Real Estate Investors Can Defer Taxes with a 1031 Exchange

Beverly Hills real estate

Paying taxes on capital gains for property transactions has always been a hindrance to those involved in real estate investment. Why should investors pay taxes on profit from real estate transactions if they’re putting the profit right back into some other real estate transaction?

The answer: They shouldn’t.

That’s exactly why the IRS created 1031 exchanges: to allow for tax deferment on profit that is reinvested immediately. Notice it’s a deferment, not a credit or a reduction. It does have to be paid eventually, just not at the time of sale and not until the money is taken out of the property, at which point it is taxable. Eager to learn more, I found some info on 1031 exchanges at 1031.org.

What Is a 1031 Exchange?

Simply put, a 1031 exchange is a method of deferring the tax on capital gains until some point in the future, according to 1031.org. They’re called Section 1031 exchanges because Section 1031 of the Internal Revenue Code states that “no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business, or for investment.”

Section 1031 was created to encourage reinvestment of sale proceeds of property into similar property. Obviously this stimulates business and growth. As long as the investor continues to put profit back into more property, taxes are not owed.

This all makes pretty good sense. Let’s say I invest in a house in Beverly Hills that costs me $100,000 (I WISH!). I put $50,000 into the house and put it on the market. It sells for $250,000. My $100,000 profit, or capital gain, is then put into another property that I buy to fix up and sell. This continues, and all of my capital gains are deferred with a 1031 exchange UNTIL I sell my last property and enjoy my profit. At that point, I pay all taxes owed.

Frequently Asked Questions About 1031 Exchanges

What is the benefit of a 1031 exchange versus just selling property?

A Section 1031 exchange is one of the few ways investors can defer taxes due on the sale of property (assuming it qualifies for a 1031 exchange). Deferring taxes allows investors access to the money that would otherwise be paid in taxes, allowing them to invest in another property.

What are the general guidelines to follow in order to defer all the taxable gain?

The IRS is very clear on this. The value, equity in and debt on the new property must be equal to or greater than the value of the property being sold for an exchange to be valid. This is even more important – ALL of the profit from the property sale MUST be used to buy the new property. If even a tiny percentage of the profit is used for something else, the 1031 exchange is not valid.

If there is already a contract to sell the property, is it too late to start a tax-deferred exchange?
No, as long as there has not been a transfer of title or a closing on the sale of the property, a tax-deferred exchange can still be arranged. Once the closing occurs, it is too late.

Can the replacement property eventually become the investor’s primary residence or vacation home?
Yes, but Section 1031 has holding requirements (minimum length of time the new property must be owned) that must be met prior to changing the primary use of the property. According to 1031.org, the IRS has no specific regulations on holding periods (though a minimum of a year is recommended), and “if the owner later on wants to take advantage of the home owner’s exemption (up to $250,000 or $500,000 for a couple), there is now a five year holding period requirement.”

Finally, remember that if you’re a real estate investor or considering becoming one, now is still a great time to do so. Mortgage rates are still very low and property values, though trending up, are also still very low in many parts of the country. As always, please let me know if you have any questions.Happy investing!

If you’re looking to buy, sell, or lease residential or commercial real estate in Los Angeles, please contact me direct at jkryukova@gmail.com or 310.402.8181.

U.S. postpones 2014 hike in mortgage fees

West hollywood real estate

It’s a Christmas miracle!

Planned fee increases that would have added to the cost of millions of mortgages will be postponed. Currently, borrowers seeking loans backed by Fannie Mae and Freddie Mac are set to pay higher upfront fees starting April 1.

The fees, ordered by the Federal Housing Finance Agency earlier this month, are meant to help safeguard banks against risky borrowers who might default.
But housing experts say they will add thousands of dollars to the cost of all mortgages insured by Fannie and Freddie, with the biggest hits taken by borrowers with less than perfect credit histories.

On Friday, the incoming chief of the FHFA, Mel Watt, said he intends to postpone the fees — and perhaps even cancel them — until more analysis is done. The FHFA oversees Fannie Mae and Freddie Mac.

Watt, a former Democratic member of Congress, has been confirmed to his post by the Senate and takes office on January 6.

In a statement, Watt said he intends to “evaluate fully the rationale” for the fees and their impact on Fannie and Freddie and the “availability of credit.”

The mortgage industry has been bracing for substantial increases in the price of loans in 2014.
“If these [policies] had been implemented, it would have increased borrowing costs dramatically,” said David Stevens, CEO of the Mortgage Bankers Association.

The hit for individual borrowers would depend on the amount of the home purchase being financed, according to Brian Koss, executive vice president at Massachusetts-based lender Mortgage Network.
Borrowers would have paid a fee when they took out the loan, or they could have effectively rolled the higher fees into their interest rate, raising monthly mortgage payments by as much as a quarter percentage point.

Even with the reversal, however, mortgages will probably get more expensive over the next few months anyway as the Federal Reserve cuts back on its purchases of mortgage backed securities, a program designed to keep interest rates low.

Stevens, the mortgage industry representative, said the proposed increases made little sense. Defaults on mortgages made in recent years have been much lower than on those made before the housing crash.

As a result, Fannie and Freddie are flush with profits, so much so that they have already returned almost all of their $187 billion taxpayer-funded bailout.

“The GSEs are making a lot of money,” said Stevens. “There’s no rationale for the increases.”

If you’re looking for commercial or residential real estate assistance, please contact me at
jkryukova@gmail.com or (310)402-8181 begin_of_the_skype_highlighting (310)402-8181 FREE  end_of_the_skype_highlighting.

Source: http://money.cnn.com

Recovering Housing Market to Spur Economic Recovery in New Year

WeHo

Next year will likely be the first year since 2000 that home purchases outpace refinances, according to Freddie Mac’s expectations. Furthermore, the rallying housing market should set the broader economy on a brighter path, according to Freddie Mac’s U.S. Economic and Housing Market Outlook for November.

“Led by a resurgent housing sector, 2014 should shape up to be better than 2013,” Freddie Mac stated in its outlook.

Housing starts, which have been slow, should rise to a pace of about 1.15 million in 2014, according to Freddie Mac.

This is more in line with the historical average of 1.1 million per year reported by the Census Bureau. In comparison, the Census Bureau recently reported household formation over the first three quarters of this year at just 380,000.

Freddie Mac expects home sales to increase 5 or 6 percent in the new year, but tight inventory will prevent further increases.

Home values will continue to increase, albeit at a slower pace. Freddie Mac expects home price growth to be about the same as home sales growth—5 or 6 percent.

Rental prices will also continue to rise, but like housing prices, their pace will moderate. Freddie Mac expects rents to rise at a pace of about 5.3 percent next year.

Mortgage rates will reach about 5 percent for 30-year, fixed-rate mortgages by the end of 2014, according to Freddie Mac. While this will not threaten affordability in most markets, it may dampen affordability in a few higher-priced markets, according to the outlook.

Also, Freddie Mac noted there may be “some volatility in the short-term” resulting from uncertainty surrounding fiscal policies, such as the debt ceiling and the Federal Reserve’s tapering of its MBS purchases.

The overall good news for the housing market translates to good news for the broader economy, according to Freddie Mac.

The rise in housing starts should translate to 700,000 new jobs, according to economists at Freddie Mac.

These new jobs will help bring the unemployment rate below 7 percent “perhaps by mid-2014,” Freddie Mac stated.

Economic growth is expected at 2.5 to 3 percent for the year, which is “more than 0.5 percentage points better than is projected for 2013,” according to Freddie Mac.

If you’re looking for real estate assistance, commercial or residential, please contact me directly at (310)402-8181 begin_of_the_skype_highlighting (310)402-8181 FREE  end_of_the_skype_highlighting or jkryukova@gmail.com.

Source: DSNews

2332 Canyon Drive – Great 1920s Era Home in Los Feliz Village $939,000

2332 Canyon Drive Los Feliz, CA 90068

This Los Feliz retreat rests on a knoll above sought-after Canyon Drive. At one end are trendy boutiques and restaurants, and at the other, a peaceful park for hiking, kids, and pups. Inside the Roaring 20′s home are gleaming hardwood floors, soaring ceilings, a charming dining room with period built-in book cases, a living room with fireplace, a kitchen full of stainless-steel appliances, and a unique screening room. A walled and gated outdoor living area is perfect for entertaining!

http://www.2332canyondrive.com

Asking price: $939,000

2 bedrooms, 1.5 bathrooms, bonus room, separate dining room, large living room with high ceilings

TONS OF CHARM & CHARACTER!!!

Please contact me at jkryukova@gmail.com or (310)402-8181 for more information, private showings, or for any of your real estate needs.

 

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Housing Recovery Takes Off in Q2

After a somewhat slow first quarter, the national housing recovery took the pace up a few notches in Q2, Zillow reported.

According to the company’s second-quarter Real Estate Market Reports, the U.S. Zillow Home Value Index (HVI) rose to $161,100 as of the end of June—up 2.4 percent quarter-over-quarter and 5.8 percent year-over-year.

The second quarter’s increase was the largest annual gain since August 2006 and the largest quarterly gain since the fourth quarter of 2005—as well as the second-largest quarterly gain since 2004. National home values rose only 0.25 percent during the first quarter.

While home value appreciation accelerated in Q2, it also spread to more areas across the country, reaching markets in the Northeast, Midwest, and Southwest that had previously had trouble keeping pace.

All of the top 30 largest metros covered by Zillow saw annual appreciation as of the end of the second quarter, and Zillow believes all are coming back from their respective troughs.

Metros with the largest annual gains in Q2 included Sacramento (29.5 percent), Las Vegas (29.4 percent), and San Francisco (25.5 percent).

While some areas—particularly those where annual appreciation is approaching 30 percent—may seem like they’re experiencing a bubble, Zillow senior economist Svenja Gudell explained that kind of market behavior won’t last.

“Investors are starting to pull out of some markets and regular buyers are coming back, and more inventory is slowly but surely coming on line, both of which will contribute to slowdowns in appreciation,” Gudell explained. “Additionally, in some overheated markets, rapid home value increases coupled with rising mortgage rates will lead to housing prices and financing costs outpacing local income growth, which will also contribute to a moderation of the market.”

Over the next 12 months, Zillow expects home values to rise another 5 percent. Of the 30 largest markets, 29 are expected to see appreciation, with New York being the only exception.

In the rental market, national rents fell quarter-over-quarter by 0.5 percent to $1,282—the first quarterly decline after nine consecutive quarters of rents either increasing or remaining flat. Year-over-year, national rents were up 1.6 percent as of the end of the second quarter.

If you’re looking for representation for residential or commercial real estate, please contact me at (310)402-8181 or jkryukova@gmail.com

 

Source: DS News

Fed attempts to free higher-priced loans from appraisal binds

A proposed rule was issued by six federal financial regulatory agencies that would create exemptions from specific appraisal requirements for a subset of higher-priced mortgages.

The proposed exemptions would save borrowers both time and money as well as promote the safety and soundness of creditors.

The Dodd-Frank Act imposed appraisal requirements for high-priced mortgages. Under the act, loans are deemed “higher-priced” if they are secured by a consumer’s home and have interest rates above a certain threshold.

The rule proposed would allow the following three types of higher-priced mortgage loans to be exempt from the Dodd-Frank Act appraisal requirements: loans of $25,000 or less, certain streamlined refinancing and certain loans secured by manufactured housing.

In January, the Federal Reserve Board, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the National Credit Union Administration, and the Office of the Comptroller of the Currency issued a final rule implementing the new Dodd-Frank Act appraisal requirements.

As of January 18, 2014, compliance with the final rule will become mandatory. The agencies listed above are jointly issuing the proposed rule on additional exemptions in response to public comments received previously.

Public comments are encouraged by the agencies on all aspects of the proposal. The public will have until September 9, 2013, to review and comment on most of the proposal. However, comments linked to the proposed Paperwork Reduction Act analysis will be due 60 days after the rule is published in the Federal Register.

 

 

Source: Housingwire.com

JUST LISTED: Private Celebrity Retreat In Outpost Estates (Hollywood Hills)

Address: 7009 Senalda Drive Hollywood Hills, CA 90068
Price: $2,479,000
Stats: 5BR/3.5BA; 2,884 sq.ft., 13,608 sq.ft. lot

Description:

This exclusive property is tucked above and away from Outpost canyon’s main drag, but is close enough to access all of Hollywood’s offerings. Located in a celebrity enclave (with A-listers sharing property lines), the property features elevator access from the 2-car garage to the kitchen, designer-landscaped serenity gardens, remodeled kitchen and bathrooms, updated systems, ultimate privacy, and fantastic canyon and mountain views. Get away from it all…in the middle of it all.

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Please contact me at (310)402-8181 or jkryukova@gmail.com for details and showings. 

Fannie Mae: Economy Will ‘Reaccelerate’ in 2nd Half of 2013

Fiscal drags such as the sequester may have weakened economic momentum, but the economy should “reaccelerate” in the second half of this year as financial and housing conditions improve, according to Fannie Mae’s Economic and Strategic Research Group.

In its most recent economic outlook, the group revealed expectations for the economy to continue the modest recovery and grow 2.2 percent this year, up from 1.7 percent in 2012 and 2 percent in 2011.

“Employment numbers are getting better, albeit it at a relatively slow pace, and the April employment picture should help boost consumer sentiment toward the economy overall. Spending grew in the first quarter at a surprisingly strong pace, and although this rate is unlikely to hold up, consumers continue to show signs of resilience in the face of fiscal concerns,” said Doug Duncan, chief economist for Fannie Mae.

Duncan though warned of “potential” headwinds, such as the “long-term effects of sequestration, spending constraints, the sovereign debt crisis, and the impending debt ceiling.”

Amid the expected improvements, the group anticipates the housing market’s recovery will go on as well, reinforced by current levels of home affordability.

According to the GSE’s analysis, housing affordability should steadily decline from its 2012 peak, but will still hover above normal levels through 2017. By that time, the group expects the 30-year fixed rate mortgage to average 5 percent.

While affordability provides support to the housing market’s recovery, it’s not the main driver of homebuying activity, according to the GSE.

“Going forward, the trends in lending standards, regulations regarding lending and securitization of mortgages, and housing finance reform will be key to a transition to normal for the housing market,” the group stated.

Home prices should also continue their upward trajectory, aided by limited inventory, a smaller share of distressed sales, and increased efforts to prevent foreclosures.

Looking ahead, the group forecasts single-family starts will increase 24 percent this year, while multifamily starts will rise by about 35 percent during the same time period.

Total home sales—new and existing—are expected to increase by nearly 8 percent in 2013, while home prices should average a 3.9 percent gain.
The 30-year fixed rate mortgage is projected to average 4 percent in 2014.

 

If you’re looking for real estate opportunities, please contact me direct at (310)402-8181 or jkryukova@gmail.com

 

 

Source: DSNEWS

JUST LISTED: 2880 Las Alturas St. Hollywood Hills $999,000

Las Alturas

2bed/2.5 Bath

2,068 Sq. Ft.

KILLER VIEWS!!!

This stylish Hollywood Hills residence showcases dramatic views right from the front door and its sky-lighted entry hall (with powder room).  An open floor plan accentuates the home’s modern vibe. The house’s ample living area has a fireplace, pitched ceilings, wood floors, and resort-style walls of glass that accordion-open to a generous balcony. Inside becomes outside as the breezes blow and a carpet of city lights spice-up the living space. A dining area also showcases views to di(n)e for. The highly-desirable open floor plan continues as dining opens to the home’s well-equipped kitchen (with breakfast or cocktail bar), which has newer appliances and plenty of custom wood and glass cabinetry.

The master bedroom has custom built-in wall of shelving and cabinetry and plenty of closet space. There is a balcony accessible through glass double doors. Just past the pine trees…more city lights views. The remodeled master bath features a chic porcelain vessel sink, a reclaimed wooden cabinet and mirror, slate shower & tub surround, and chrome fixtures. The second bedroom also has access to a remodeled bathroom with an over-sized sink cabinet and step-in shower.  This bedroom also has a balcony with tree-top and city lights views.

The home’s large, direct-access garage is currently working perfectly for two-cars, laundry area, and storage-storage-and more storage; but could be used as a gym or additional living space. An outdoor wrap-around deck area (hedged and gated) provides ample private space for kids/pets, and sports and built-in barbeque. This area is perfect for an evening cocktail gathering or Al Fresco dining and…has views!

This home is a true Hollywood Hills pad, just north of landmark Mulholland Drive. Near the end of a cul-de-sac, this Las Alturas home provides a safe and secure street to hang out, walk the pups, and take in the “mountain” air. And, it’s only a short walk to the upper entrance to Runyon Canyon Park.

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JUST LISTED: Re-imagined Sunset Strip Spanish Estate! Offered at $5,300,000 Open Tuesday 11-2pm

1136 Doheny Dr.

1136 Doheny Drive Los Angeles, CA 90069

3bed/3bath Stunningly updated with spanish detail

2,996 sq. ft./Lot size 13,607 sq. ft.

Please click here for the virtual tour:  1136 Doheny Dr Lifestyle Video 

3BR/3BA Spanish residence in the Sunset Strip offers ultimate privacy (gates, hedges, no one “looking in” from above) and unparalleled access to all of the Sunset Strip’s offerings. Features include: formal step-down living room with 2-story vaulted ceilings and over-sized fireplace, cook’s kitchen with Viking appliances and eat-in peninsula, luxury-level master suite (overlooking park-like grounds) with large walk-in closet and spa-like bathroom with cathedral ceilings and soaking tub, 2 additional bedrooms en suite, family room and dining room with French doors to the completely private back yard, sparkling full-sun pool and spa with flagstone lounging/eating areas, expansive lawn with room for play, pups, and parties. Indoor-outdoor flow makes this home perfect for entertaining. Pre-wired for media, individual room-by-room volume controls, office area with custom built-in desk and cabinetry, basement/bonus room with storage, direct access to 2-car garage, security, intercom.

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