact the affordability of many potential home buyers in California.
Drop in Existing Home Sales
The economists at C.A.R. predict that sales of existing homes will decline to 410,450 in 2018, which will be followed by a further drop to 396,800 transactions in 2019. If this occurs, it would be lowest sales level in California since 2014. These estimates from C.A.R. mark a significant shift from the hot demand the housing market in California experienced in the past four years. That period witnessed consistent rise in demand and price gains driven by bidding wars. However, things have dramatically changed in 2018, and the declining trends are likely to continue in 2019.
C.A.R.’s chief economist and senior VP, Leslie Appleton-Young said that the rise in home prices over the last few years occurred due to a shortage of housing supply.
This trend has finally begun to take a toll on the market. Although California is not yet a buyer’s market, the trends are also pointing in that direction. Prices are likely to drop as sales continue to decline, Appleton-Young said. Buyers are fatigued, and they are choosing to sit on the sidelines, waiting for the prices to come down.
For more information Contact:
LOS ANGELES (Sept. 27) – The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) today issued the following statement in response to Republican leaders’ tax reform plan announced today:
“The tax reform proposed by the Republican leadership will eliminate the incentive for people to buy homes, shrink the middle class, and raise taxes on hundreds of thousands of California homeowners,” said C.A.R. President Geoff McIntosh. “The doubling of the standard deduction, coupled with the elimination of state and local tax deductions, such as property taxes, will adversely impact California and its housing market. The average California homebuyer could end up paying $3,000 more a year in taxes under today’s proposal.”
“Homeownership has and continues to be the best way for families to grow wealth and increase the middle class. Congress should look at ways to incentivize and increase homeownership rates, not increase taxes on families wanting to buy a home.”
“Any change that would make homebuying less attractive will be detrimental to the housing industry and the nation’s economy because of the 2.5 million private-sector jobs created by the industry in an average year,” said McIntosh.
Leading the way…® in California real estate for more than 110 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States with more than 190,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.
As students head back to school, families start to settle into their routines. For many of us, home buying activities are not usually part of the family routine. Plans to buy a home are often mistakenly put on the back burner until the spring. So why should you start your search for a new home now?
Deciding to buy a home is one of the most significant financial decisions we all make. While location is is usually the most important factor, timing may also have a big impact on how much you pay for a home. According to home buying research, the best month for buyers is October. This means that if you have been considering a home purchase, now is the time to start looking. The best day of the week is Monday. And the single best day on the calendar is October 8th.
RealtyTrac reviewed over 32 million home and condo sales over the past 15 years, and they found that homes purchased in October came at a 2.6% discount to the current fair market value. Though based on the data, not many people were taking advantage of the discount, as only 2.7 million, or just 8.4%, of house closures occurred in October.
The discounts are most likely a function of there being fewer buyers, meaning sellers are more willing to settle on lower prices. These are significant numbers considering the price of a new home.
Sellers are often and mistakenly told to take their homes off the market until spring, On the flip side, real estate agents tell buyers that this can be a very opportune time for them because sellers, who keep their homes on the market through the holidays, are often very motivated to sell. There are also typically fewer buyers in the marketplace, so there is less competition for homes. Following October as best months to buy were February, July, December and January — all fall or winter months except for July, which was a surprise given that conventional wisdom would suggest that is a good time to sell but not necessarily to buy at a bargain price,” said the report.
The worst month to buy a house was April, when purchases paid 1.2% more than the market value. It was also the only month that did not register some sort of discount.
Additionally, RealtyTrac broke down the days of the week. Monday was the best day to purchase a house, with closings on that day averaging a discount of 2.3%. Friday was the second-best with a 2% discount, and Tuesday was the worst with only a 1% discount.
So while the findings are exclusive of each other, closing on a Monday in October seems to be a pretty good bet.
Looking at the calendar, RealtyTrac found October 8 as the single best day to close, with an average discount of 10.8%. This was followed by November 26 (10.1% discount), December 31(9.7% discount), October 22 (9.6% discount), and October 15 (9.1% discount).
The worst day of the year to purchase was January 19, with a 9.6% increase over market value. Home buyers also paid premiums over 9% on February 16 and April 20, both at 9.5%.
The most important first step in this process is to set up a meeting with your mortgage professional, negotiate a good pre-approval letter, then work with your real estate professional to find your new home. Now is the time! Picture yourself in your new home, call or text today to begin your new home search!
Jerry Henberger, Broker and Vice President, REMAX Premier Realty – Direct line: (949)874-7126
Click here to find the value of your home: Instant Custom Home Value
REALTOR® | CalBRE# 01332379
Enjoy a taste of the outdoors with these tasty grilling recipes.
The Legacy of the National Park Service
Get to know America’s national parks, and discover which one fits you best.
Urban Realism: James Randle
Take a visual journey down our country’s roads with this artist’s inspired works.
Road Trip Guide
Use these tips to be prepared for any contingency when you hit the road.
Please enjoy this edition with my compliments, and be sure to share it with your friends. Thank you!
1100 First Avenue, Suite 200
King Of Prussia, PA 19406
©2017 ReminderMedia, All Rights Reserved.
unsubscribe from this list
As expected, the Orange County housing market slowed in July a bit, transitioning from the red hot Spring Market to the beginning of the Summer Market. It was as if housing downshifted a gear, from 5th to 4th; it was still cruising, just not as fast as the spring. August typically looks a lot like July, maybe increasing a smidgeon, but still slower than the peak of the real estate market, March through mid-June. This cyclical phenomenon is easily explained by logically looking at the timing of the year. There are plenty of summertime distractions, especially in Southern California, from splashing around in the waves to traveling on the annual family vacation. The distractions lead to less buyer activity and demand drops. That’s the typical, annual real estate cycle in Orange County. Spring is the busiest time of the year. Summer is the second busiest. Then, there is the Fall and Winter Markets, where demand continues to downshift until it drops to its lowest level of the year by the end of December.
This year has been quite a bit different as demand increased by 5% in the past month. It feels like June, the tail end of the Spring Market, and not at all a typical summer. Demand, the number of new pending sales over the prior month, increased from 2,783 to 2,935 in the past month. Compare that to last year at this time when demand decreased by 2% from 2,810 to 2,762 (6% less than today’s level). Demand has not been this high since 2012 when it reached 3,544 pending sales; however, 17% were short sales that took a very long time to sell and often never closed. Today, only 1.2% of demand are short sales. Stripping short sales from demand, the last time it was this high dates all the way back to 2005, prior to the great recession.
Many may wonder why housing is so hot this summer. It took the market a while to get to this point. Housing has healed. Foreclosures and short sales are scary stories from the past, currently representing less than 3% of all closed sales. In 2012, they represented 31%. Now that housing has been restored and distressed properties are only an asterisk, the market has been blossoming. Throw in rock bottom interest rates, even lower than last year, and you have a recipe for strong demand. And, it does not look like interest rates are going anywhere fast. The Federal Reserve raised the short term rate for the first time in nine years back in December of last year. They hinted at four more hikes in 2016. So far, NOTHING. It doesn’t appear that there will be a change until December, if at all.
Low interest rates are only part of the reason for hot demand. This year, like every year since 2008, fewer homeowners are opting to sell. There are 30% fewer homes on the market compared to 2000 through 2007. People are staying in their homes a lot longer and are just not moving. On average, the current turnover rate for homeowners is 23 years. That’s a far cry from the days of lore, prior to the Great Recession, when homeowners moved much more frequently.
With a low supply of homes and strong demand, it’s no wonder that there’s a heat wave in housing.
Orange County Housing Market Summary
- Typically, the active inventory peaks in August, but this year it peaked in mid-July and has since dropped by 34 homes, now totaling 7,295. There are 128 more homes on the market compared to last year at this time.
- There are 19% fewer homes on the market below $500,000 compared to last year at this time and demand is down by 9% as well. As home values continue to rise, this range is slowly disappearing.
- Demand, the number of pending sales over the prior month, increased by 2% from 2,866 to 2,935 in the past two weeks. Demand was at 2,762 last year, 6% less than today. The average pending price is $790,569.
- The average list price for all of Orange County is $1.4 million.
- For homes priced below $750,000, the market is HOT with an expected market time of just 50 days. This range represents 45% of the active inventory and 67% of demand.
- For homes priced between $750,000 and $1 million, the expected market time is 84 days, a slight seller’s market (between 60 and 90 days). A slight seller’s market is one with very little appreciation, but sellers still get to call more of the shots during negotiation. This range represents 19% of the active inventory and 17% of demand.
- For luxury homes priced between $1 million to $1.5 million, the expected market time is at 114 days, decreasing by 6 days in the past couple of weeks. For homes priced between $1.5 million to $2 million, the expected market time dropped slightly from 162 days to 159 days. For luxury homes priced above $2 million, the expected market time dropped from 334 days to 304 days. The luxury end, all homes above $1 million, accounts for 36% of the inventory and only 16% of demand.
- The expected market time for all homes in Orange County decreased from 77 to 75 days in the past couple of weeks, a slight seller’s market.
- Distressed homes, both short sales and foreclosures combined, make up only 1.8% of all listings and 2.8% of demand. There are 45 foreclosures and 85 short sales available to purchase today, that’s 130 total distressed homes on the active market, dropping by 6 in the past two weeks.
- There were 2,820 closed sales in July, a 9% drop from June and 13% fewer than last year’s 3,243 closings. The sales to list price ratio was 97.5%. Foreclosures accounted for 1% of all closed sales and short sales accounted for 1.7%. That means that 97.3% of all sales were good ol’ fashioned equity sellers.
Here’s the scoop, the best time of the year to sell a home is in the rearview mirror, the Spring Market, March through mid-June. That’s the prime time to place a home in escrow in order to close now through mid-August. We hear about tons of closed sales that occurred in May, and, in a couple of weeks, reports of even more sales in June will prompt many to think that “right now” must be the best time to sell. Unfortunately, these are reports of closed sales, homes that have gone through the escrow process, a process that lasts, on average, about 45 days. This time period is devoted to inspections, appraisals, and the buyer’s investigation of all documentation and disclosures. There is a truck load of paperwork to go along with it and it all takes time to sift through.
Homes that close in July were negotiated and placed into escrow in May and June, during the spring. Homes that are negotiated today will not close until August, the end of the second best time of the year to sell, the Summer Market. Housing will then shift to the Autumn Market, mid-August through mid-November. Closed sales will slow from July to August, and will continue to slow each and every month during the autumn.
In order to close in August, sellers only have a few weeks to negotiate a contract and place their homes into escrow. Here’s the “catch 22,” buyers are becoming less flexible and are zeroing in on the Fair Market Value. This can be determined by carefully reviewing the most recent comparable pending and closed sales. This is NOT a time to stretch the asking price as buyers are less inclined to overpay for a home.
Why were buyers more willing to overpay in the Spring Market and not the Summer Market? The answer is simply less competition due to summer distractions. The distractions started a few weeks ago with the graduating class of 2016. With more sunshine and the kids out of school, bring on the family vacations, trips to the beach to play in the surf and sand, refreshing dips in the pool, picnics at the park, a day trip to the local mountains, not to mention the San Diego Zoo, LEGOLAND, Knott’s Berry Farm, Magic Mountain, Raging Waters, the Discovery Science Center, Disneyland, and California Adventure. For some, buying a home takes a back seat to family fun. Many will still purchase, but not at WARP SPEED like the Spring Market.
With less competition, the expected market time (the average time it takes to place a home on the market and into escrow) has increased considerably since the peak of spring, the very beginning of May. It has risen from 55 days to 74 days, adding an additional 19 days to the expected market time. From now through October, it will continue to grow longer and longer. At 74 days, Orange County housing is still a slight seller’s market, which is when sellers are able to call more of the shots during the negotiating process, but appreciation slows considerably. Housing is moving towards a balanced market, one that does not favor buyers or sellers, a market time of 90 to 120 days.
A Summer Approach for Sellers: when buyer traffic is down and market time is rising, now is not the time to overprice. Multiple offers can still be achieved, but pricing is absolutely fundamental in order to achieve success. Ignoring the fundamental shift in activity during the Summer Market will result in wasting valuable market time during the second best time of the year to sell. The housing market downshifts considerably more in September.
A Summer Approach for Buyers: even with less competition, it is still a seller’s market. Buyers are NOT able to call the shots. Orange County housing is not even close to tipping the scales towards buyers. Instead, paying the Fair Market Value determined by recent market activity is key. In some price ranges and neighborhoods the local market may still be really hot. In those cases, pushing the envelope a bit in price may be the winning strategy to stomp out the competition.
Luxury End: Demand dropped by 19% in the past month for homes priced above $1 million.
The summer slowdown has been felt the most in the upper price ranges with demand dropping by 19% in just a month. The active inventory above a million increased by 8% in the past month as well. As a result, the expected market time has risen substantially.
For homes priced between $1 million to $1.5 million, the expected market time has risen from 102 days to 143 in the past month. For homes priced between $1.5 million to $2 million, the expected market time swelled from 137 days to 159 days. For homes priced above $2 million, the expected market time grew from 231 days to 322 days. For proper perspective, 322 days from today is the end of May 2017. That’s nearly a year!
Vice President – Commercial Division and
JerryNewestLuxury Home Specialist
REMAX Prestige Properties