Wednesday, October 29, 2008

It Isn’t A “Bad” Market For Everyone

One man’s fortune is another man’s loss. That describes today’s real estate market. Unfortunately, we’ve noticed that many people are getting locked up and not taking action. This is most interesting since the market has swung dramatically and there are opportunities for Buyers that were non-existent just a few months ago. They will not be beneficial to Buyers, however, if Buyers don’t buy. It’s just like Sellers that didn’t sell at the height of the market … they bemoan their “losses”, but they never had the gain because they didn’t sell when the market was high. Buyers that don’t buy now may bemoan their lost opportunities.

Here’s a classic example of shopping this market and finding the golden opportunity. We were working with a young family, first time buyers. Their price point directed us to certain types of homes. When we met to look at the first home the homeowner’s daughter met us with, “my daddy is shampooing the carpet where the dog threw up.” It went downhill from there including the third bedroom being an extra large laundry room with a bed in it. They were discouraged and stopped looking, but they continued to follow the market.

Roll it forward a couple of months. With the information about the USDA Rural Development 100% loans that we shared with you some time back, they were able to raise their price point just a bit, about $30,000 to the mid-$170’s. At the same time, the prices dropped to the point where the homes we were looking at were newer and bigger. We made a few offers to no avail. We kept pursuing the market and ‘lo and behold, we were able to achieve unthinkable. Large home, vaulted ceilings, newer, great condition, corner lot, across from school, great views, many, many outstanding amenities … a lifestyle they earlier could only have hoped to upgrade to in five, or more, years.

Compared to the initial rundown, dirty, discouraging offerings, the home they are going to raise their family in is a jewel that will serve them wonderfully for many years. Their payment is unchanged, but their lifestyle is dramatically changed. That opportunity is available in every market segment right now for those that are in a position, financially and mentally, to move forward with their life and live their life as they choose.

Our advice: Sellers are very realistic today. If one isn’t realistic, the next one will be…or the next one…or the next. Work closely with your agent. Define what you want to achieve, what is truly important to you. Be patient, be active, and then be proactive in your approach to achieving your dreams. There are diamonds out there, and they aren’t all laying on the ground. You might have to do a little mining to find your precious jewel, but be assured that the Northern Nevada real estate gem field is a mother lode ripe for the picking. In the spirit of Nevada mining, be aware of the
Tommyknockers. Are you listening to the good, or the bad Tommyknocker? Don’t let ‘em getcha and cause you to miss out!

Opportunity abounds in every market and this one is no exception! Be bold and you will enjoy the fruits of your action. Don’t watch and wonder what happened.
Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates, 775-781-5472,,

Thursday, October 16, 2008

Can We Convert Our Vacation Home To A Primary Residence For Taxes?

Yes, you can, but be advised that the rules are changing on January 1, 2009. Though the Housing Assistance Act of 2008 was primarily designed to provide relief for homeowner’s facing foreclosure, a provision was included to help the government generate more taxes that will have an effect on you when you sell your second homes after that date.

Under the old rules you could sell your primary residence and your vacation home and keep up to $500,000 (married) in profit from both if you owned and lived in each appropriately. The new rule allows profit exclusion only up to the actual percentage of the time of total ownership that it was used as a primary residence. For example, you buy a home next year and use it as a vacation home for ten years. Then you sell your primary residence and move to the vacation home full time. After fifteen years you sell it. You will have owned the property for 25 years, 10 as a vacation home and 15 as your primary residence. Your primary residence period, 15 years, is 60% of the total ownership period. Under the new law, if you made $250,000 profit you can exclude $150,000 from taxation and will have to pay capital gains on the remainder profit of $100,000.

The new rule does not include ownership time prior to the enactment date, January 1, 2009. Using the above example, if you owned it for 5 years prior to that date, held it for the same 25 years, and moved in for the same 15 years, and were fortunate enough to realize the same $250,000 profit, you can now exclude $200,000 of profit, a tax savings of $37,500.

Loophole: Primary residences are granted a special tax status regardless of their subsequent use. This creates a potential loophole, i.e.- on January 1, 2009 you move out of your primary residence and into your vacation home. On January 2, 2011 you sell your then-primary residence and take the maximum exclusion on the profit. You then move back to the original primary residence and take the exclusion as long as you meet the basic criteria, i.e.- live in it two of the last five years, etc.

Our advice: Many people adjust their holding plans/strategy according to the tax consequence of their actions, and this new tax provision will undoubtedly result in owners holding their property longer. If held until their demise their heirs would have a stepped up basis in the property and little tax consequence to a subsequent sale. Beware of adjusting your holding plans too much, however, since this tax change will likely have an effect on vacation home markets and your property’s market value may change over time nullifying any tax savings you are protecting by holding. If your second property was a rental unit before you moved into it, remember that you may have to recapture depreciation.

Planning your real estate moves based on taxes should be done in concert with the advice of your tax advisor. Real estate agents have working knowledge of real estate related taxes, but don’t know your entire portfolio or financial circumstance, or enough about the tax code, to provide tax advice. Consult your accountant to assess the tax consequences of a sale or transfer.
Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates, 775-781-5472,,