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Real Estate by Tai Savet

By Tai Savet | Agent in Los Angeles, CA
  • Can Real Estate Professionals Beat The 3.8% Obamacare Tax ?

    Posted Under: Home Buying in California, Foreclosure in California, Investment Properties in California  |  January 18, 2013 9:23 AM  |  233 views  |  No comments

    If you own real estate, will you end up having to pay the 3.8% net investment income tax (NIIT) that goes into effect in 2013 ?  For purposes of this discussion let us assume that your AGI is over the relevant threshold ($250,000 in the case of a married couple filing jointly).  Even if your AGI is generally low, there may come a year when you sell property, giving you a high adjusted gross income and significant income subject to NIIT in that year.  So there are two important questions.  Will NIIT apply to your real estate income, including gains from the sale of property ?  Is there anything you can do about it ?

    The answers are.  Probably NIIT will apply to your real estate income and there might be something you can do about it.  What you need to do is sit down with someone who understands the passive activity loss rules and consider how you might group your various holdings.  It may turn out that keeping really good records of how you spend your time  will help you avoid the tax.  I have now reached the limit of my ability to explain this problem without going tax geeky on you.  If you have significant holdings and want to try to minimize this tax, you are going to need somebody who understands you and your holdings and is geeky, because the regulations just issued require you to jump from one Code section to the next and reflect on murky definitions.

    What Do The Passive Activity Loss Rules Have To Do With It ?

    The passive activity loss rules (Code Section 469) were part of the Tax Reform Act of 1986.  They were meant to drive the stake through the heart of tax shelters.  The Section led to fairly complicated regulations and quite a bit of case law.  Generally speaking, though, you only had to worry about all these rules if you had losses that you wanted to use to reduce your adjusted gross income.  If everything you did was profitable, then you did not have to worry about them.  Now you may. An activity that would be considered passive under 469 that produces net income will add to the amount subject to NIIT, unless it is subject to self-employment tax.

    The NIIT includes “rents” among the items that it taxes.  Rents are excluded from the tax base if they are derived in the “ordinary course” of a trade or business that is not subject to the passive activity loss rules of Section 469.  It seems that we are at a dead end here.  Rental activities are “per se” passive under 469.  There is an exception though.  The “per se” passive rule does not apply to real estate professionals.

    What The Regulations Say About Real Estate Professionals ?

    The regulations recognize that real estate professionals may be exempt from NIIT on some of their properties.

    Section 469(c)(7) and Sec.  1.469-9 provide special rules for certain individual taxpayers involved in the conduct of real property trades or businesses (real estate professionals). If a taxpayer meets the requirements to be a real estate professional in section 469(c)(7)(B), the taxpayer’s interests in rental real estate are no longer subject to section 469(c)(2), and the rental real estate activities of the taxpayer will not be passive activities if the taxpayer materially participates in each of those activities. .  

    So You Want To Be A Real Estate Professional ?

    If you have a day job outside of real estate, it can border on the impossible to qualify.  The 750 hour standard is not too bad, but what kills most people is the requirement that you spend more time on your real estate activities than anything else.   There was one case a little over a year ago of somebody with a serious day job who was able to pull it off.  He was a harbor pilot and his piloting was on a week on week off basis.  The other thing that people have a lot of trouble with is having good records of how they spend their time.  Both the IRS and the Tax Court are very hard on people who don’t keep contemporaneous records.

    There is a whole new class of persons who are going to be looking to gain the status.  That would be real estate owners whose properties have been consistently profitable.  The “per se” passive rule never mattered to them.  If the properties have been profitable enough to keep them from needing day jobs, they might be able to qualify now.  It is critical, though, that they document their time to make that 750 hour bogey.

    Qualifying as a real estate professional does not get you all the way there.  That just gets you around the “per se” passive rule.  You also need to materially participate  in your properties.  Of course if you have multiple properties, it may be impossible to materially participate in each of them.  You are allowed to elect to aggregate your properties for that purpose, but you must make the election.  Many people miss it.

    Do You Have A Trade Or Business ?

    There is another curve ball to this. 

    However, a taxpayer who qualifies as a real estate professional is not necessarily engaged in a trade or business (within the meaning of section 162) with respect to the rental real estate activities. If the rental real estate activities are section 162 trades or businesses, the rules in section 469(c)(7) and Sec.  1.469-9 will apply in determining whether a rental real estate activity of a real estate professional is a passive activity for purposes of section 1411(c)(2)(A). However, if the rental real estate activities of the real estate professional are not section 162 trades or businesses, the gross income from rents derived from such activity will not be excluded under section 1411(c)(1)(A)(i) by the ordinary course of a trade or business exception.

    You would think that somebody could be able to tell right off whether a particular real estate activity constitutes a trade or business.  It is usually quite important whether an activity is a trade or business.  For most activities, whether deductions go against adjusted gross income will hinge on the “trade or business” question.  Also, trade or businesses are generally subject to self-employment tax.  When you get to rental real estate activities though the “trade or business” question becomes less important.  Related deductions go against adjusted gross income, regardless.  Real estate rentals are specifically excluded from self-employment tax. 

    Well now if you are a real estate professional, the NIIT makes the question important.  The IRS is putting us on notice in the regulations that they are going to be looking at it.  I’ve spent a little bit of time poking at the question and my first impression is that it is something of a gray area.  To illustrate the problem let’s consider someone who owns his own real estate brokerage firm.  The brokerage firm will qualify him as a real estate professional. 

     Suppose our broker owns a building that is triple net leased to a credit tenant for a very long term.  He will probably not be able to get out from paying NIIT on the income stream from that property.  If on the other hand he owns a few three-deckers and deals with the tenants himself, by jumping through the proper hoops he can avoid NIIT on the income from the housing units.  Perhaps more significantly, any gain from a sale will not be subject to NIIT.  An intermediate case might be one like the situation I find myself in – an accidental landlord.  I continue to own a former residence and am renting it out till housing prices recover or hell freezes over.  It is a matter of indifference to me as to whether that rental counts as a trade or business.  If I were a broker, it would be a different story.

    There’s More

    The regulations on the NIIT have a lot more wrinkles to them.  They will require people with multiple activities to look closely at how they are classified.  In the past having a profitable activity classified as passive under 469 was either a good thing or a matter of indifference.  It would be a good thing, if you had losses from other passive activities.  Thanks to NIIT, it is no longer such a good thing.

  • Top Producer Software

    Posted Under: Home Buying in Calabasas Hills, Foreclosure in Calabasas Hills  |  January 1, 2013 5:28 PM  |  252 views  |  No comments
    How many real estate agents really use top producer?
    I just signed up and it seems a bit complicated but good!
    What does everyone else think?

  • Things Not to Do Before Purchasing a Home ~ Shared By Savet Group

    Posted Under: Home Buying in Westlake Village, Foreclosure in Westlake Village, Credit Score in Westlake Village  |  April 19, 2012 2:47 PM  |  278 views  |  No comments

    Things Not to Do Before Purchasing a Home

    No Major Purchase of Any Kind

    Review the article titled, "Don’t Buy a Car," and apply it to any major purchase that would create debt of any kind. This includes furniture, appliances, electronic equipment, jewelry, vacations, expensive weddings…

    …and automobiles, of course.

    Don’t Move Money Around

    When a lender reviews your loan package for approval, one of the things they are concerned about is the source of funds for your down payment and closing costs. Most likely, you will be asked to provide statements for the last two or three months on any of your liquid assets. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds, and even your company 401K and retirement accounts.

    If you have been moving money between accounts during that time, there may be large deposits and withdrawals in some of them.

    The mortgage underwriter (the person who actually approves your loan) will probably require a complete paper trail of all the withdrawals and deposits. You may be required to produce cancelled checks, deposit receipts, and other seemingly inconsequential data, which could get quite tedious.

    Perhaps you become exasperated at your lender, but they are only doing their job correctly. To ensure quality control and eliminate potential fraud, it is a requirement on most loans to completely document the source of all funds. Moving your money around, even if you are consolidating your funds to make it "easier," could make it more difficult for the lender to properly document.

    So leave your money where it is until you talk to a loan officer.

    Oh…don’t change banks, either.

  • How to Sell Your Home in a Slow Market ~ Savet Group

    Posted Under: Home Buying in Westlake Village, Foreclosure in Westlake Village, Investment Properties in Westlake Village  |  April 19, 2012 2:44 PM  |  248 views  |  No comments

    How to Sell Your Home in a Slow Market

    Even though the real estate market has slowed down in recent months, there are still plenty of homebuyers eager to make a purchase. Knowing how to prepare your home for sale, when to allow access for showings, and how you can offer buyer incentives will help you find the right buyer, even in a declining market.

    Before you even put your home on the market, make sure that all basic repairs are completed. Nothing can turn off a prospective buyer quicker than loose railings, torn screens or missing hardware on cupboard doors. These easy repairs do not cost a lot of money. If a homebuyer sees that the little things are not attended to, they are likely to believe that the larger things are neglected too. Let buyers know that you have pride in your home by making sure that all of the small repairs are taken care of.

    Keep your home clean throughout the time it is on the market. In a slow real estate market, it is important to have your home available to show at a moment's notice. The more often your home is shown, the likelier it is that your home will sell. Keep your home available to your realtor and they will be able to show your home quickly to any buyer that shows interest.

    Have your home staged by a professional. Home staging has become a booming business and a professional home stager will help you remove clutter and depersonalize your space. Prospective homebuyers want to picture their family in the home, not yours and a home full of personal clutter will not show off the potential of your home.

    Keep pets contained during a real estate showing and make sure that your cat litter box is always clean. Pet owners tend to get used to the odors caused by litter boxes and it is important that you remember to clean it every day. Nothing will turn off a prospective home buyer like a home that smells. Many people are fearful of dogs, especially ones that they do not know. Make sure that you either take your dog with you for a showing or put them on a leash outside.

    Be realistic in your expectations of the price you will be able to sell your home. Forget about what could have been if you had sold it last year and focus on what your home is worth now. In a buyer's market, buyers don't have to negotiate much. Buyers know that you want to sell your home and a home that is priced too high is likely to be looked over. Ask a fair price for your home to avoid the need for too much negotiation.

    In a slow market, hiring a real estate agent is crucial to get your home sold in a reasonable amount of time. Yes, there are ways you can list your home for sale by owner using the internet, but nothing beats the experience that comes fro a real estate agent who is able to take care of everything in order to sell your home.

    Selling your home can be a stressful time, but you can be successful in selling your home if you remain patient, reasonable and flexible. There are buyers out there and the key is to find them and get them to fall in love with your home.

    How to Sell Your Home in a Slow Market ~ Savet Group
  • Moving Tips When You Have A Pet ~ Savet Group

    Posted Under: Home Buying in Westlake Village, Foreclosure in Westlake Village, Home Insurance in Westlake Village  |  April 19, 2012 2:30 PM  |  245 views  |  No comments

    Moving Tips When You Have A Pet

    tip 1 Packing for Your Pet

    Packing for a pet is not unlike packing for a child you do not want to over prepare. Just the essentials. Make sure your dog has tags that list your mobile number, or better yet get them microchipped. If your pet is traveling in the car with you measure out their everyday kibble in serving-sized bags and bring two portable bowls and plenty of water for the road. Other must haves include an extra leash, an ample supply of your pet’s regular medications and supplements and plenty of biodegradable bags to pick up after your pooch during rest stops and walks.

    tip 2 Introduce Your New Home Gradually

    Introduce your cat/dog to your new home gradually, restricting it to one or two rooms at first. Place their bed, toys, food and water in the room with them. This gives your pet the chance to become accustomed to the sounds and smells in your new home. It also gives them a room of their own to use later as a refuge or if they feel uncertain.

    tip 3 Don't Rely On Sedatives

    Because we love them so much we want our animals to feel comfortable, but giving them a sedative is more for our peace of mind, not theirs. The truth is, your pet is much more likely to deal better with their moving anxiety without medication. The truth is giving your animal a sedative prior to travel can be very dangerous. The most common tranquilizer, H-acepromazine has very serious consequences for traveling pets: it relaxes the respiratory muscles which makes breathing more difficult, it could lead to over-exertion just for breathing, which will lower blood sugar, and it alters the body's temperature control mechanism.

    tip 4 Give Them Space To Explore

    Let them explore on their own. If they decide to hide under the bed, let them be. They'll eventually come out when they feel safe.

    tip 5 Pick a Frequent Fido Flier

    Why should you get extra leg room for yourself but not for your pet? Select an airline that offers first-class accommodations for pets traveling in the cabin or under the plane. There are many pet-friendly airlines that keep pets in climate controlled conditions throughout the flight which ensures that every pet will arrive safely at its destination. In fact there is even a pet only airline called PetAirways.

    tip 6 Arrange a Jet-Setter Check Up With Your Vet

    If you’re making a trip across state lines or international borders, you’ll need a health certificate issued the week before the flight. Most states require pets to be current on their rabies shots. For international trips, the documentation for importing or exporting pets can be even more complex. Planning ahead and consulting a professional pet relocation company can ensure that your trip goes smoothly.

    tip 7 Make Friends With A Travel Crate

    Whether you travel by car or by air, the crate your pet travels in will be his “home” during the trip and it’s crucial that your pet feels comfortable in it ahead of time. You can begin feeding your pet in the crate on a daily basis to help ease the transition.

    Know Your Pet

    Check on line to research your breed's general tempermanent. Knowing your animal and the kind of pet they are - secure, social, adventurous or shy - will help you determine what they're individual needs are. For example, Three years earlier, if you've rescued your pet from a terrible fate, be understanding if they adjust to your home with just some growls and unhappy sounds.

  • Seven Selling Mistakes You Don't Want to Make! ~ Savet Group

    Posted Under: Home Buying in Westlake Village, Foreclosure in Westlake Village, Investment Properties in Westlake Village  |  April 19, 2012 1:45 PM  |  129 views  |  No comments
    Seven Selling Mistakes You Don't Want to Make!
    Shared by ~ Savet Group

    Mistake #1 -- Pricing Your Property Too High

    Every seller obviously wants to get the most money for his or her product. Ironically, the best way to do this is NOT to list your product at an excessively high price! A high listing price will cause some prospective buyers to lose interest before even seeing your property. Also, it may lead other buyers to expect more than what you have to offer. As a result, overpriced properties tend to take an unusually long time to sell, and they end up being sold at a lower price.

    Mistake #2 -- Mistaking Re-finance Appraisals for the Market Value

    Unfortunately, a re-finance appraisal may have been stated at an untruthfully high price. Often, lenders estimate the value of your property to be higher than it actually is in order to encourage re-financing. The market value of your home could actually be lower. Your best bet is to ask your Realtor for the most recent information regarding property sales in your community. This will give you an up-to-date and factually accurate estimate of your property value.

    Mistake #3 -- Forgetting to "Showcase Your Home"

    In spite of how frequently this mistake is addressed and how simple it is to avoid, its prevalence is still widespread. When attempting to sell your home to prospective buyers, do not forget to make your home look as pleasant as possible. Make necessary repairs. Clean. Make sure everything functions and looks presentable. A poorly kept home in need of repairs will surely lower the selling price of your property and will even turn away some buyers.

    Mistake #4 -- Trying to "Hard Sell" While Showing

    Buying a house is always an emotional and difficult decision. As a result, you should try to allow prospective buyers to comfortably examine your property. Don't try haggling or forcefully selling. Instead, be friendly and hospitable. A good idea would be to point out any subtle amenities and be receptive to questions.

    Mistake #5 -- Trying to Sell to "Looky-Loos"

    A prospective buyer who shows interest because of a "for sale" sign he saw may not really be interested in your property. Often buyers who do not come through a Realtor are a good 6-9 months away from buying, and they are more interested in seeing what is out there than in actually making a purchase. They may still have to sell their house, or may not be able to afford a house yet. They may still even be unsure as to whether or not they want to relocate.

    Your Realtor should be able to distinguish realistic potential buyers from mere lookers. Realtors should usually find out a prospective buyer's savings, credit rating, and purchasing power in general. If your Realtor fails to find out this pertinent information, you should do some investigating and questioning on your own. This will help you avoid wasting valuable time marketing towards the wrong people. If you have to do this work yourself, consider finding a new Realtor.

    Mistake #6 -- Not Knowing Your Rights & Responsibilities

    It is extremely important that you are well-informed of the details in your real estate contract. Real estate contracts are legally binding documents, and they can often be complex and confusing. Not being aware of the terms in your contract could cost you thousands for repairs and inspections. Know what you are responsible for before signing the contract. Can the property be sold "as is"? How will deed restrictions and local zoning laws will affect your transaction? Not knowing the answers to these kind of questions could end up costing you a considerable amount of money.

    Mistake #7 -- Limiting the Marketing and Advertising of the Property

    Your Realtor should employ a wide variety of marketing techniques. Your Realtor should also be committed to selling your property; he or she should be available for every phone call from a prospective buyer. Most calls are received, and open houses are scheduled, during business hours, so make sure that your Realtor is working on selling your home during these hours. Chances are that you have a job, too, so you may not be able to get in touch with many potential buyers.

  • Can I Safely Walk Away from My Mortgage? Shared by ~ Savet Group

    Posted Under: Home Buying in Westlake Village, Foreclosure in Westlake Village, Credit Score in Westlake Village  |  April 19, 2012 1:32 PM  |  126 views  |  No comments

    Can I Safely Walk Away from My Mortgage? Shared by ~ Savet Group

    This is an educational article about the current financial crisis and whether it is wise to "walk away" from your mortgage.

    The answer to this question depends to a large part on whether you live in a state that has consumer protection statutes known as "anti - deficiency" statutes. These statutes are designed to protect the homeowner from being responsible for loans secured by their personal residence when the personal residence is "underwater." An "underwater" personal residence is one in which the principal balance on the loans that are against the property are in excess of the value of the property.

    In many states, some form of consumer protection has been enacted by the state legislature which prevents banks from suing homeowners for deficiencies. These laws typically apply to single family owner occupied residences.

    In California, for example, the legislature enacted Code of Civil Procedure section 580b which prohibits a deficiency judgment in the strict sense, i.e., a personal judgment against the debtor. In relevant part the code section provides as follows:

    "No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser."

    In layman's terms this means that a homeowner who secures a "purchase money" loan ( which means a loan used to purchase his home can not be sued by his bank on the loan that is secured by the home.

    You will also note that this section only applies to a "dwelling of not more than four families" which in essence means that if you live in and own and duplex, triplex or fourplex, this anti - deficiency statute applies to you.

    This type of statute has been adopted in many states across the country. You should check with an attorney in your state to find out the exact language of the statute in your state and whether or not it applies to you.

    So if your personal residence is "underwater" in the state like California and it is secured by a "purchase money" loan, you can safely "walk away" from the mortgage and its financial obligation without fear of being sued by your lender.

    Once you made this determination, that you are in an anti - deficiency state and that the anti - deficiency statutes apply to you, your next decision really is one of personal choice. Do you love the house? Do you think the market will recover? Can you afford your mortgage payments?

    It is certainly nice to know that you do have choices. However, be clear not everyone can simply "walk away" from their mortgage. It is best that you seek legal advice from a competent real estate attorney in your state before you make the decision to "walk away."


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