Las Vegas Real Estate News

Rental Income Deductions Clarified

The IRS has clarified a rule regarding the 20% business income deduction as regards rental income and exchanges.

"Many owners of sole proprietorships, partnerships, S corporations and some trusts and estates may be eligible for a qualified business income (QBI) deduction – also called Section 199A – for tax years beginning after December 31, 2017. The deduction allows eligible taxpayers to deduct up to 20 percent of their qualified business income (QBI), plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income." - IRS website

Since the rule was announced as part of the Tax Cuts and Jobs Act in 2017, there has been some confusion about real estate income.

Rental income and the 20% deduction

According to a press release from the National Association of Realtors, "If you generate rental property income, that income can also qualify for the new deduction, as long as you can show that your rental operation is part of a trade or business."

There are further guidelines that need to be obeyed, for example, how many hours a year you invest in your rental properties, etc. Nonetheless, rental income does qualify.

shaking hands

1031 Like-kind Exchanges

Prior to the recent statement from the IRS, if your income was above a certain threshold, your deduction might be reduced because of a 1031 exchange. The IRS has since clarified that it will no longer make that deduction.

The 20% QBI is now available to more real estate investors.

This makes real estate investment even more profitable and appealing.

King Realty Group does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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There's A Lot Of Bad Advice Out There

Everyone has advice about mortgages. The problem with mortgage advice, as with much of the advice available in the world, is that it's outdated or doesn't apply to your particular situation.

Get good advice when purchasing a house

Here is a list of mortgage advice you can ignore:

"You need 20% down to buy a house."

This was truer in the past, but today there are many, many programs that can help you buy a house with much less down. Even standard bank mortgages offer flexibility. With a good credit score and payment history, you can get a mortgage with as little as 3.5% down.

FHA loans are only around 3%. Many VA loans have no money down. It's not difficult to find a regular mortgage with a 10% down payment.

Combine these offers with current low interest rates and you have a great situation for purchasing a home.

"Get a fixed interest rate mortgage."

Most mortgages are 30-year loans, but most homebuyers will move out of their first home within 7 years. By taking a five- or seven-year adjustable rate mortgage (ARM), you can save money on your monthly payments.

When you relocate to something larger and more likely to be your forever home, you can get that fixed-rate mortgage if it makes sense.

"Wait for lower interest rates."

Even though mortgage interest rates have been slowly rising in the last few months, they are still lower than they have historically been.

If it's interest rates that are your deciding factor, do it now.

"You need to look your lender in the eye."

Not anymore. In fact, thousands of mortgages are handled via internet, telephone, and email. You can apply for a mortgage and get an answer in minutes. One-third of Americans have no problem applying for and completing their mortgage online.

It helps to have a phone number to call with questions, particularly if there is a single person in charge of your mortgage, but as long as things are going smoothly, there's no reason you need to have a banker in town.

"Pay off your mortgage fast!"

When interest rates are in the high single or double-digits, that makes a lot of sense. It's important to make those payments more quickly and get rid of that debt as fast as you can.

With interest rates as low as they are, you aren't going to save nearly as much money. You might find that making the lower payments and investing the money will allow you to turn a profit.

Be careful what advice you follow these days. Many of these pieces of advice are simply obsolete and can keep you from getting the home you want today!

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Can You Buy A Home In Las Vegas?

The median home price in Las Vegas hit $300,000 recently. It's been a while since that happened.

The real question is: Can you afford a $300,000 home?

The short answer: Yes - you probably can.

Can You Buy A Home In Las Vegas?

Here are the numbers:

  • An FHA down payment on a $300,000 home is $10,500. While many people think you need a 20% down payment, most mortgages no longer require that much.
  • The average income in Las Vegas is $73,000. This gives you a gross monthly income of $6,083.
  • The rule of thumb on your mortgage payments is about 28% of your gross monthly income.
  • This gives you an available payment of $1,700. That's approximately what you can afford for a monthly payment.
  • Your mortgage payment on your $300,000 home is about $1476. That leaves you $4607 a month for all your other expenses.

Here are the best ways to buy the house you want in Las Vegas.

  • Fix your credit - Everything you do to raise your credit rating will save you money. Pay off your credit cards. Look for errors. Get your credit rating up.
  • Increase your down payment - The more you put down, the lower your payment. It seems self-evident, but every thousand dollars in down payment can save you money every month.
  • Improve your debt to earnings ratio - Pay off student loans, credit cards, cars, and any other payments you make monthly.
  • Get pre-approved - Get a mortgage pre-approval so you know exactly how much house you can afford.

It's still possible to buy a house in Las Vegas. The payments aren't as large as they might seem. It will just take a bit of planning and forethought.

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Capital Gains Tax & Your Home

Capital gains tax, the tax on the profit made from a sale, can take a large chunk out of your profits, if you're not careful. For many people, particularly those who have made significant improvements on a piece of real estate or have seen their area grow in value, capital gains tax can be a major concern and eat a great deal of their profits.

An example of capital gains tax would be for a home you bought for $100,000 and sold for $700,000. The $600,000 profit is capital gains. Some or all of it is taxable, depending on how you handled your home while you owned it.

There is a capital gains credit available for homeowners. It's $250,000 for a single filer and $500,000 for a couple who are married, filing jointly.

Capital Gains Tax and Your Home

There are rules that can trigger capital gains tax:

  • If you didn't live in the house for at least 2 years of the time you owned.
  • If it wasn't your primary residence.
  • If you owned it less than two years before you sold it.
  • If you claimed the exclusion in the two years before the sale of this home.
  • If you used a 1031 exchange to purchase the home in last five years.
  • If you're subject to the expatriate tax.

If you owned the house for less than a year, the sale can subject to short-term capital gains tax rate, which is even higher. Otherwise, the capital gains tax is 15% to 20%.

In the example above, if you're married, filing jointly, you can take the $500,000 exclusion. That would mean you would only pay capital gains tax on $100,000, if you've met the other criteria.

Knowing these rules going into the purchase of a home can make it much easier to save money later. Plan to live in the house for at least 2 years. Plan to hold on to it for at least two years. It's not hard for the average homeowner to avoid the capital gains tax, but for investors and flippers, it can mean a significant chuck out of their profits.

King Realty Group does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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Which Home Assistant Is For You?

Nearly 91 million people, or 27.6% of the US population, use a voice assistant via any device at least once per month. Whether we're saying "OK Google" or "Alexa", we're talking to machines to help with everything from shopping lists to booking flights.

Already, Alexa has over 20,000 smart home supported devices while Google Assistant has over 10,000.

Smart home speakers can do a number of different things, including answering questions, control smart home devices, set alarms, play music and more. Each speaker has different strengths and weaknesses, but companies Google, Amazon and Apple are working hard to fill the gaps and make these speakers even smarter.

Many of these assistant's apps are designed to save consumers from needing to look at a website. As smart speakers are becoming more popular, their owners are also increasingly getting more use out of them. Music still remains by far the most popular use case, with 70% of smart speaker owners using voice assistants for it. Second on the list are weather forecasts, which are being requested by 64% of smart speaker owners. 47% report using the devices for online searches, 46% ask for the news, and 36% make calls.

Which Home Assistant Is For You

As to which device is better, if you're more of a "set it and forget it" person, go with Google, whose syntax will remain simpler. If you like to dive into learning and configuring things for maximum power, Alexa will be a faithful companion on that journey.

Using digital assistants is quickly becoming the norm for everyone. Soon, our phones, our cars, and every other device we own will help us find the right home to live in and even the right way to sell our homes, all with the sound of our voices.

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Not Pricing Your Home Right Can Cost You

It's a simple idea that every business person has to pay attention to every day: pricing your items right so that you make as much money as possible, without overpricing it and losing customers.

When it comes to selling your home, it's the same idea. How much should you list your home for?

Here are 3 quick ideas to help your figure out the right price:

  • Get estimates from three real estate professionals – King Realty Group agents will be happy to assist you with your home's value.
  • Assess any repairs you're thinking about doing and find out if it will be worth fixing before you put your house up for sale.
  • Keep an eye out for previous sales of similar properties in the area. Don't compare your home to houses not remotely similar to yours. Appraisers don't look at dissimilar properties and nor should you.

chalkboard

These are the fastest and easiest ways to gather information on what to price your home.

There are a couple of things to remember:

  • Your love for your home is not something you can sell. It might be the best house in the world, but you can't include all of that emotion. If the price that you ask for or receive is less than you plan, it's not because your house isn't great. It's simple mathematics.
  • Be flexible. All of the information you receive is just an estimate. You might need to adjust your price as you try to sell your home.
  • Setting a price that a little bit low is a good idea. Start with a price that is a “bargain” and then let buyers battle it out. It's likely that they will push the price up.

No matter what you do, make sure that you're selling your home for the price that you need to cover your costs (if at all possible).

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Your Home as Part of Your Retirement - Start Young

For millions of Americans, the heart of their retirement assets is their home.

Purchasing a home is the best way to save money and invest it into something that will grow in value over the long-term.

The issue that many money managers are seeing is an increasing number of seniors who owe on their homes as opposed to owning their home free and clear.

"Between 1998 and 2012, the proportion of seniors carrying a mortgage rose from 23.9% to 35%, according to Fannie Mae. Not only are more retirees carrying a mortgage, but they also owe more than in the past. According to a report from the Center for Retirement Research, using data from the Federal Reserve's Survey of Consumer Finances, from 2001 to 2013, the housing debt-to-income ratio rose by 52 percentage points for Americans 55 and older, while it grew by a much lower rate for younger households." - Journal of Accountancy

Retirement Sign

One of the largest causes of this trend is that people aren't buying their homes until later in life. As people begin to purchase homes in their 30s or 40s, they still owe money on their first mortgage. Also, through several economic downturns, many people took out second mortgages.

The simplest solution: buy your home when you're young. If you purchase your home in your 20s or 30s, you're far more likely to have your mortgage paid off by the time you retire.

"According to the New York Times in 2017, the average homeowner in the U.S. has a net worth of $195,400. To put that figure in perspective, the average American renter only has a net worth of $5,400 - 36 times less than that of the typical homeowner. Speaking to CNBC in 2017, financial adviser David Bach calls buying a home "an escalator to wealth." - The Nest

Since a home is so much of your retirement and net worth, the sooner you start saving that money in real estate, the faster you can build your net worth.

King Realty Group does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.

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Get Your Vacation Home Now!

Everyone would like to have a vacation home, but the question is, "When should I buy a vacation home?"

Now is good.

Okay, you saw that coming, but it's true.

The market has changed over the last few months.

The seller's market has weakened. Leading up to the summer of 2018, sellers had most of the control. Inventories were very low and most houses saw several offers over asking price.

vacation home

Today, the inventory of houses has increased, stabilizing prices and making it easier to make a deal on a home.

This is even truer for vacation homes. Many Americans have gotten nervous because of the dramatic retraction of Wall Street. This has caused many of them to simply stop shopping for "unnecessary" investments, like vacation homes.

Mortgage rates are still very low. While the slow increase in rates might feel like it's made them very high, the truth is that we're still well within rates that are historically low. If you need to take out a mortgage on a vacation home, now is a great time.

All of these factors combine make now a great time to buy a vacation home. Combine those with the ease of use of Air BnB and other rental sites, you can make money from your vacation rental no matter where it is in the world.

Start shopping for the perfect vacation home now. This is the time to start building equity and give yourself someplace awesome to vacation.

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Is For Sale By Owner a Good Idea?

Many homeowners will try to sell their home on their own.

This might seem like a great idea: save the commissions, keep control of the buyers and what's said. In reality, it's almost always a bad idea.

selling real estate

Here are the five reasons that For Sale by Owner is not a great idea:

  • Most buyers will go through a real estate agent - That means that the people who likely want to buy your house are already in the professional real estate system. You need to be there too. Otherwise, you might find yourself missing customers or needing to negotiate a real estate agent's commission while buyers stand on the porch.
  • The internet is where the action is - Nearly 90% of all purchases, including home buying, involve the internet. If your home is not listed online, it won't be seen by more than half of people. Many either won't look offline or won't trust a home that they can't learn about online.
  • Too many buyers to negotiate with - That's sounds like a blessing, but it's stressful and likely to cost you money. What you need is someone that can negotiate with several buyers at the same time. This is a skill that requires experience and a team that can help.
  • Death by paperwork - The laws surrounding the required paperwork for a home sale have gotten increasingly more complex. If you miss something, like a home inspection or a disclosure, you might find yourself paying the buyer thousands of dollars and even paying a fine. Real estate agents are trained to make sure they do all of the paperwork and are legally liable if it's not done correctly.
  • Agents make you more money - Study after study show that real estate agents sell homes for more than owners can. Yes, you might be paying them a fee, but most of the time, they earn it and more.

For sale by owner can seem like a great deal, but it's a lot of work and time to sell house effectively. The legal pitfalls are many. The chances that you will walk away with less money are extremely high.

In truth, a real estate professional makes mathematical sense and makes your life easier.

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The Trump Tax Bill and Your Real Estate Investments

While the Trump tax bill, or as it's officially known, the Tax Cuts and Jobs Act (TCJA), has been panned by many observers, it does contain some significant tax breaks for real estate investment. This comes as no surprise, given that the President is a huge investor in real estate around the world.

Before going too far, it's important that you plan on consulting with a tax professional for these tax cuts. This bill can be confusing and not something that the average person can understand. It's even complicated for professionals in the industry.

Bonus Depreciation for Real Estate Investors

You can get a 100% first-year bonus depreciation deduction. This will be retroactive to your 2017 filings. This tax break will last until 2022.

Lower Corporate Taxes

Lower corporate taxes can affect many of us who have incorporated our investment properties. Those earnings will now be taxed at a lower level. Pass through income through an LLC will get a 20% deduction on qualified income. This will make it easier for real estate firms to expand and for startups to become profitable.

The Trump Tax Bill and Your Real Estate Investments

1031 Exchanges

1031 exchanges allow real estate investors to trade up and diversify their portfolios without an immediate tax hit. These deferments are protected by the tax law overhaul. Putting all of this together will allow for double-digit tax savings.

Retirement Account Savings

This savings will allow people to save a lot of money on their taxes through contributions to their retirement accounts. Education Savings Accounts (ESAs) and Health Savings Accounts (HSAs) as well as 401ks and IRAs will all see significant savings under this bill.

Forbes advises: "Many rules have changed with the passing of the Tax Cuts and Jobs Act. Some important ones didn't change. Some individuals need to urgently act to avoid a harsh tax hit this year and looking forward. This is especially true for those with new limitations on state and local income taxes and in high property tax states, though others may benefit under the new rules."

King Realty Group does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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