Friday, December 15, 2017

Our Christmas Gift, Tax Reform

Since when is hurting us not as completely as they would like, a Christmas gift? Politicians dwell in an alternate reality. Taking my hard earned money and telling me they are doing me a favor because it is not as much as it could be, is difficult to swallow. All of us are still going to be paying taxes. Only the triggers that determine taxes due are changing. Some of us will be paying less and some of us will be paying more. Hopefully, most of us will be paying less. Who will truly benefit from this reform?

The government will benefit, of course! Some analysts believe the tax receipts will decrease because tax rates will decrease. That is if finance, taxes, and the economy were a zero sum game, then tax receipts would definitely decrease. Our economy is not a zero sum game. If there is more money available for taxpayers to spend, the economy will grow, increasing tax receipts. Judging on recent stock market and holiday sales performances, we appear to be starting a period of economic growth. The government will get their money from the subsequent increased tax receipts.

The general population will benefit from the robust economy. Some of us will benefit more than others. What should we do to get the best benefit from a growth period? Real estate is normally a good bet. Some are concerned with this since the government is limiting the tax incentive to purchase a home, the mortgage interest deduction. Looking a bit deeper into tax reform's effect on real estate provides a different scenario. People need a place to live even if they are not buying a home. Demand will not be changing. Just who owns them might be changing or better yet, why people are owning homes might be changing slightly.

Owning a home and paying a fixed mortgage for the next 30 years is estimated to be about one third the cost of renting, including inflation, for the next 30 years. This incentive alone should be enough to keep real estate going strong. If it is not, taxpayers will use our imaginations to make the best of the situation. The first time home buyer can still take advantage of the mortgage interest deduction by owning the home as a rental rather than their primary residence. The first time home buyer would be purchasing as an investment and be a landlord initially while being a tenant elsewhere. This possible solution might sound extreme, but when adding in depreciation on the rental, that might be the only way to get significant deductions beyond the standard deduction on individual tax returns. Taxpayers will be creative and use the tax code as efficiently as possible. We will find out eventually.

Even when limiting the mortgage interest deduction as a tax incentive, real estate will still be an attractive investment that provides financial benefits along with the stability of owning a home. It is still the solid investment real estate has always been. With the economic potential this current tax reform package offers, there is a great opportunity to benefit from owning real estate for the savvy investor. When the politicians speak of the tax reform package as a Christmas gift, they are speaking about the lower of taxes for some of us. Not all of us see that as a gift. The true gift for all of us is the boost to the economy and the opportunity booming economy creates.

The opportunity is now. If you are interested in buying or selling real estate or have any questions, contact me. I'd be glad to help.

BRE # 01925202
805 453 6000

The December 12th caravan in Santa Ynez Valley had two properties to preview. The first home is located at 742 Hillside Drive in Solvang. The home is a 3 bed, 2.5 bath, 2,000 s.f. condominium with mountain views. A tennis court, pool, and spa are included in the association amenities. The home is listed at $550,000. The second property is in Solvang at 922 College Canyon Road. It is a 3 bed, 2 bath, 1,791 s.f. home on half an acre. The property is listed at $899,000.

One property that was not on caravan, but still available, is 1145 Arroyo Mesa Road in Solvang. It is a 62 acre property with a barn and an apartment in the Ballard Canyon AVA. It has a nice location to build an estate home with spectacular views and plenty of sloping hills for grapes. The property is listed at $2,395,000.

Please contact me if you have any questions, if you would like to see any homes, or if you would like to receive a free market analysis of your home.

For more information, please visit us at Central Coast Landmark Properties.

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