Own a home or renting? 5 questions about what Trump’s tax plan could mean to you

It’s little more than bullet points on a single page.

But the effect of President Donald Trump’s plan to overhaul the U.S. tax system is being hotly debated in real estate circles.

The National Association of Realtors, citing Trump’s proposals to double the standard deduction while scrapping write-offs for expenses like state and local property taxes, warns that such a plan would hurt a wide swath of homeowners and the residential real estate market.

“It’s going to continue to make California a renter’s state vs. a homeowner’s state,” said Tammy Newland-Shishido, Orange County Association of Realtors president-elect, who was in Washington D.C., with the national advocacy group last week.

Not every real estate expert foresees dire consequences. Some say if the plan prevails in Congress, it could spread the wealth.

“It’s beneficial to the everyday person,” said Fadel Lawandy, director of the Hoag Center for Real Estate and Finance at Chapman University in Orange. “The middle class is going to benefit, whether they own a home or not. It will help renters significantly.”

Trump’s simple, one-page outline was expected to forge major changes in the tax code this year, but some Wall Street analysts believe the repeated crises faced by the White House could push tax reform into 2018.

Regardless of when it happens, here’s how arguments over what it could mean for housing are unfolding:

What’s been proposed?

Trump’s plan raises the standard deduction to $24,000 from $12,600 for a married couple filing jointly. Only deductions for only mortgages and charitable donations would be allowed. Deductions for state and local taxes, including property taxes, and other write-offs would be eliminated.

The mortgage interest deduction — which allows homeowners to deduct interest paid on home loans up to $1.1 million — would still be an option. But the Realtors group and a national home builders’ organization say it would carry far less value; most people would have to file for the standard deduction and many would pay higher taxes.

Why the alarm?

Real estate agents and builders say they’d be losing what they consider an important incentive for homebuyers — the prospect of receiving a mortgage deduction on their taxes. And, they say, getting rid of deductions for state and local taxes would decrease home values.

“Current homeowners could very well see their home’s value plummet and their equity evaporate if tax reform nullifies or eliminates the tax incentives they depend upon, while prospective homebuyers will see that dream pushed further out of reach,” said William E. Brown, NAR’s president. “While we appreciate the administration’s stated commitment to protecting homeownership, this plan does anything but.”

Brown, from Alamo, added, “Common sense says owning a home isn’t the same as renting one, and American’s tax code shouldn’t treat those activities the same either.”

The National Association of Home Builders also sounded a warning.

“Doubling the standard deduction could severely marginalize the mortgage interest deduction, which would reduce housing demand and lead to lower home values,” said Granger MacDonald, the association’s chairman.

How popular is the mortgage interest deduction?

The write-off, enacted in 1913, has been a third rail in U.S. politics. No one ever touches it.

Proposals to eliminate it, turn it into a tax credit or limit it for high-income taxpayers have come and gone.

In 2014, some 32 million homeowners claimed it, saving about $2,173 each, the National Association of Realtors says.

The real estate industry typically makes a strong push to keep the deduction, saying that to do otherwise would price-out would-be buyers and threaten the housing market.

But some economists and academics say the write-off favors the upper-middle class and the wealthy.

Zillow economist Svenja Gudell said she doesn’t believe that a desire to claim the mortgage interest deduction necessarily drives home purchases.

Dennis C. Smith, a Huntington Beach mortgage broker, agrees.

“Having interviewed potential homeowners for 30 years, I can state that very few, about 10-15 percent or less, of those I have spoken to over the years, make their decision to buy a home because of the tax deduction they will receive,” Smith, co-owner of Stratis Financial, recently wrote in his blog.

How could the tax plan affect pricey housing markets?

Getting rid of property tax deductions would hit expensive markets harder than other places, Realtors, economists and academics say.

“For households in higher-tax states, the benefit of itemizing is higher,” states an article entitled “Tax plan could hurt homeowners” published on the national Realtor group’s’ website. “And for second-home owners, the net tax benefit of itemizing can be substantial.”

“There’s a segment of borrowers who would be adversely affected,” said Paul Habibi, a faculty member at the Ziman Center for Real Estate at UCLA. “It just depends on what side of the income spectrum you’re on.”

In coastal markets, including Los Angeles and Orange County, San Francisco and New York City, he said, “You’re going to have a greater percentage of those potential homeowners adversely affected because they have median prices high enough to kick them into benefiting from the (itemized) deductions.”

Under the plan, a married couple would need a home-loan balance of about $608,000 to use the mortgage interest deduction, up from about $322,000 now, Bloomberg reported.

Ralph McLaughlin, an economist at home search website Trulia, does not think the plan, if implemented, would create a major disruption in the overall housing market.

But, he said, “The proposed tax reform will push the benefits of the mortgage interest deduction further out of reach of the middle class. Under the current tax code, the top 43 percent of household earners can itemize their mortgage interest if they purchased a home. Under the proposed tax plan, that number would shrink to just the top 17 percent.”

In Orange County, only 26 percent of households could afford to buy a home with a mortgage high enough to qualify for the mortgage interest tax deduction under the proposed tax plan – down from 55 percent of households that currently qualify, by Trulia’s math.

What’s next?

Despite arguments that Trump’s proposals could help renters and those struggling to become homeowners, Senate Democrats say Trump’s overall plan is aimed at the rich, including the president.

And the nonpartisan Tax Policy Center has said nearly 8 million families – including a majority of single-parent households – would be worse off.

Much still is unknown. The plan has three tax brackets of 10, 25 and 35 percent. But it’s not yet clear what the income levels would be.

And, of course, what Congress would do remains to be seen.

But the plan’s advocates, as well as those who do not see it harming the housing market, predict the savings for most households could actually become a boon to homeownership.

“For many lower and middle-income taxpayers, a higher standard deduction will increase their after-tax income, which could end up boosting home buying demand from these groups if net income rises enough,” said Gudell of Zillow.

“At the end of the day, what really matters is whether people have more or less after-tax money to spend on housing and other living expenses,” she said.

As to those at the higher end who would see no benefit, Smith wrote, “There is an old saying, ‘If you can afford a Ferrari you aren’t worried about the price of gas or an oil change.’

“Similarly, if you can afford a $10 million dollar estate, you aren’t worried about the mortgage interest and property tax deduction.”

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30-year mortgage rates at 4.03% after small increase

What’s up with mortgage rates? Jeff Lazerson of Mortgage Grader in Laguna Niguel gives us his take.

Rate News Summary

From Freddie Mac’s weekly survey: The 30-year fixed rate broke the 4 percent barrier, rising 6 basis points and landing at 4.03 percent. The 15-year fixed also was up a bit, averaging 3.27 percent, 4 basis points worse than last week’s 3.23 percent.

The Mortgage Bankers Association reported a 2.7 percent increase in loan application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $424,100 loan, last year’s rate of 3.66 percent and payment of $1,942 was $90 less than this week’s payment of $2,032.

What I see: Locally, well-qualified borrowers can get the following fully amortizing fixed rates loans with zero cost: A 15-year at 3.25 percent, a 20-year at 3.875 percent, a 30-year at 4.0 percent, a Federal Housing Administration  or Veteran’s Administration 30-year at 3.75 percent, a 15-year conventional high-balance loan (or a loan from $424,101 to $636,150) at 3.625 percent, a high-balance 30-year at 4.25 percent, an FHA/VA 30-year high-balance at 3.875 percent, a 15-year jumbo (loan amounts over $636,150) at 4.50 percent and a 30-year jumbo at 4.625 percent.

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Cheap ways to use your tax refund to fix up your home

If you’re looking to spend it on your home, the typical tax refund is no great windfall. It won’t cover a kitchen revamp or a solar system installation.

The average refund through early April was $2,851, according to the Internal Revenue Service. The California Franchise Board typically gave back about $850.

Almost any remodeling job requires more than a paltry $3,700. Even adding a deck can set you back more than $13,000, according to Remodeling’s online Cost Vs. Value report.

Still, that refund check could come in handy around the house.

It may not get you a makeover. But it can give you a marketing edge.

It can pay for modest home fixes to spruce up your property before you put it up for sale. Even if you’re staying put, it can turn a loathsome eyesore into eye candy. It can help you splurge on a trend.

Here are a few ways to improve – or indulge – on even a skimpy sum.

BRING THE BLING

The market is hot, home prices are up and interest rates are still low. Thinking of making a move?

“I would focus on increasing the ‘bling’ in the house to capture the attention of buyers,” said Ryan Lundquist, a Sacramento real estate appraiser.

He reeled off some smaller-ticket examples: New light fixtures, a few ceiling fans, an updated kitchen faucet, switch plates and some fresh paint in the living room. Even a new mailbox out front.

In all, you’ll be giving your home a more polished presentation, said Lundquist, who writes a lively blog to educate consumers about all things related to the housing market.

“In contrast, I could spend $3,700 on brand new insulation,” he said in an interview. “But focusing on what buyers can readily see instead is a better way to get higher offers.”

However, adding cosmetic improvements to make your home more appealing doesn’t mean it will eventually appraise for more, even if it may appear that way on reality TV.

“That’s not how the real world works,” Lundquist said.

TRENDING NOW

A stroll through HD Buttercup at the SoCo Collection in Costa Mesa revealed some items pronounced drool-worthy in House Beautiful’s 2017 home design forecast.

For one, you can embrace what the editors call hygge – pronounced hoo-ga – a trendy Danish concept that translates roughly to a cozy feeling, by purchasing one of the large, soft throws adorning sofas all over the sprawling store.

A white, furry-looking one for $125 would just take a nibble out of that tax refund.

That would leave plenty of money left over for furniture with nailhead accents, or something covered in what designers say is also popular these days: Benjamin Moore’s 2017 color of the year, Shadow. (Yeah, we had to ask, too. It’s a deep purple.)

Nearby at Pirch, a kitchen and bathroom showroom, we found a sleek, oversized kitchen faucet that would eat up the whole $3,700 refund – and then some.

But, as salesman Jon Brown (whose business card reads “Advisor, Lifestyle Experiences”) noted, “It’s a statement all by itself.”

The Gantry faucet, with an “articulated” spout (it moves a couple of different ways), goes for $3,895.

We also saw a Coyote grill priced at about $2,500 with exact spots designated for beef, chicken or vegetables.

In the bath section, shower heads in the shape of large water drops were grouped together. They cost $1,500 each, Brown said, and people typically like to buy them as a trio.

“It’s a piece of art,” he said. “Plus a functional fixture.”

SECURITY CHECK

You’ll probably never come anywhere near to affording the James Bond-like set-up at “The Fortress,” a seven bedroom house in the Hollywood Hills that recently wowed readers of The Wall Street Journal.

But do you really want to bother with a key fob for every room? And how often would you use a bulletproof plate that slides down from the ceiling?

You can put in a less intensive security system at your average castle for an affordable price.

PC Magazine’s Best Smart Home Security Systems of 2017 has an extensive round-up including a wide range of do-it-yourself products, professional services and reviews.

At home improvement stores like Home Depot, video doorbells, motion sensors and security cameras sell for just a few hundred dollars.

BOOST CURB APPEAL

Dean Zibas, like Lundquist, cites small fixes that can add up – especially outside your home.

“In general, it is typically best to just do an overall cosmetic improvement if one is looking for the best return,” said Zibas, a real estate appraiser based in San Clemente. “Put in some elbow grease. Buy some new plants at the local nursery or home improvement warehouse and spruce up the front landscaping.

“Most homes, I believe, can be repainted for less than $3,000, so perhaps get the house painted,” he said.

Install new window screens, and do minor repairs to the hardscape and planters yourself, Zibas added. And don’t stop at the curb.

“Carry that effort over to the side and rear yards,” he said.

If you think that’s too much DIY, or you won’t get enough of an ROI, there’s always another option.

You can do nothing.

Sock the money away. Add it to other savings to add a room someday or go full-on solar.

Over the years, tax refunds can add up. So can your home equity.

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Irvine Company buys 19-building Alton Plaza

  • Irvine Company has bought the 19-building Alton Plaza in Irvine Spectrum. The company plans to revitalize the 216,000-square-foot campus on Alton Parkway near the Irvine train station. (Courtesy of Irvine Co.)

    Irvine Company has bought the 19-building Alton Plaza in Irvine Spectrum. The company plans to revitalize the 216,000-square-foot campus on Alton Parkway near the Irvine train station. (Courtesy of Irvine Co.)

  • Brandywine Homes has closed escrow on 1.66 acres at 8572 Stanton Avenue in Buena Park and will break ground in May on Corsica, a new community offering 17 two-story townhomes. (Courtesy of Brandywine Homes)

    Brandywine Homes has closed escrow on 1.66 acres at 8572 Stanton Avenue in Buena Park and will break ground in May on Corsica, a new community offering 17 two-story townhomes. (Courtesy of Brandywine Homes)

  • Rancho Santa Margarita-based Cypress West Partners has hired Casey Immel as director of leasing.

    Rancho Santa Margarita-based Cypress West Partners has hired Casey Immel as director of leasing.

  • Rancho Santa Margarita-based Cypress West Partners has added Ryan Borzouei as director of asset management.

    Rancho Santa Margarita-based Cypress West Partners has added Ryan Borzouei as director of asset management.

  • Chris Tindall has been appointed associate and director of mechanical, electrical and plumbing engineering at LPA Inc. in Irvine. In his role, Tindall will be responsible for overseeing the financial and operational aspects of the MEP engineering group and provide technical leadership for integrating appropriate and sustainable engineering systems into projects.

    Chris Tindall has been appointed associate and director of mechanical, electrical and plumbing engineering at LPA Inc. in Irvine. In his role, Tindall will be responsible for overseeing the financial and operational aspects of the MEP engineering group and provide technical leadership for integrating appropriate and sustainable engineering systems into projects.

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Irvine Company has bought the 19-building Alton Plaza in Irvine Spectrum. Terms of the deal were not disclosed.

The company in a statement said it plans to revitalize the 216,000-square-foot campus on Alton Parkway near the Irvine train station. When completed, roughly 700 employees from 25 companies will have access to indoor and outdoor workspaces “designed to foster innovation and collaboration,” Irvine Co. wrote.

The real estate company also reports that its “NextGen” campus at Sand Canyon Business Center, and the 21-story 200 Spectrum Center, which opened last year, are nearly fully leased. The company’s twin 21-story building — 400 Spectrum Center — will be completed this summer.

Alton Plaza, the landlord reports, is 95 percent leased to technology, medical device, R&D, real estate and engineering companies.

Buena Park homes

Irvine-based homebuilder Brandywine has secured nearly 2 acres in Buena Park for its next development, Corsica. The new community will include 17 townhomes on 1.66 acres at 8572 Stanton Ave. It will break ground in May and vertical construction is expected to begin this summer, the company said in a statement. Corsica is scheduled to open for sale in the fall.

The homes, roughly 1,842- to 2,100-square-foot Mediterranean-style townhomes, will include energy-efficient tankless water heaters, recessed lighting, double-strength glass windows, and state-of-the-art communication and networking systems.

Corsica is near Knott’s Berry Farm, the Buena Park downtown shopping district, Ralph B. Clark Regional Park and major employers including Prologis, Leach and Access Business Group.

On the Move

Chris Tindall has been appointed associate and director of mechanical, electrical and plumbing engineering at LPA Inc. in Irvine. In his role, Tindall will be responsible for overseeing the financial and operational aspects of the MEP engineering group and provide technical leadership for integrating appropriate and sustainable engineering systems into projects.

Rancho Santa Margarita-based Cypress West Partners has added Ryan Borzouei as director of asset management and acquisitions and Casey Immel as director of leasing. Previously, Borzouei was a vice president with Bank of America. Immel has spent the last 10 years focused exclusively on healthcare tenant representation, leasing, marketing, sales and site selection during his prior role as vice president with CBRE.

The real estate briefs are compiled by contributing writer Karen Levin and edited by Samantha Gowen, business editor at the Register. Send related items to sgowen@scng.com. Allow one week for publication. High-resolution photos also can be submitted.

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Commercial real estate: A new lease is signed – now what?

You, on behalf of your manufacturing or distribution company just signed a commercial real estate lease for a new location. Congratulations!

Many believe the deal is now done (including many in my profession), we can move-in, cue the band, alert the media – and let’s get the party started. Hmmm, not so fast. There is a multitude of issues still to address, some seen and some unseen and not the least of which is the physical move!

The list below is intended to be a list of issues to consider as opposed to an “end all, be all” moving checklist – which if I published would make your eyes bleed.

Inspection of the building

Normally, this step is accomplished prior to signing the lease, in case there are latent issues that the landlord should handle before occupancy. In the off chance this was not done, you may still be OK as the lease that you signed should contain a provision for an inspection to be conducted within the first 30 days, post-lease signing.

Generally, the owner must fix anything that is broken. Americans with Disabilities Act upgrades are typically an exception to the owner’s responsibility.

I would recommend you engage someone to do two things – inspect ALL of the systems within the building – fire system,* truck doors, plumbing, electrical, roof, HVAC, etc., and prepare a report including images of the condition of the building pre-move in. You will be able to use the report when you move out of the building to recall this condition.

*Take a look at the most recent fire sprinkler certification and make sure that is up to date. If not, request that this be done.

Warranties on the building systems

I will assume your lease provides a mechanism for the owner of the building to make things right if any repairs to the systems (mentioned above) are needed. In Southern California, assuming you signed an AIR lease, this warranty is 30 days for non-HVAC items and six months for heating, ventilating and air conditioning. Use the report I recommended that you create and place the owner on notice to accomplish whatever repairs are needed.

Permits and licenses

Once again, I will assume that the necessary permits and licenses were obtained before the lease execution – or at least some serious due diligence was accomplished on what was needed. If not, shame on someone! Please don’t just move

Please don’t just move into a building without talking about your use with the city to make sure the zoning is correct for the use, no special permitting is needed for high pile storage, storage rack permitting (in SoCal seismic testing is needed for new rack installs). You also should consider machinery that will be moved and any UL rating that may be needed.

The physical moveI would highly recommend that you engage a moving and storage company familiar with moving your operation. Some careful vetting and planning here can save you time and aggravation.

I would highly recommend that you engage a moving and storage company familiar with moving your operation. Some careful vetting and planning here can save you time and aggravation.

Lease administrationMost in my profession will prepare a lease abstract of the key dates of options to renew, options to purchase, rent amounts and rent increases. I would suggest making two copies of your lease and place one in your top desk drawer or in an easily accessed digital file for ease of reference and the other with your payable department. Make sure the lease is signed by all parties – sounds silly but I’ve encountered many situations where the occupant is never given a fully executed lease copy. Also, make sure you know where to send your rent check and whether your new owner prefers direct deposit vs. mailing a check.

Make sure the lease is signed by all parties – sounds silly but I’ve encountered many situations where the occupant is never given a fully executed lease copy. Also, make sure you know where to send your rent check and whether your new owner prefers direct deposit vs. mailing a check.

Most in my profession will prepare a lease abstract of the key dates of options to renew, options to purchase, rent amounts and rent increases. I would suggest making two copies of your lease and place one in your top desk drawer or in an easily accessed digital file for ease of reference and the other with your payable department.

Make sure the lease is signed by all parties – sounds silly but I’ve encountered many situations where the occupant is never given a fully executed lease copy. Also, make sure you know where to send your rent check and whether your new owner prefers direct deposit vs. mailing a check.

Also, make sure you know where to send your rent check and whether your new owner prefers direct deposit vs. mailing a check.

The transition

Where practical, I recommend having a face to face meeting with the owner. Chances are, your negotiations were conducted through commercial real estate brokers or attorneys and you
Where practical, I recommend having a face to face meeting with the owner. Chances are, your negotiations were conducted through commercial real estate brokers or attorneys and you have never met the owner.

Make sure you exchange name, address, and contact information – email and mobile phone. Who will tell your customers and suppliers that you moved? How will you deal with plant shutdowns and production interruptions? When and how will you tell your employees that you are moving?

Planning your next move. Wait a minute – I JUST MOVED! Precisely. There is no better time to reflect on the move, what you will do at lease expiration, what went well – what didn’t go well, etc.

Allen C. Buchanan is a principal and commercial real estate broker with Lee & Associates, Orange. He can be reached at 714.564.7104 or abuchanan@lee-associates.com. His website is allencbuchanan.com.

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