All Forum Posts by: Eric A.

Fayezin I. If you occupied the property as your primary residence for 2 out of the last 5 years you do not have to pay capital gains on the first $250k of profit. If you're married, the first $500k profit is not taxed.

Ceasar Rosas where will it be?

@Ceasar Rosas sent you a PM

Hi Tina Pollard where in Brooklyn is this located?

I just read through this, and the House plan is indeed calling for elimination of depreciation of capital investment over time (including property) in favor of expensing the total cost immediately upfront. Anything not used in year one can be indefinitely carried forward and even indexed for inflation. They are also calling for eliminating the deduction of interest expense. I guess they want to incentivize investment in the real economy, rather than incentivizing taking on more debt. There's no mention of recapture but I have to imagine there's recapture or some type of capital gain when you sell the property. There's also no mention of 1031 exchanges. Very interesting stuff. I wonder how this impacts rental real estate if it passes.

For those of you that want to read the fine print on this stuff, here's the direct link to the House of Representatives Ways and Means committee blueprint for tax reform published in June 2016.  I would guess a good number of these proposals have a chance of passing, given the GOP control of the White House and both chambers of Congress.

https://waysandmeans.house.gov/taxreform/

Erica Naveja I'm no expert in the region, but I can tell you I recently looked at a few vacation/weekend homes in Hawley, Greentown, and Jim Thorpe. My impression was that homes sit on the market for a really long time (even nice ones) and the housing market in that area of PA really hasn't fully recovered from the downturn. I'll let some experts in the region chime in, but I would guess if you're buying a fixer upper for pennies on the dollar, and doing a total gut renovation and are willing to price the sale reasonably (don't shoot for the stars), you might make a profit. But if you're looking to make minor cosmetic upgrades and expect to flip quickly you might be waiting a long time for a buyer. Just my 2 cents from making a few trips out that way recently.

@Jay Hinrichs yeah that was the one sentence that confused me.  If the idea is to remove loopholes why would they replace the depreciation expense with the ability to take the entire cost of the property as an immediate cost?  Doesn't make much sense, but I have a feeling the WSJ is misinterpreting that one.  

My question about demand for RE was aimed more at mom and pop homeowners/renters.  Where's the incentive for them to own their home vs keep renting?

At least where I live, it's already cheaper to rent than to buy, and that will be hugely exacerbated if tax benefits go away.

Has anybody else seen this article?

http://www.wsj.com/articles/real-estate-industry-b...

The general point is that while Trump's tax plan is silent on the subject, the GOP tax plan that has been gaining steam proposes eliminating deductions for state and local property taxes and eliminating the mortgage interest deduction for businesses (while preserving it for individuals).  The plan also calls for more than doubling of the standard deduction for taxpayers, which would eliminate the need/benefit to itemizing deductions (such as mortgage interest payments). Finally, the plan calls for eliminating or changing the depreciation expense for real estate companies and businesses. 

I've pasted a few key passages from the article below so you can get the gist.  This is radical stuff.  We're talking about potentially upending all of the main tax benefits of RE investing, which is the whole reason we do what we do.  In the most radical scenario where all of these deductions are eliminated, do people think the demand for buying RE will greatly decline on the whole?  Wouldn't the majority of people prefer to rent than to own if there's no tax advantages to owning?

There was also another article in the WSJ yesterday discussing how house flipping is back to all-time highs, matching the 2006 levels.  All of this makes me a bit nervous heading into 2017 and beyond.  A lot of uncertainty...

Here are some key passages from the article:

The GOP blueprint calls for the elimination of the deduction for state and local property tax. Industry executives also worry the plan could severely cripple the mortgage interest deduction—long considered a sacred cow of U.S. tax policy.

The blueprint proposal released in June said it would preserve the mortgage interest deduction. But it also would nearly double the standard deduction that taxpayers could receive, thus eliminating most itemized deductions. Mr. Trump proposed an even larger standard deduction.

“Because of the other provisions included in the new tax system, far fewer taxpayers will choose to itemize deductions,” says the Better Way proposal released in June.

The upshot, real-estate industry leaders worry, would be that fewer people would be incentivized to purchase homes, which would weigh on demand and possibly the broader economy.

The House proposal also would eliminate for all businesses the current deduction for debt interest payments. Leverage has long played a major role in most acquisitions of office buildings, stores, hotels and other commercial property in part because interest payments are tax deductible.

Another sea change in commercial real estate would be in the way the House blueprint would affect depreciation. Tax law currently allows buyers of rental apartment buildings to depreciate the cost over 27.5 years and other commercial real estate over 39 years.

The House plan would eliminate depreciation for real-estate companies as well as other businesses. Instead, buyers of real estate would be able to treat the entire cost of buying a property—excluding land—as a business expense that could be used to reduce income. If a buyer didn’t have enough income in the year they bought the building, they could be able to carry the expense forward into future years as a net operating loss.

Juan Perez In theory the FHA program allows you to finance up to a certain amount in closing costs but you still need to convince the seller to allow for a seller concession to add the closing costs to the purchase price. This might cause an appraisal issue so some sellers may not want to do this. The market has softened considerably in NYC the last 6 months so who knows you might have sellers who are more willing to give concessions, but a year ago they would have told you to go fish if you weren't putting 40% down.