I receive lots of newsletters, some more interesting than others. This is Duane Gomer’s real estate newsletter:
FACTS THAT SOME PEOPLE DO NOT KNOW:
Home Equity Loans: They are fine loans to use when money is needed, and when there is equity in the old “homestead”. As you know, they should not be used as an ATM, for there is always a reckoning. One item that many people ignore. Most HELOC’s have a “draw” period of ten years. Translated: At the end of ten years, the interest-only payment period ends, and the payment increases greatly to cover interest and equity, normally on a 20-year amortization rate.
Gift Taxes: Each taxpayer can gift $14,000 each year to anyone. Couples could give $28,000 to each of their 24 grandchildren, for example, and no problem with taxes for either party. The $5M plus exclusion is for death taxes or for gift taxes during your lifetime. Therefore, you could gift $1M to one grandchild with no tax issues, but you would only have a $4M plus exclusion at the time of death. Estate or Death taxes will not affect a vast majority or even a majority of taxpayers, but Probate costs can run high, so get a living trust before it is too late.
Basis in your property: Every home and rental property has a tax basis, whether you realize it or not. When you sell real estate, you generally calculate your profit by subtracting your adjusted basis and selling costs from the sales price. For most homeowners, the basis starts with the purchase price. Then you add the cost of qualifying capital improvements. Rental property works similarly. However, you must subtract any depreciation you claimed over the years.
When you give real estate as a gift, the recipient generally inherits your tax basis. For example, suppose you own a property with a basis of $100,000 and a current market value of $600,000. If you give that property to someone and they sell it, they typically owe capital gains tax based on your original basis.
On the other hand, inherited property usually receives a step-up in basis to its fair market value on the date of death. As a result, if the beneficiary sells the property soon after inheriting it, they may owe little or no capital gains tax. Calculating a property’s basis is not always straightforward. It can become more complicated if you inherited the property, converted it from a rental to a primary residence (or vice versa), received insurance proceeds for damage, or experienced other events that affect the property’s adjusted basis.
See a professional accountant who specializes in Real Estate Accounting.
ARE YOU READY TO VOTE ON NOVEMBER 8TH, CONSIDERING 17 STATE PROPOSITIONS? Some of the topics to cover:
Reconsidering full legalization of marijuana.
Repeal the death penalty or speed up the death penalty.
New taxes on the wealthy and on smokers.
No more large-capacity magazines in California.
Yes or no on plastic bags and redirecting fees to environmental programs.
$9B in school bonds for construction, etc. on K-12 and community colleges, and votes will be required for revenue bonds bigger than $2B.
Prescription drug pricing limits for state agencies (note; pharmaceutical industry has $50M for an opposing campaign so you will hear lots about this one, surprise)
Adult films: should they use condoms or not?
Medi-Cal funding: Harder to divert funds by the Legislature that are for Medi-Cal programs.
Criminal sentencing. More prisoners serving time for non-violent could get earlier release, and new law concerning juvenile offenders about adult courts.
Repealing the ban on bilingual education if county offices of educations or school districts make that decision.
Should California officials work toward appeal of Citizens United SCOTUS decision? This would require an amendment to the Constitution. Not easy. This is only an Advisory, no specifics.
Increase transparency in the Legislature. Abolish the practice of last-minute amendments and expand use of live video in the legislature.
