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You are here: Home » 2015 » July

PROP TAX UPDATE

Just this past week the National Association of Realtors announced that resale home sales are way up, as are prices. And there was much rejoicing! Well, the buyers weren’t rejoicing, but homeowners were rejoicing! Especially the ones that need to sell their homes. The rest of the homeowners were happy that prices have risen, as well, but not all of them.

 

Some homeowners are seeing a BIG jump in their property tax bill now that prices have increased. These are the homeowners whose property taxes were LOWERED over the past few years when values were down. If you bought a home over the last 4-5 years and you’ve never had your taxes lowered, than you should be protected by Prop 13 that limits increases to no more than 2% per year.

 

But there were a lot of us that took advantage of something called Prop 8 to appeal our property tax assessment when values dropped way below what we had paid for the home. (Yes, it’s called Prop 8. No, it has nothing to do with same-sex marriage!) The catch with a Prop 8 appeal is that it’s only temporary. The Assessor can raise your assessed value again as prices increase. They can do it gradually, or all the way back up to what your assessed value would have been (including the 2% max Prop 13 increases each year).

 

If you are under Prop 8, you are probably receiving a letter this week or next just to notify you if you are still under Prop 8 or not. Read it very carefully because it can be a little confusing. If you are still getting the reduction, the letter will list that reduced value AND it will give you the number that you SHOULD be under if not for the Prop 8 appeal.

NEW DROUGHT LAW

California is still suffering from a major drought and people are really starting to take it seriously. Last summer I saw a few brown lawns, but most people weren’t quite ready to let theirs die. Now it seems like there are more brown lawns than green ones! Last year my advice to homeowners putting their homes on the market was to go ahead and keep their lawns green because it would help their home sell. I said I’d change my advice as soon as the majority of lawns in their neighborhood were brown, and I think we’ve reached that point!

 

The problem is that some homeowner’s associations and cities have rules that require residents to keep their lawns up. So homeowners were stuck between complying with water-reduction mandates from city and county governments versus complying with rules about upkeep on their property. Some homeowners were even getting fined by their homeowner’s association or getting abatement notices from other government entities about their brown lawn.

 

Thankfully a new law was just signed by the Governor to settle this issue. AB1 says that local governments cannot fine a homeowner for a brown lawn during a statewide water emergency like we are under now. Last year a law went into effect prohibiting HOAs from fining homeowners, so this new law covers the rest of the bases regarding other government agencies.

 

Let’s all pray for rain next year! They say a big El Nino season is possible. Let’s hope they are right!

CAN WE MOVE NOW?

I’ve had some people tell me they’d like to move, but they think they have to wait for their two year anniversary before they can sell to avoid paying capital gains tax on the sale of their principal residence.

 

The good news (if you choose to call it this), is that your actual gain is probably less than you think. Most people just take their sales price and subtract what they paid and assume they will be taxed on all of that gain. As I mentioned in my last article, you get to subtract your buying and selling expenses, as well as improvements you’ve made to the home (don’t forget upgrades if you bought a new home). This can reduce your taxable gain in a hurry!

 

For example, let’s say you bought a home for $450,000 a year ago, and it is now worth $500,000. At first glance you might think you would be taxed on the appreciation of $50,000 if you were to sell prior to your two-year anniversary. In fact, after working through your allowable subtractions, your taxable gain might only be $15,000 or so. So you may still owe capital gains taxes on that amount, but it could be quite a bit less than what you were expecting.

 

In addition, if the reason for your move is an “unforeseen” circumstance as defined by the IRS and it’s one that they make allowances for, you can reduce your capital gains tax even further or avoid it altogether! You will qualify for a reduction if you are moving due to a change in employment, health, divorce, etc. There is even an exclusion in the event that you are blessed with twins or triplets which forces you to buy a larger home.

WILL GREEK DEFAULT HURT US?

It seems like we’ve been talking about Greece defaulting for a LONG time. Things are coming to a head again quickly and there are renewed concerns that this could be the start of another worldwide economic implosion. People are asking if a Greek default is our new “Lehman moment,” harkening back to the failure of Lehman Brothers in late 2008 when things got bad in a hurry. Since the Greek crisis has hit the news again, interest rates have risen slightly, but not tremendously.

 

Is it possible that this is the start of another huge downturn? Some people think so, however, most of the “experts” I follow don’t think so. If Greece had defaulted a few years ago, it very well may have caused a cascade effect that would have crippled the global finance world, again. However, the powers-that-be have spent the last few years making deals behind the scenes to try to insulate the rest of the world from Greece. It’s all very complicated, of course, and it could still go sideways, but the general idea (hope?) is that while things will be especially rough for Greece, the rest of the world won’t be impacted too greatly.

 

People in the know are watching Italy and Spain very carefully because they have some similar problems (though not as bad) as Greece, but their economies are MUCH larger than Greece. Of course right now creditors are demanding sky-high interest rates when lending to Greece because of the increased risk. The fear is that if creditors start to demand higher rates from Italy and Spain because of what is going on in Greece, this could be the falling domino that could lead to a European recession, which hurts us here in the U.S., too, because of how connected the global economy is.

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