Category: Real Estate

REAL ESTATE INVESTORS NOW GET A SPECIAL 20% TAX DEDUCTION

The IRS recently issued some guidelines that allow real estate investors to take a tax deduction for up to 20% of the income they generate from rental properties. These guidelines were issued in January 2019 to clarify certain provisions of the 2017 Tax Cuts and Jobs Act. Click here to view the full announcement and the new guidelines.

The new tax deduction is generally available to eligible taxpayers with 2018 taxable income at or below $315,000 for joint returns and $157,500 for other filers. Those with incomes above these levels are still eligible for the deduction but are subject to limitations. In order to qualify for the deduction, the taxpayer must meet three requirements:

1 – Maintain separate books and records to reflect income and expenses for each property or group of properties.

2 – Perform 250 or more hours of rental services per year. Rental services include:

  • (i) advertising to rent or lease the real estate;
  • (ii) negotiating and executing leases;
  • (iii) verifying information contained in prospective tenant applications;
  • (iv) collection of rent;
  • (v) daily operation, maintenance, and repair of the property;
  • (vi) management of the real estate;
  • (vii) purchase of materials; and
  • (viii) supervision of employees and independent contractors.

Rental services may be performed by owners or by employees, agents, and/or independent contractors of the owners. The term “rental services” does not include financial or investment management activities, such as financing; procuring property; studying and reviewing financial statements or reports on operations; planning, managing, or constructing long-term capital improvements; or hours spent traveling to and from the real estate.

3 – Maintain contemporaneous records, including time reports, logs, or similar documents, regarding the following:

  • (i) hours of all services performed;
  • (ii) a description of all services performed;
  • (iii) the dates on which such services were performed; and
  • (iv) who performed the services.

The contemporaneous records requirement will not apply to taxable years beginning prior to January 1, 2019.

Keep in mind that real estate used by the taxpayer for any part of the year does NOT qualify for the deduction (such as a rental property that’s also used as a vacation home).

PLEASE NOTE: THIS ARTICLE AND OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS TAX BULLETIN IR 2019-04.

Source: CMPS Institute

Time to file your Homestead Exemption!

It’s that time of year to remind everyone who bought a home in 2018 to make sure you send in the information to get your homestead exemption filed. Please DO NOT pay to have this done; it’s free to file and can be done in just a few minutes. Check out the info below for details.

WHY IS FILING THE HOMESTEAD EXEMPTION IMPORTANT TO ME?

If you purchased a home that you occupy as your primary residence, you are entitled to the property tax exemption. I am sure you take as many IRS tax deductions as you are allowed; this is a similar concept. The exemption reduces a homeowner’s property tax bill by removing part of the home’s value from taxation.

For example, your home is appraised at $100,000, and you qualify for a $25,000 exemption (this is the amount mandated for school districts), you will pay school taxes on the home as if it was worth only $75,000. Taxing units have the option to offer a separate exemption of up to 20 percent of the total value.

Once you receive the exemption, you do not need to reapply unless the chief appraiser sends you a new application. In that case, you must file the new application. If you should move or your qualification ends, you must inform the appraisal district in writing before the next May 1st.

HOMESTEAD CAP- BONUS!!!

When the local Counties economy thrives, property values can increase by 20%, 25% and even 30% in a year. We have been experiencing this in the Austin area over the last several years. The Homestead Cap is an amazing feature in the fact that it restricts the amount that the assessed value of a residential property may increase from year-to-year! The appraised value can go up a maximum of 10% each year until it reaches the full market value.

Appraisal districts are required to appraise properties at their fair market value as of January 1 of each year. You qualify to have your appraised value capped if the property is your primary residence and you have had exemptions in place for two years. This means that the property will be appraised at full market value for the first year that you qualify and receive a homestead exemption.

When you qualify for a homestead cap, the second year you own the home, your market value and appraised value may not be the same. The market value may increase by any percentage over the previous year, but the “cap” makes sure that you are not taxed on an increase of more than 10%. Without the Homestead Cap it’s no-holds-barred!

WHAT IF I HAVE OWNED MY HOME FOR YEARS AND NEVER FILED?

You may file an Application for Homestead Exemption with your appraisal district for the $25,000 homestead exemption up to two years after the taxes on the homestead are due. You should go ahead and file in order to possibly get a refund for the last two years and also to get the assessed value cap in place!

DO NOT WAIT TO FILE!

If you recently bought a home a just read that you have two years to file, DO NOT WAIT. I cannot tell you how many people have forgotten to file and have lost thousands of dollars! Carve out a few minutes to get this done online.

HOMESTEAD EXEMPTION REQUIREMENTS?

• You must own your home on January 1st of the year for which you are applying.

• You must reside at the home as your principal residence on January 1st of that year, and not claim any other property as homestead.

• Only individual homeowners (not corporations or other entities) may receive a homestead exemption.

• A homestead can be a house, condominium or a manufactured home. It can include up to 20 acres, if the land is also owned by the homeowner and used as a yard, or for another purpose related to the residential use of the home.

HOW TO APPLY:

I have provided links to a few of the counties in the Austin area. CLICK HERE for the downloadable version of the Homestead Exemption Form for the State of Texas which can be mailed in to the County along with the required additional documentation (see appropriate county website for details as they will deny your application if not submitted correctly).

Travis CountyAPPLICATION LINK

Mailing Address:

P.O. BOX 149012

Austin, TX 78714

Travis Central Appraisal District Website: https://www.traviscad.org

Williamson CountyAPPLICATION LINK

Mailing Address:

625 FM 1460

Georgetown, TX 78626

Williamson Central Appraisal District Website: https://www.wcad.org

Hays County   APPLICATION LINK

Mailing Address:

21001 IH 35 North

Kyle, Texas 78640

Hays Central Appraisal District Website: https://www.hayscad.com

Appraisal Waivers Help You Get Into A Home Quickly!

Not every loan requires an appraisal!

Both Fannie Mae and Freddie Mac started collecting data on every appraisal they received a few years back (yes, big brother is always watching). They began storing every detail from the appraisals and created their own information database which pinpoints a specific property and looks at all of the recent information they have about properties around it in order to determine if they think the value or sales price is accurate. Since Fannie and Freddie are the primary sources of mortgage providers across the U.S., chances are they have all of the information for the home that just sold a few doors down. As long as they feel like the value is not inflated or they do not feel that you are in a declining market, they might offer you an appraisal waiver which means they are good to go with the value of the property offered.

Not every loan qualifies for an appraisal waiver, so let’s look at what is need to qualify.

Fannie Mae

Refinancing:

  • Must be a one-unit property (including for condos).
  • For a rate/term refinance on a primary residence or second home, you need at least 10% equity; 25% on investment properties.
  • Purchase:
    • Must be a one-unit property, (including condos).
    • You need at least a 20% down payment on a primary residence or second home. Investment properties aren’t eligible.

It is also worth a mention that if an appraisal has already been done (by the lender or recently by another potential buyer and lender where the deal may have fallen through), that value is used and the property would not be eligible for the waiver.

Freddie Mac

  • Must be a one-unit property, including condos.
  • The loan must be a new home loan or a rate/term refinance.
  • You must have a 20% down payment for buying a home, 20% equity for refinances.

The waiver is property and borrower specific so it can be hit or miss but always worth a shot. I should also mention that the waivers are only eligible on Conventional Conforming loans and that not every lender will offer the appraisal waiver option due to their own internal guidelines/requirements. If you meet the down payment requirements listed above, I will always run your loan through both the Fannie Mae and Freddie Mac automated underwriting engines to see if either one gives us the waiver to help ensure your loan process is as smooth as possible! As always I am here with any questions you might have! I am always here to help!