What exactly is the 1031?

1031

What exactly is the 1031?

IRC Section 1031 (a)(1) states:

“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”

Overwhelmed? Don’t be.

Basically, the 1031 allows an investor to sell a property and reinvest the proceeds in a new, like-kind property while deferring all capital gain taxes.

Still a little confused? Let me help (or try to – I’m no IRS expert).

It means that you can change or swap your investment without cashing it out — essentially continuing to grow your investment with deferred tax payments. Until you sell for cash, you avoid taxation..even if you profit from your investment exchange. (This benefits you because you could continue to reinvest in more profitable investments without being repeatedly taxed!)

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The best part?

Like-kind property” has a fairly loose definition: it refers to the nature of the investment rather than the physical form. SO, any type of investment property (duplex, family residence, etc) can be exchanged for another type of investment property. This ensures that investors are not locked into one form of investment property.. allowing flexibility!

The worst part?

While there is technically no limitation to how many times or how frequently you can apply a 1031, an investor who makes exchanges extremely rapidly or regularly  may be dubbed a “dealer” and his or her properties will be considered “stock in trade” – meaning they are not allowed to swap real estate using the 1031 until they can prove that it was purchased solely for investment purposes. The lines here are a bit arbitrary, so discretion and advice from a professional is advised.

Keep a close eye on your calendar!!

From the date of closing on the original property, the investor has 45 days to select potential replacement properties and a deadline of 180 days after closing to purchase the new property.

What does NOT qualify for 1031 exchange?

  • A primary residence
  • Any property held “primarily for sale” or any property bought with the sole intent to sell (ex: a fixer-upper or a flip)

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Remember: we are not IRS experts, so if you are interested in learning more…

  • Check out this site to delve a little deeper or to learn if your property qualifies: http://www.1031exchange.com/faq/
  • Get in touch with an exchange facilitator – as always, contact us for a referral 🙂

 

Fun fact: A 1031 exchange is also called a like-kind exchange or a Starker!

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Los Angeles Rent Control

By: Lauren Weber

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We have been getting a lot of questions about rent control lately so we thought we’d share some information on the different areas that are effected by it and what it means to landlords/investors that need to abide by LA City’s rent control guidelines.

First, let’s start with the question: What is rent control?
Rent control, or the Rent Stabilization Ordinance (RSO), was designed to protect tenants from excessive rent increases and limits the reasons for evictions while allowing landlords a reasonable return on their investments. The RSO has been passed by the Los Angeles City Council on May 1, 1979 and has maintained it ever since. The RSO covers allowable rent increases, registration of rental units, legal reasons for evictions, and types of evictions requiring payment of tenant relocation assistance.

Subject rental units include: apartments, condominiums, town houses, duplexes, two or more dwelling units on a single lot, mobile homes, mobile home parks, and rooms in a hotel, motel, rooming house or board house occupied by the same tenant for 30 or more consecutive days.

What areas fall under rent control?
Predominately, any property within Los Angeles City is considered in a rent controlled area. These include areas such as Westchester, San Pedro, Torrance P.O., Hollywood, Northridge, Encino, Woodland Hills, Van Nuys, Sunland, Eagle Rock, Santa Monica, Beverly Hills, etc. However, there are some exceptions that would exempt properties for falling under rent control. Some of these exceptions include buildings completed after 1978, one house on a lot, government funded units, and luxury units. To find out if your property or property of interest falls under rent control you can follow these instrutions HERE and look up the property address HERE.

What are the landlords rights?
-Increase rent every 12 months by the allowable increase. Every year this figure is subject to change, however it has been 3% for the last several years and is the allowable rent increase from the time period of July 1, 2015 to June 30, 2016.
-Increase rent by an additional 1% for gas and/or 1% of electricity when landlord pays for either or both of these utilities.
-Increase security deposit and last month’s by the allowable percentage at the same time rent is increased.
-Increase rent by 10% for an additional tenant, except if landlord had previous notice of the additional tenant for more than 60 consecutive days and failed to notify the tenant of rent increase.
-Evict tenants for legal reasons as stated HERE.
-Apply for special rent increases base on an application for Primary Renovation, Capital Improvements, Rehabilitation, or a “Just and Reasonable” rent adjustment.
-Pass through current year Systematic Code Enforcement Program (SCEP) fees of $43.32 to the tenants at the rate of $3.6/month for 12 months, if the owner has paid them in full. Owner must give tenant 30 day written notice of increase prior to collection of fees and provide the tenant a copy of the Registration Certificate.

What are the tenants rights?
-Tenant may receive a copy of the Registration Certification of their rented units with Rent Stabilization Division from landlord.
-File a complaint with the Rent Stabilization Division, if the landlord:
-Imposes an illegal rent increase
-Is not registered in compliance with the Ordinance
-Provides a Notice to Quit that does not fall within the guidelines of legal reason           for eviction.
-Dose not pay relocation assistance as required by RSO.
-Fails to post an RSO notice on the property.
-Receive relocation assistance for certain no-fault evictions.
-File a complaint with Code Enforcement Division, if there are suspected code violations.

Are there any exceptions to rent control?
The major exceptions are buildings completed after 1978, single family residence, government funded units, and luxury units.

*For more information please contact your local city directly. You may also visit the City of Los Angeles’s website HERE for more rent control info or call The Los Angeles Housing and Community Investment Department at www.HCIDLA.LACITY.org or 866-557-7368

Neighborhood Spotlight: Lend A Hand Club

As your local REALTOR’s, our goal is to connect the South Bay community. Each month we support and connect neighbors by sharing what they are up to!
This month we are featuring Lend A Hand Club
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We wanted to learn what the Lend a Hand Club was all about so we rolled up our sleeves and spent a Sunday morning volunteering with them. What we experienced was inspiring! The club meets most Sunday mornings at their fearless leader, Jack’s house on Stanford Ave. They gather for about an hour assemble sandwiches, mix juice and organize their blankets and donations. The morning was  full of camaraderie, collaboration and energy. Kids gathered around a table swiping peanut butter and jelly, passing supplies from one to the next, all in the spirit of accomplishing their goal to put good back into the world. Once the last sandwich was wrapped the all the juice mixed we packed up the cars and headed out.
Here is where our time with the Lend A Hand Club was surprising. We have always heard giving out food on skid row is a humbling experience and it is, it makes you thankful for everything and everyone you have in your life. That we expected. What we were not expecting was witnessing the immense amount of leadership displayed by this group of high school students. The group was fearless in their interactions, handing out water, juice and sandwiches all with a smile. There is a sense of comfort and ease with the students you can tell their fearless leadership is a direct result of the guidance and protection of our neighbor Jack. He has been organizing Sundays just like this for at least 15 years. He is not only known in our neighborhood for doing so, but known among the inhabitants of Skid Row. He has a presence of a leader and a protector, with him it is apparent the students are free to come into their own as leaders and a source of inspiration. We were so inspired by this group and hope you are too!
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Our interview with Lend A Hand Club’s current President, Margot:
When was Lend a Hand Club created and how did it begin? 
Lend a Hand Club was created about 7 years ago when Sarah  who had been going to skid row with Jack through his Church started this club at Mira Costa to give more students the opportunity to experience what she had experienced. After a few years the leadership graduated and the club fizzled out. Since my older brother had been in this club I knew about it and really wanted to be a part of it so I decided to start Lend a Hand Club again and establish it as an active club at Mira Costa.
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What does Lend a Hand Club do?
As often as we can we take trips to skid row handing out sandwiches, lunch foods, clothing, shoes, blankets, and anything else we have to donate. We raise funds in order to continue paying for these trips, and we often do projects that come from Jack’s suggestions, like the Book Drive.
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How does Lend a Hand Club acquire food and goods? 
Students from Mira Costa raise funds through bake sales and donations, but we are always looking for more ways to raise funds and reaching more people who may want to donate.
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What do you see possible for the future of Lend a Hand Club and members involved?
Lend a Hand Club is looking at pairing up with a mission down town, and also starting a mentor program with Middle Schools kids who go to Teen Center so we can show them how their actions can make a difference in their community.
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How does Jack’s involvement in the club inspire all of you?
Jack Talerico is hands down the most generous person I have ever met in my life. He would donate the shoes from his feet or the coat from his back without thinking twice. He inspires me more and more every time we meet up. He is so kind and incredibly wise, always giving us advice for how to better ourselves and our community. I often feel like I need to write down everything he tells me because of the value of everything he says. He teaches me to be more generous, patient, and kind, but mostly he stresses the importance of listening to others and showing them that they are important which is something we can practice on our trips to skid row.
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How can the community support Lend a Hand Club?
Any donations at all are extremely appreciated, whether its blankets, clothing, shoes, food, money to buy food, socks, or hygiene items like deodorant, soaps, or feminine products.
Items can be dropped off (in the bed of the pickup truck in driveway) at: 1135 Stanford Ave, RB 90278
To donate you can purchase a Lend A Hand Club t-shirt HERE!
People can also get involved with coming downtown – volunteers are ALWAYS welcome.
Contact Jack to volunteer or with any questions: 310-683-9383

Congratulations to the Nguyen Family!!!

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I am so happy to announce that the Nguyen family closed escrow and are officially new home owners! From the moment I met the young couple I knew I was going to enjoy working with them and it was a bonus that I also got to meet and work closely with their parents as well. This kind and genuine family is so deserving of this beautiful home and I couldn’t be happier for them. What an eventful year of getting married, having their first baby, and buying a house! I feel so honored to have been a part of such an exciting time in their lives.

The first time we viewed this house was at the end of the day and a bit dark. I typically don’t like to show property in the evening in the event that the house is vacant and there are no ceiling lights, it makes it difficult to get a good idea of how the space looks and feels. They liked the house but it was one of the first homes that they saw so we continued our search. A couple days and a dozen houses later, the couple still liked this house the best so I suggested we re-visit it to see it in the daylight. The second trip over was not planned but was perfect timing, and what I like to think as “fate”, because when we arrived the sellers as well as their agent were there. I truly believe that everyone crossing paths helped to get our offer accepted in a multiple offer situation. It is so important to be represented by an agent that works well with other agents. Collaborating together to work as a “team” can make all the difference in having a good or bad escrow. I knew that this agent was going to be a pleasure to work with and to everyone’s benefit, escrow was a smooth and successful process.

Establishing a friendly and professional relationship with other agents has always been a top priority of mine. I know it is a key ingredient to getting my client’s offer accepted as well as having a smooth escrow. People may think that the other agent is the competition so it’s not a priority to develop a relationship. However, I believe that it is these relationships help in negotiating during escrow. I was able to represent my clients with their best interest at hand and got their house tented and completely fumigated as well as install a brand new roof! I believe all parties involved in this transaction have come out of escrow happy and to everyone’s benefit we were able to close early.

Congratulations again to the Nguyen family and best wishes for many happy years filled with great memories in their new home!

Congratulations to the Viados!!!

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I had the privilege of meeting and working with Katherine and Luis Viado and their beautiful family to find this place which they now can call home! Since the very beginning I have been impressed with this family. They were on a hunt to find a house and even though there isn’t much inventory for sale, they were aggressively and actively looking. I would say that it was because of their determination and proactive approach that we were able to get into escrow within less than a months worth of searching. We were in communication everyday and when I sent them a listing they liked they made time to go drive by the property right away (usually the same day I sent the listing even if it meant after the sun went down). Because they made themselves available we were usually one of the first ones to view the property which gave them the opportunity to submit an offer if they really liked it. Although they lost to investors and higher offers on a couple of houses, the stay committed, determined, and did not lose sight of their dream of finding a home. When we found this home they listened to my advice and followed my directions and we got our offer accepted! To top things off everyone involved in the transaction worked together diligently and we were able to close a week early! 

Some tips that the Viados might give to you to get in and out of escrow quickly:
-Listen to Lauren’s advice!!! 🙂
-Be available to go see new listings right away
-Drive by the property at day and/or night to be sure that you like the neighborhood
-Submit a cover letter and photo with your offer
-Stay in good communication (email, text messages, phone calls)
-Have a good attitude 

I couldn’t be happier for this wonderful family, they are well deserving of this awesome home!

IMG_8178*Katherine is missing from the photos 😦

What’s The Difference Between A Buyer’s Home Inspection and A City Inspection?

Buyers:
One of the first steps after getting into escrow is for the buyer to schedule a home inspection. Your inspector will do a thorough inspection including things such as: testing appliances, checking electrical boxes and wiring, crawling under the house (if there is crawl space) to see if there are signs of pests or leaks, checking the attic, etc. I highly encourage my client’s to do this as soon as possible so that we can become aware of any major issues and hire any specialists if the inspector advises further investigation (ie: plumbing, roof, fireplace). Doing your home inspection right away will also allow for more time to negotiate repairs with the seller if needed. A home inspection can run anywhere form $200-$400 depending on the size of the property and the service you choose.

Sellers:
In the Los Angeles County some cities require that you get a pre sale inspection. This has to be ordered directly through the city and has to be scheduled by the seller. There are some exemptions to this inspection but in most cases the city will not allow escrow to close with out clearance on your city inspection. Some cities may even require that you do your inspection prior to placing your home on the market. Every city has different requirements, some search for healthy and safety issues while others are looking strictly to see that any additions have been done with permits or up to city code. I have included a list of cities in the Los Angeles County that require a pre sale inspection. City inspections can range anywhere from $100-$200.

Buyers and Sellers:
If you are going to be buying or selling in one of the cites that require an inspection I urge you to visit the cities website or call to see what is required. A city inspection can take a couple weeks to be scheduled so to insure a smooth escrow, it would be wise to order this sooner than later. I highly recommend that the city inspection should not be done in replace of a buyers home inspection.

As always, feel free to contact me with any questions or real estate needs: LaurenW@hmsold.com

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*List provided by Orange Coast Title

 

5 Expenses To Remember When Buying A Home

Buying a new home is a very exciting time, so much that additional expenses can easily be overlooked.  While an estimated mortgage payment includes interest rates, homeowners insurance, and possibly mortgage insurance, it does not take into account every expense that comes along with the responsibility of becoming a homeowner. Below is a list of the top 5 expenses people tend to overlook when calculating not only a budget to buy a home but also some reoccurring monthly fees.

1. Closing Costs
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Most buyers are aware that there are closing costs involved with purchasing a house. However, not everyone is aware of exactly how much to budget for this cost. I tell my clients to estimate around 3% of the purchase price to allocate to closing costs. So if you are purchasing a house at $500,000 closing costs should be around $15,000.  Some lenders may offer different programs to  alleviate some of these costs and depending on the deal, your realtor can also negotiate for sellers to pay for some of the closing costs. But in any case, buyers should be financially able to pay all closing costs. These costs include things such as: escrow fees, lender fees, title transfer, title insurance, inspection fees, etc.

2. Maintenance Repairs
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If you were previously renting, most likely all of your maintenance problems were handled by your landlord. For all homeowners, it would be a good idea to have a separate savings account or a specific amount of money always saved up incase of any emergency situations. If you negotiated a home warranty into your purchase contract it is usually only good for one year and has limited coverage. So it is always better to be safe and prepared with any maintenance repairs that may arise.

3. Utilities and Landscape/Exterior Maintenance
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During escrow it would be a good idea to ask the previous owner about their monthly utility bills to get a general idea of what to expect. If they do not want to disclose this information to you, you can always do your own research by calling service providers or visiting your local city website. If you plan on hiring a gardener or yard maintenance service provider you can ask the local neighbors who they use and at what prices they charge.

4. Windows
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Windows can easily be looked over and not taken into consideration as a cost. Depending on the seller, they may have customized window curtains or blinds that they may take with them during the move. If the house is a remodel, there is a chance that there may not be any window coverings. Keep this factor in mind when touring homes and make a mental note of approximately how many windows you will need to budget for.

5.Taxes
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Most lenders will recommend setting up an impound account to collect a certain amount of money on a monthly basis (usually factored into your monthly mortgage payment) to set aside for taxes so that you are not hit with a large tax bill at the end of the year with no money to pay for it. However, what a lot of people forget is that being a homeowner has the benefits of being able to use the monthly mortgage interest as an annual tax deductible.

Becoming a homeowner is a big responsibility, but if you do your research and budget correctly you can enjoy the benefits with peace of mind in your real estate investment!

If you are looking to buy or sell a home at this time and would like additional information feel free to email me at LaurenW@hmsold.com or visit my website http://www.LaurenTWeber.com

Count Your Blessings Every Day and Dream Big! 

Hello my Weber Weekly readers!
This week I wanted to give you guys a little inspiration to take with you whether you are interested in buying or selling real estate or not. Over the past couple of weeks I have been reflecting a lot on the importance of having a positive attitude and mindset. It’s easy to get caught up in the drama of everyday life and we are all guilty of sometimes stressing over the little stuff, but what helps me get through these things is taking a moment to pause and reflect on all the amazing things that I am blessed with in my life. One little shift in my thought process can make all the difference to push me over almost any hurdle or challenge. It’s the motivation and positivity that helps me clear my mind to find a solution which I would have otherwise been blinded from had I remained focused on problem at hand. To begin this change of mindset you can start small with the things immediately surrounding you. Thinking things like “I am blessed to have air in my lungs, I am grateful for the roof over my head, I am thankful to have clothes on my back and food in my stomach…” The list can be endless if you count every little blessing, leading up to “I am thankful to have the opportunity to overcome this challenge to learn from and grow as a person”.
It may sound silly, but the next time you feel yourself frustrated or stressed out give it a try. Step away from the issue, breath, count your blessings, and then make a decision to move forward once you can start to feel your warm your heart.

As Winston Churchill once said:
“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”

I choose to be an optimist and I try to apply this in my personal and professional life. Along with being an optimist I am also a dreamer. I believe that you can do anything you set your mind to. If you have a goal in mind, create a roadmap of how you are going to get there, and if you have the right attitude to be consistent and persistent you will eventually get there.

It is with this attitude of being an optimist and a dreamer that I can truly say I LOVE what I do. How cool is it that I get to help people pursue their own dreams of becoming a home owner or selling their home for a new opportunity in their life! With this I will leave you with some of my favorite quotes. It is with my highest hopes that you can take something from this weeks blog and apply it to your life wherever you see fit. Have a fabulous day, the choice is yours!

“Opposition is a natural part of life. Just as we develop our physical muscles through overcoming opposition – such as lifting weights – we develop our character muscles by overcoming challenges and adversity.”

-Stephen R. Covey

“Cherish your visions. Cherish your ideals. Cherish the music that stirs in your heart, the beauty that forms in your mind, the loveliness that drapes your purest thoughts, for out of them will grow all delightful conditions, all heavenly environment; of these, if you but remain true to them, your world will at last be built.”

– James Allen

“Never underestimate the power of dreams and the influence of the human spirit. We are all the same in this notion: The potential for greatness lives within each of us.”

Wilma Rudolph

And…. one of my favorite inspirational speeches.

Capital Gain Tax Exclusions

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Hello my Weber Weekly readers! This week I wanted to address capital gain taxes and guidelines on how to avoiding these. First, let me clarify that capital gain taxes differentiate tremendously between investors verse people who use their property as their primary residence. Today I will be elaborating on the latter- primary residence property.

Homeowners Exclusion Rules under 2013 California Real Estate Tax Law states that:
-Single homeowners can exclude up to $250,000 of capital gain from taxes
-Married couples filing jointly can exclude up to $500,000 of capital gain from taxes
-Unmarried people who jointly own a home and separately meet the test can exclude up to $250,000 of capital gain from taxes

Three tests that qualify for Homeowners Exclusion Rule:
1. Ownership: Seller owned the home for at least two of the five year period before the closing date.
2. Use: Seller used the property as a principal residence for two years of that five year period.
3. Waiting Period: The exclusion wasn’t used during the preceding two year period.

Qualifications for married couples:
1. They must file a joint return for the year.
2. Either spouse meets the ownership test (described above).
3. Both spouses meet the user test
4. Neither spouse has recently excluded a gain fro the sale of another home after May 6, 1997
If either spouse does not satisfy all these requirements, the exclusion is figured separately for each spouse as if they were not married. This means both spouses may qualify separately for part or all of the $250,000 exclusion under 2013 California real estate tax law.

If you do not fall within these guidelines you may still qualify for a partial or prorated tax break.
-Moving  due to unemployment
-Doctor recommendation to move
-Unforeseen circumstances ie: death in family, divorce, nursing home move.
The portion of this tax break would be calculated on the portion of the two-year period which you lived there. For calculations you would take the number of months you lived there before the sale and divide it by 24.

Calculation example and what to include in deductions:
Many people do not know to include items such as closing costs and capital improvements as part of their deductions in capital gains. For example people would assume if they bought a house for $100,000and sold it for $400,000 it would be a gain of $300,000 which is $50,000 over the exclusion. This is incorrect.
Things you can deduct include:
-Closing costs
-Broker’s commissions
-Title insurance,
-Advertising costs,
-Administrative costs
-Escrow fees
-Inspection fees
-Legal fees (if any)
-Tax basis in the property
(Your basis is the original purchase price, plus purchase expenses, plus the cost of capital improvements, minus any depreciation and minus any casualty losses or insurance payments).

After implementing some of the deductions and using the same example above it would look more like: They bought a home for $100,000 sold for $400,000 but invested $20,000 in home improvements, $5,000 in fixing up the place and $25,000 in closing costs leaving them with NO capital gains tax at all.

***Because every home, sale, escrow, and individual cases are different I would advise that you consult with your CPA or tax attorney before making any claims and to make sure you are deducting as much as you are allotted for***

I hope this week’s blog has given you a better insight on how capital gain tax exclusions work. As always, please fee free to reach out to me if you have any questions or would like to be pointed in the right direction of a great tax advisor.