A Word Homeowners Need to Understand

What is your mortgage balance? Well, that is one answer, but the new tax law has a very specific reference for the term Acquisition Debt as it relates to Phoenix Metropolitan home owners, and others around the country. So read on to learn more, then talk to you tax adviser as to the effects this will have on re-financing your current  mortgage, or buying a new home here, in Chandler or in another part of the country.

Acquisition Debt is the amount of money borrowed used to buy, build or improve a principal residence or second home. Under the new tax law, mortgages taken after 12/14/17 are limited to a combination of $750,000 on the first and second homes. The mortgage interest on this debt is tax deductible when itemizing deductions.

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It is a dynamic number that is reduced with each payment as the unpaid balance goes down. The only way to increase acquisition debt is to borrow money to make capital improvements.

Prior to the new law, homeowners could additionally borrow up to $100,000 of home equity debt for any purpose and deduct the interest when itemizing deductions. Mortgage interest on home equity debt is no longer deductible unless it is for capital improvements.

Acquisition debt cannot be increased by refinancing. Some confusion occurs because mortgage lenders are concerned in making home loans that will be repaid according to the terms of the note and using the home as collateral. That does not include making a tax-deductible mortgage.

Another thing that adds confusion to the issue is that the lenders will annually report how much interest was paid in a year but only the amount that is attributable to acquisition debt is deductible.

Even if the interest on the cash-out refinance is not deductible, it may be advantageous to pay off higher interest debt such as credit card debt and replacing it with lower mortgage debt.

It is the responsibility of the taxpayer to know what part of their mortgage debt is deductible. The challenge becomes more difficult after a cash-out refinance. Homeowners should keep records of all financing and capital improvements and consult with their tax professional.

The key here is to consult with your Denver tax adviser BEFORE a re-finance to find out the effects on your tax return. Most good loan officers will be able to answer the question, but a tax adviser is best. To find either a tax adviser or a loan officer CONTACT US TODAY.

CALL 480-355-8645 or EMAIL Gina@LocateArizonaHomes.com

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Are you overlooking your Recordkeeping?

There is great opportunity for  Home owners! Especially with the appreciation we have experienced over the last 5 years. When the tax laws changed last year I know I was excited that this part of the law did not change and that means we can keep our equity, tax free. Then you must ask, what is the cost of waiting? So as we have had  appreciation for 3 years that means your property is worth more today, and that may be tax free for a principle residence.   But read on about the tax law…

Homeowners are familiar that they can deduct the interest and property taxes from their income tax returns. They also understand that there is a substantial capital gains exclusion for qualified sales of up to $250,000 if single and $500,000 for married filing jointly. However, ongoing record keeping tends to be overlooked.

New homeowners should get in the habit of keeping all receipts and paperwork for any improvements or repairs to the home. Existing homeowners need to be reminded as well, in case they have become lax in doing so.

These expenditures won’t necessarily benefit in the annual tax filing but may become valuable when it is time to sell the home because it raises the basis or cost of the home.

For instance, let’s say a single person buys a $350,000 home that appreciates at 6% a year. Twelve years from now, the home will be worth $700,000. $250,000 of the gain will be exempt with no taxes due but the other $100,000 will be taxed at long-term capital gains rate. At 15%, that would be $15,000 in taxes due.

Assume during the time the home was owned that a variety of improvements totaling $100,000 had been made. The adjusted basis in the home would be $450,000 and the gain would only be $250,000. No capital gains tax would be due.

Some repairs may not qualify as improvements but if the homeowner has receipts for all the money spent on the home, the tax preparer can decide at the time of sale. Small dollar items can really add up to substantial amounts over many years of home-ownership.

You can download a Homeowner’s Tax Worksheet (https://www.irs.gov/pub/irs-pdf/p530.pdf)  that can help you with this record keeping. The important thing is to establish a habit of putting receipts for home expenditures in an envelope, so you’ll have it when you are ready to sell.

As always let me know if I can be of any assistance.  Feel free to call (480-355-8645) or email (Info@LocateArizonaHomes.com) with any questions.

 

What the lack of Inventory means to You and Me!

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In the Phoenix market, our housing inventory fluctuates based on supply and demand.  It will also fluctuate differently based on each different city within the Phoenix Metro Area (i.e., Chandler has a different inventory than Scottsdale, Gilbert from Tempe, and so on) and by price range within that as well.

The National Association of REALTORS® considers a “balanced” market to be around a six-month inventory of homes.  If there is a larger supply, it is considered to be a buyer’s market, and if the supply is lower, it is considered a seller’s market.  Housing inventory is calculated as the number of homes currently on the market within the last month, divided by the number of homes that sold within the last month.

The inventory of existing homes in the overall Phoenix Metro area has been reduced to approximately 3.15 month supply of homes.  There were about 21,770 active homes for sale as of February 28, 2018, which is an increase of about 0.5% from January, but a drop of over 12% for the same time last year.

Housing inventory has a direct impact on price.  When the number of people who need homes is constant, but the supply is reduced, prices tend to go up.  This is because the same number of people are trying to buy a dwindling number of homes.

For the entire Phoenix Metro area, the average home sale price has increased over 7.9% since last year.  That does compare a small condo selling with multiple offers and a luxurious mansion selling for below list price after being on the market for a long time in the same year, so for a more accurate feel of what the market is doing it’s better to use the median home sale price instead of the average.  The median home sale price jumped 9.8% over that same period of time.  That’s nearly a 1:1 relationship of a decrease in housing inventory to an increase in the price of homes!  For someone looking to purchase a $275,000 home, that equates to an increase of $26,950 in one year of appreciation alone.  If that person put off looking for a home for a year, they would have to increase their budget to $300,000 in order to afford the same home.

While I don’t have a crystal ball, it’s important to be able to tell my clients which direction prices will be moving.  When not only prices, but mortgage rates are increasing, all buyers can be dramatically affected by either not being able to afford, or having to pay more for the same size of home they were looking at a few months ago.

If you’re considering selling and would like more specific local statistics on what the market is doing for your home, or if you need assistance navigating through these ever-changing markets, give me a call at 480-355-8645 or email me at Info@LocateArizonaHomes.com today!


The Tale of The Lakes at Annecy

The Lakes at Annecy, or Val Vista Classic (as it’s also known) is a beautiful gated community off of Val Vista Dr & Williams Field Rd.  Not only does it have an amazing location near the 202 freeway, but it’s also right by the San Tan Village Mall with all of its things to do.  Great restaurants are less than a mile away (which can be a bit of a long walk for some, but perfect for us. We recommend Blue Wasabi, High Tide, & La Calabria if you haven’t been) and Higher Grounds Roastery & Café is located just outside of the main gate.  On the inside, there’s plenty of walking paths around several lakes and bridges, with tree lined streets, multiple community pools, basketball courts and playgrounds.  Trend Homes started building this community in 2007, featuring European style architecture with plenty of community green space outside your front door.  With a mixture of single family and townhomes, it was the premier lock and leave community.

 

Alas, all was not perfect.  Trend Homes declared bankruptcy in early 2008 and was sold in May to Najafi Cos., a Phoenix-based private investment firm.  Like many communities at the time, the 930-home Lakes at Annecy sat mostly empty.  Other than the

 

completed community pools and spas, lakes and roads, there were only a handful of homes that were developed near the front and around the sides of community, leaving the middle and back of the lots mostly filled with dirt.  Sometime after, Ryland Homes acquired Trend’s remaining assets at the end of 2012, but made no plans for continuing to build at The Lakes at Annecy although they finished some of Trend’s other neighborhoods. Ryland Homes and Standard Pacific Corp, two of the largest home builders at the time, merged in 2015 to become CalAtlantic Homes.

 

The latest to happen was that Lennar Homes announce last year that they were buying out CalAtlantic, although the merger won’t be completed until February 2018.

 

 

The good news though, is that Lennar Homes is finally planning to finish out The Lakes at Annecy! They are taking the back section for Inspiration at Annecy, which features two-three bedroom townhomes, ranging from 1,053-1,465 sqft.  They’re unique in the fact that everything is included in the home (no more being nickeled and dimed for upgrades) and the buyer has the choice of flooring and cabinet color (although if you want really upgraded flooring, there is a separate cost for that). Inspiration at Annecy is now for sale, and though they’ve not had their grand opening yet, have been selling pretty well.

 

Maracay Homes has also purchased 216 home sites in front of the community, and will be opening for sales in the fall of 2018.  Their plan is to offer homes ranging from 1,500 to 2,000 sqft. More news is to be announced.

 

For more area news, or if you’d like to know more about The Lakes at Annecy, please contact The McKinley Group at 480-355-8645 or at Info@LocateArizonaHomes.com today!

 

Homeowner Tax Changes

The new tax law that was signed into effect at the end of 2017 will affect all taxpayers. Homeowners should familiarize themselves with the areas that could affect them which may require some planning to maximize the benefits.

Some of the things that will affect most homeowners are the following:

  • Reduces the limit on deductible mortgage debt to $750,000 for loans made after 12/14/17. Existing loans of up to $1 million are grandfathered and are not subject to the new $750,000 cap.

 

  • Homeowners may refinance mortgage debts existing on 12/14/17 up to $1 million and still deduct the interest, so long as the new loan does not exceed the amount of the existing mortgage being refinanced.
  • Repeals the deduction for interest on home equity debt through 12/31/25 unless the proceeds are used to substantially improve the residence.
  • The standard deduction is now $12,000 for single individuals and $24,000 for joint returns. It is estimated that over 90% of taxpayers will elect to take the standard deduction.
  • Property taxes and other state and local taxes are limited to $10,000 as itemized deductions.
  • Moving expenses are repealed except for members of the Armed Forces.
  • Casualty losses are only allowed provided the loss is attributable to a presidentially-declared disaster.

The capital gains exclusion applying to principal residences remains unchanged. Single taxpayers are entitled to $250,000 and married taxpayers filing jointly up to $500,000 of capital gain for homes that they owned and occupied as principal residences for two out of the previous five years.

 

Not addressed in the new tax law, the Mortgage Forgiveness Relief Act of 2007 expired on 12/31/16. This temporary law limited exclusion of income for discharged home mortgage debt for principal homeowners who went through foreclosure, short sale or other mortgage forgiveness. Debt forgiven is considered income and even though the taxpayer may not be obligated for the debt, they would have to recognize the forgiven debt as income.

These changes could affect a taxpayers’ position and should be discussed with their tax adviser.

If you need a good tax adviser, Contact me today (Info@LocateArizonaHomes.com OR 480-355-8645).  I know some both in Chandler and the Phoenix Metropolitan area.