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Is it Time To Sell Your Home?

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This time of year we are busy meeting with taxpayers, business owners and real estate owners, and it is very interesting to hear their battle stories and predictions for the economy ahead.

One common story that we hear, but more so this year, is that people are taking emergency money from their 401k’s and IRA’s to cover their monthly expenses for bills, mortgages, etc.

While most of the time, it is not a large amount, it is still indicative of a bigger problem. Is it time to sell your home?

Before we answer that, we need to deal with the problem at hand.

IF you took a early withdrawal from your retirement account you could face Federal and State penalties and taxes on the distribution. Contact your Tax Advisor immediately to discuss strategies to avoid the penalties (i.e. financial hardship, etc.) and prepare for the tax impact.

Back to the bigger problem; is it time to Sell your Home?

Thanks to inflation and rising interest rates, many households are making the most money ever, but still struggling to pay bills and the mortgage. On top of that, the housing market is indicating a top forming (California), and other areas are already experiencing rapid declines in the housing and rental markets (Arizona, Nevada, Oregon, Washington, Idaho, Wyoming, Texas, Florida). What to do o what to do….is it time to sell your home?

This article will not read like tea leaves telling the future, but, if you want to sell your home, contact us right away to go over our expert Tax and Selling Strategies. FREE intro consult for new customers.

Our team of licensed Tax and Real Estate Professionals can work with you in any U.S. State; we are here to help you today!
800-425-0570 (United States toll-free)

  • Tax Strategies to Avoid or Reduce Taxes on the Sale
    • Sale of Primary
    • Sale of Investment Property
    • Sale of Vacant Land
    • Sale of Improved Land (solar, cell, agriculture, aquaculture, mining, RV Park, etc.)
    • Charitable Conservation Contributions
  • Selling Strategies for a Successful Transaction
    • How to Negotiate the Highest Sales Price for your home
    • How to Mitigate Buyer Claims and Reduce Seller Credits
man riding a black bull

Naming the New Year: 2024 “Bucking Bull”

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Like many people, I enjoy a good tradition.

Whether it is a familiar tradition like the family vacation or nightly family dinners, One of our favorite Traditions is Naming the New Year.

The New Year Name is chosen before the new year starts and will reflect important plans, challenges, obstacles, etc. ahead in the New Year.

Typically We’ve used a simple nomenclature = action + name

For instance,

  • 2019 – “Riding Tiger”
  • 2020 – “Running Bear”
  • 2021 – “Soaring Eagle”
  • 2022 – “Hanging Man”
  • 2023 – “Hungry Hummingbird”
  • 2024 – “Bucking Bull”

Why is this important?

In my experience, the tradition of naming the New Year has been at times inspirational, accurate and foreboding.

2023 “Hungry Hummingbird”, for example, was pretty accurate for the volatile Housing Markets and true to form, unexpected but awesome, rebound of the Stock Markets.

As entrepreneurs and business owners, it is important to work IN your business as well as work ON your business. The New Year name helps us associate an idea larger than any 1 person and at the same time focus 100% on the work at hand.

2024 “Bucking Bull” will be a year of energy, enthusiasm and competition. Much like riding a Bucking Bull, Smart Business will navigate uncertain economy and avoid getting dragged into uncontrolled situations. It will be more important then ever to stay enthusiastic and align your journey with competitive advantages.

A lot of people probably stopped reading when I said “nightly family dinners”, but for those of you who appreciate a tradition, We wish you a happy and safe New Year and best wishes in 2024.

Info@mrarrachecpa.com

man riding a black bull
Photo by Louise Brawn on Pexels.com

Personal Use of Rental / Vacation Rental Tax Traps and Planning

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Vacation Rental Traps

If you are currently renting out your Primary or Secondary Home or using a Rental Property to vacation, then make sure that you are aware of all the tax rules and tax traps.

Self-Employment Income Tax Trap typically rental income is not subject to Self-Employment Taxes. But if you provide any additional services to the renters such as daily housekeeping or concierge services then the income become subject to Self-Employment Taxes. Reference IRS Ruling 57-108. Ultimately finding that “if services are rendered for the occupants and the services rendered (1) are not clearly required to maintain the space in a condition for occupancy, and (2) are of such a substantial nature that the compensation for these services can be said to constitute a material portion of the rent, then the net rental income received is not excluded under § 1402(a)(1) and is included in NESE.”

Personal Use Deduction Limitations If you also use your rental property as a *”Residence”, meaning more than 14 days OR 10% of the time the property is rented, then you will be limited on your rental deductions for that property. Important, some of the disallowed rental deductions might be deductible as elsewhere on your tax return such as itemized deductions.

Planning Tax Free Rental Income Special rule for minimal use of residence that you rented property fewer than 15 days. You do Not have to report Rental Income or Deductions if the property was rented less than 15 days. Important, some of the disallowed rental deductions might be deductible as elsewhere on your tax return such as itemized deductions.

Real Estate Professional Best of both worlds. With this rare and desired tax status you will get the benefit of ordinary income and losses not subject to self-employment taxes. IF you are designated as a Broker/Dealer then your tax classification will change dramatically in terms of Self-Employment Tax. For more information Reference IRC 469

If you own or manage Rentals or active Real Estate Broker/Agent, we are here to help you along the way. Meet your New CPA Today! Schedule Intro Consultation here.

Commercial Real Estate In Seizures. Dems shout back “He Needs Some Milk”

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Commercial real estate is going to be hurt bad in 2021 per expert predictions.

Downtown Los Angeles pictured below is the iconic US Bank building modeled after a Lighthouse tower; once thought to be a beacon for guiding the west, this slab of stone and metal sits like a tombstone looming over boarded up business windows and empty boulevard streets that reak of rot and recession.

Photo by Michael Arrache. Typically this street would be shoulder-to-shoulder with people and beautiful store fronts. Now its eerily empty.

Good news….

Famine for any broker still moving officespace, retail or hotels.

But like Warren Buffet says, when people are fearful get greedy.

For the winners out there who plan to ride it out (or Alamo that shit), the experts say to take advantage of short term swings in what we can only expect to be a very volatile short term market but plan for overall long term growth.

But good news if you’re a self employed CRE Broker. You can quality for free PPP loan money in certain cases. Talk to your bank’s SBA advisor for more information if you have not already but for sure see if you qualify for existing or upcoming government emergency money and freebies.

Reach out if you have any questions about this article or want to talk more about your business.

Info@mrarrachecpa.com

My Notes On 2021 Economic Forecast presented by Chapman University

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I recently attended an Economic Forecast presented by Chapman University via live webinar and here are my notes.

You can view a recording of the presentation here https://economicforecast.chapman.edu/2020-presentation/

  • General Notes
    • Presenters included James Dotti and Fadel Lawandy
    • The Chapman economic forecast has historically been one of the most accurate predictors of economic performance for over 30 years
    • James Dotti and his team have successfully predicted 17 of the last 18 presidential elections.
  • What happened in 2020?
    • Predicted a mild decrease in GDP growth(+2%), but COVID happened and annual GDP decreased by a large amount (-3%.)
    • Government Officials at State Level made exaggeration of an ermergency and unnecessarily shut down the economy
    • Covid Shutdown Cost: California shut down mandate causes loss of 500,000 jobs and countless businesses
    • Covid Shutdown Benefit: California shut down mandate saves 6,600 lives…
    • States with less stringent shut down mandates saw less job loss and stronger economic revovery
  • 2021 is going to be volatile with opportunities for buy in the short-term dips but expect long-term growth.
    • Growing Pent up demand – personal wealth dramatically increased in 2020 by 10%.
    • Housing affordability is at a recent all time high with historic low interest rates. Recent GDP recovery was driven primarily by consumer spending, not housing which is not necessarily good news. Watch housing market closely in 2021
    • Stock Market performance is based on how the economy is predicted to perform. Currently predicted at modest +/- 3% growth. Historically, Dem Pres, Rep Senate and Dem House produce the best results for the market +/- 16%. IF Dems control all 3, then historically market +/- 6%.
    • Government spending good for economy and will drive inflation which is good in short term but overall will cause problem down the road. Due to the coronavirus pandemic, Congress and President Trump enacted the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES) on March 18, 2020. The Committee for a Responsible Federal Budget estimated that the budget deficit for fiscal year 2020 would increase to a record $3.8 trillion, or 18.7% GDP.[5] The CBO preliminary estimate for the fiscal year 2020 deficit is $3.1 trillion or 15.2% GDP, the largest since 1945 relative to the size of the economy.[6]
    • Remote life will change the structure of work life, more comparable to women in the workplace during World War II.
    • Expect a lot of commercial real estate properties to change purpose or be elimated all together such as Hotels, Retail, Office Buildings, etc. Estimated 20% of NYC Hotels and Retail will close forever.
  • Innovation regions are a major focus for real estate investors because high paying jobs create local wealth and investment opportunities.
    • Phoenix, Carlsbad, Reno and Salt Lake City are areas of interest for innovation hubs with real estate and tax advantage opportunities.
    • Orange County needs to create more high-paying tech jobs to replace the Hospitality/Leisure employment loss to remove two-tier society.
    • Artificial Inteligence will create a lot high-paying tech jobs.

Thank you to Chapman University, speakers and sponsors for an amazing 2021 economic forecast. Some great takeaways including my favorite Real Estate tip – buy where the son goes in the winter.

Until next year, thank you and take care.

Contact our CPA today if you any questions about this article or want to talk more about your business or taxes.

Info@mrarrachecpa.com