Did you know that you can use 1031 exchange funds for renovation expenses? I was recently chatting with a client who owns an investment property and was considering a 1031 Exchange – swapping a new property that's "like-kind" for an existing one, while deferring capital gains taxes. I shared something they were not familiar with, which was they could actually use a portion of those exchange funds for renovations on the new property. It is specifically referred to as an improvement exchange. By doing this they could potentially: Defer capital gains taxes on the sale of their existing property, by reinvesting the proceeds into the replacement property and improvements, allowing their money to grow tax-deferred. Increase the new property’s value by using sale proceeds for improvements on the replacement property. This can also result in higher rental income or a larger profit when you eventually sell. Customize the replacement property to perfectly suit your investment goals. It's important to remember that this is a complex tax strategy. There are strict time constraints, the replacement property must be "like-kind," and working with both a 1031 Qualified Intermediary (A neutral third-party middleman, facilitating the exchange process and ensuring compliance with IRS regulations) and a tax advisor is crucial for a smooth and compliant tax-deferred exchange. If you would like to learn more about this strategy, contact us via e-mail at Team@greenesievers.com to schedule a time to meet. We can also put you in touch with a 1031 specialist who can further explain the details of this approach.

“Marry the House, Date the Rate”: Finding Creative Financing Solutions to buy when interest rates are up (like a 3-2-1 Buydown) Just like when you marry someone, there are foundational things you need and then there are things you want, which often change. Similarly when buying a home, the purchase price is fixed, but interest rates change. I was in an office meeting last week and an agent mentioned that 80+ groups of people attended their open house, another agent received 38 offers on a property, and homes are going way over asking. All this activity is driving home prices up, and once interest rates come down, I can only assume demand will continue to increase as well as housing prices. When speaking with clients, I have been suggesting that they speak with their lenders about finding creative financing options, such as the 3-2-1 buydown. A 3-2-1 buydown is a temporary mortgage interest rate reduction strategy, which allows a buyer to qualify for a higher mortgage. This approach lowers the interest rate for the first three years of the loan by 3% in the first year, 2% in the second year and 1% in the third year - then the rate goes back to the original rate for the remaining term of the loan. This strategy is beneficial for homebuyers who are expecting interest rates to fall in the next few years and want to save money on their monthly payments in the meantime. Here is an example of how a 3-2-1 buydown would work for a $1,000,000 home loan with a 5% down payment and an initial interest rate of 6.75%: Year 1: The interest rate would be reduced to 3.75%, resulting in a monthly payment of approximately $4,938. This is a savings of $1,762 per month compared to the original monthly payment of $6,700. Year 2: The interest rate would be increased to 4.75%, resulting in a monthly payment of approximately $5,494. This is still a savings of $1,206 per month compared to the original monthly payment of $6,700. Year 3: The interest rate would be increased to 5.75%, resulting in a monthly payment of approximately $6,082. This is still a savings of $618 per month compared to the original monthly payment of $6,700. Year 4 and beyond: The interest rate would revert to the original rate of 6.75%, resulting in a monthly payment of $6,700. It is important to note that the 3- 2-1 buydown is typically paid for by the seller of the home (as opposed to a price reduction), or a lender and it is not available from all lenders. Additionally, it is important to make sure that you can afford the monthly payments after the buydown period ends. If you would like to learn more about this strategy, contact us via e-mail at Team@greenesievers.com to schedule a time to meet. We can also put you in touch with a lender who can further explain the details of this approach. 

Inheriting a loved one's home can be a wonderful gift, but it can also come with the burden of capital gains tax when you decide to sell it. Capital gains tax is a fee you pay on the profit made from selling assets like real estate, stocks, or even a car. This tax is calculated based on the difference between the purchase price and the sale price. Now, there are two types of federal capital gains tax - short-term and long-term. Short-term tax applies if you sell an asset within a year, and the rate matches your regular income tax rate. On the other hand, long-term capital gains tax applies if you hold onto the asset for over a year, and the rate is typically lower, varying from 0% to 20% depending on your income. It's also important to know that many U.S. states have their own additional capital gains tax rates. But in a few states like Alaska, Florida, and Texas, you won't face a state-level capital gains tax. So, how can you reduce capital gains tax on an inherited property? Here are some strategies: ⦁ Sell the property quickly: If you sell the property shortly after inheriting it, you can take advantage of the "step-up basis." This means you'll only be taxed on the difference between the property's value at the time of inheritance and the sale price. ⦁ Make it your primary residence: If you live in the inherited property for at least two out of five years before selling, you might qualify for a primary residence exclusion, allowing you to exclude some or all of the capital gains. ⦁ Rent the property: If you don't want to live in the property but want to keep it for a while, consider renting it. You can use the proceeds from the sale to buy another property through a 1031 tax-deferred exchange, deferring capital gains taxes. ⦁ Disclaim the inheritance: If you'd rather not deal with the tax implications, you can choose to disclaim the property, transferring it to the next eligible person. ⦁ Transfer the property into a trust before death: Consider having your loved one transfer the property to a trust before they pass away, as the type of trust chosen can impact the tax treatment. In conclusion, minimizing capital gains tax on inherited property is possible with these strategies, but it's crucial to consult with a professional for the best advice. Taxes can be complex, so expert guidance is your best bet. Source: https://www.innovativecpagroup.com/resources/newsarticles/how-to-minimize-capital-gains-tax-on-inherited-property/

A 1031 exchange, also known as a like-kind exchange or a tax-deferred exchange, is a provision in the United States tax code that allows real estate investors to sell a property and reinvest the proceeds into another property of similar nature or value, while deferring the payment of capital gains taxes that would normally be due upon the sale. You’ve probably heard that your primary residence usually doesn't qualify for a 1031 Exchange tax-saving strategy, but there are a few exceptions. 1. Conversion to Rental Property: If you convert your primary residence into a rental property and meet all 1031 exchange requirements, you can defer taxes on its sale by exchanging it for a like-kind property. These requirements include: ⦁ Both properties must be like-kind. ⦁ You must use a qualified intermediary (QI) to handle the exchange. ⦁ The properties must be held for investment or business purposes. ⦁ You have 45 days after close of escrow to identify a replacement property and 180 days to acquire it. ⦁ The value of the replacement property must equal or exceed the relinquished property's value. 2. Vacation Homes: Even your vacation home might qualify for a 1031 exchange if you have rented it out for at least 14 days in each of the two years before selling it. However, there are some special reporting and intent requirements. 3. Mixed-use Exchange: These transactions involve selling a property that includes the taxpayer's primary residence along with other land, structures, or improvements used for business or investment purposes. Examples could include: ⦁ Home Office - this is where a business pays the taxpayer rent for office space within the principal residence; ⦁ Farm and Ranch Land - where the taxpayer works the land as their business, but lives in their principal residence also located on the property; ⦁ Duplex - A duplex where the taxpayer lives in one unit as their principal residence and rents the other unit; and ⦁ ADU - A single family home with an accessory dwelling unit (“ADU”), attached or detached, and the taxpayer lives in the home as their principal residence and rents out the ADU. The list is vast, yet mixed-use exchanges arise when there is a principal residence, commonly known as the primary residence, situated on or within the property or building being transferred as a part of a single transaction. These are just topics to consider when thinking about selling your home. You should contact a professional who thoroughly understands the rules for executing such transactions. Contact Greene & Sievers Real Estate and we can put you in touch with trusted 1031 Exchange specialists. Sources: https://www.pivotprofessionalpartners.com/blog/1031-exchange-primary-residence-does-your-property-qualify#:~:text=1031%20EXCHANGE%20 PRIMARY,into%20another%20property https://www.accruit.com/blog/section-1031-exchange-primary-residence#:~:text=Use%201031%20Exchange.-,Mixed%2DUse%201031%20Exchanges,or%20held%20as%20an%20investment

Selling your primary residence in California can be an exciting but also financially complex endeavor. One crucial aspect to consider is the potential capital gains tax you might owe on the profit from the sale. However, there are exemptions and exclusions in place that can significantly reduce or eliminate your capital gains tax liability. In this blog post, we'll explore the ins and outs of selling your primary residence in California and the various exemptions available to homeowners. Understanding Capital Gains Tax Before delving into the exemptions, it's essential to understand what capital gains tax is and how it works. When you sell an asset, including your home, for more than what you paid for it, you typically incur a capital gain. In California, this gain is subject to taxation at the state and federal levels. The current federal tax rate on long-term capital gains (assets held for more than one year) ranges from 0% to 20%, depending on your income. In addition, California imposes a state capital gains tax which can be as high as 13.3%, making it one of the highest state tax rates in the country. However, there's good news for homeowners in California. The state offers several exemptions that can reduce or eliminate your capital gains tax liability when selling your primary residence. 1. The Home Sale Exclusion (Section 121) The Home Sale Exclusion, also known as Section 121 of the Internal Revenue Code, is a federal tax provision that allows homeowners to exclude a portion of their capital gains when selling their primary residence. To qualify for this exemption, you must meet the following criteria: ⦁ You have owned the home for at least two out of the five years before the sale. ⦁ You have used the home as your primary residence for at least two out of the five years before the sale. ⦁ You haven't claimed the exclusion on another home sale within the last two years. Under this provision, a single homeowner can exclude up to $250,000 in capital gains from taxation, while a married couple filing jointly can exclude up to $500,000. If your capital gains fall below these thresholds, you may not owe any federal capital gains tax on the sale of your primary residence. 2. California's Homeowners' Property Tax Exemption In addition to the federal Home Sale Exclusion, California offers its own tax benefits to homeowners through the Homeowners' Property Tax Exemption. This program reduces the assessed value of your primary residence by $7,000 for tax purposes, which can result in lower property tax bills. While this doesn't directly impact your capital gains tax, it can help reduce your overall housing costs. 3. 1031 Exchange For homeowners looking to invest in another property after selling their primary residence, the 1031 exchange can be a useful tool. Under Section 1031 of the Internal Revenue Code, you can defer capital gains tax by reinvesting the proceeds from the sale into a "like-kind" property within a specific time frame. This is a more complex strategy that requires careful planning and adherence to IRS guidelines. ( See blog post entitled “A 1031 Exchange May Apply to Your Primary Residence." ) Conclusion Selling your primary residence in California can be a profitable venture, but it's crucial to understand the capital gains tax implications and the available exemptions. The Home Sale Exclusion at the federal level and the Homeowners' Property Tax Exemption at the state level can significantly reduce your tax liability, allowing you to keep more of the profit from your home sale. Additionally, the 1031 exchange provides an option for those looking to reinvest in real estate while deferring their tax obligations. Always consult with a tax professional or financial advisor for personalized guidance when navigating these tax considerations. By leveraging these exemptions and following tax regulations, you can make the most of your primary residence sale in the Golden State.

Since 1978, California homeowners have benefitted from Proposition 13, which limits the yearly property tax increase, regardless of the increased value of the home. Property values have skyrocketed in many California cities by over 200% since the early 2000’s. So, you may be hesitant to sell and buy another home in California given that State and local taxes are typically calculated at 1.2%-1.3% of the purchase price. But there is a way to make that desired move without a jump in your property taxes. If you're 55 or older and own a home in California, Proposition 19, also known as the "Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act, which passed in November 2020, has brought significant changes to property taxes for certain groups. Under the old Proposition 60/90, homeowners aged 55 and above could transfer the tax base of their primary residence when moving within the same county or one of 10 California counties. Proposition 19 expanded this exemption, allowing eligible homeowners to transfer their assessed value to a new home anywhere in California, even if it's in a different county. And you can take advantage of Proposition 19 up to three times! For homeowners aged 55 or older looking to move within California, Proposition 19 can lead to substantial property tax savings. It also offers provisions to help those affected by natural disasters. Consult with a tax professional to determine your eligibility for the base year value transfer. These changes took effect on and after April 1, 2021. Proposition 19 allows eligible homeowners to transfer their current taxable value to a new primary residence anywhere in California within two years of selling their original home. Key takeaways: Seniors over 55 can move up to three times in California while keeping their low property tax basis. If the replacement home is more expensive, there will be a slight adjustment, but taxes will still be considerably lower due to the transferred original tax value. Property tax transfers do not happen automatically ; homeowners need to fill out an application form. Additionally, Proposition 19 modified rules for inheriting property. The parent-child transfer and grandparent to grandchild transfer still applies but only if the new owner uses the property as their primary residence. If the property becomes a rental or vacation home, it will be reassessed at its current market value. Consulting a tax professional is recommended. Let us know if we can assist you.

Life has a way of changing. One of the significant milestones many of our clients experience is becoming empty nesters. It's a transformative phase filled with opportunities, Freshen up Your Home: As your children move on to pursue their dreams, you now have the freedom to reimagine your living space. Whether it's a fresh coat of paint, a renovation project, or transforming a bedroom into a home office, you can tailor your home to your preferences. Financial Freedom: With fewer daily household expenses, you may find that your financial situation becomes more comfortable. This can mean more disposable income for your hobbies, travel, or even investing in additional properties to diversify your portfolio. Rightsize Your Space: The Bay Area offers an array of housing options, from spacious family homes to cozy condos. Empty nesters often choose to rightsize, downsizing to a property that's easier to maintain, energy-efficient, and more aligned with their current needs. Or maybe it’s time for your dream home with enough space for future grandchildren. Exploration Awaits: The Bay Area is known for its diverse neighborhoods and communities. As empty nesters, you can explore different areas to find the perfect match for your post-parenting lifestyle. Whether you're drawn to bustling urban centers, tranquil suburbs, or scenic waterfronts, the choice is yours. Investment Opportunities: With potentially increased financial flexibility, you might consider real estate investments. It could be a vacation home, rental property, or participating in real estate investment trusts (REITs) to secure your financial future. At Greene & Sievers Real Estate, we believe that every stage of life brings unique opportunities, and becoming an empty nester is no exception. As you embrace this new chapter, consider the endless possibilities the Bay Area has to offer. Our dedicated team is here to assist you in finding the perfect property that aligns with your post-parenting dreams. If you're ready to explore the Bay Area's real estate market or have any questions about this exciting transition, please don't hesitate to reach out to us. We're here to help you make the most of this transformative journey.