Legislative Update: Tax Cuts and Jobs Act

Comparing the House and Senate Tax Cuts and Jobs Act

On November 2, 2017, the House Ways and Means Committee released their comprehensive tax reform proposal, Tax Cuts and Jobs Act (H.R. 1). On November 9, the Senate Finance Committee unveiled their own tax proposal. It is widely expected that both bills will be considerably amended as they go through the legislative process.

Although there will be a lot of discussion and changes to the tax proposals, here is what we know so far:
CCIM Institute’s Priority Issues

Provision
CurrentHouse Bill (H.R. 1)Senate Plan
1031 Like Kind ExchangesAllows investors to defer capital gains taxes on the exchange of like-kind properties.Eliminates the exchange for personal property but preserves the exchange for real estate.Eliminates the exchange for personal property but preserves the exchange for real estate.
Corporate Tax Rate35% corporate tax rateEffective 2018, a 20% flat corporate tax rate and 25% flat rate for personal service corporations.Effective 2019, a 20% flat corporate tax rate and eliminates the special rate for personal service corporations.
Section 179D Deduction for Energy Efficient Commercial BuildingsSet to remain expired as of December 31, 2016Not AddressedNot Addressed
Pass-through Businesses
Taxed same as income with the current top marginal rate 39.4%Effective 2018, 70% of income taxed as wages and 30% taxed as business income (25%) with the ratio adjusted based on capital investment.Effective 2018, 17.4% deduction for non-wage income, but only if taxable income is below $75,000 ($150,000).
Carried InterestAllows a share of an investment’s profits paid to the investment manager exceeding the amount that the manager contributes to the partnership.Retained but a 3-year hold period is required to qualify.Retained but a 3-year hold period is required to qualify.
State and Local Tax DeductionAllows deductions for sales, income and property taxProperty tax deduction is capped at $10,000. Repeals itemized deduction of state and local income and sales tax.Repeals itemized tax deduction for state and local taxes for individuals but allows a deduction for sales and property taxes incurred in business.
Mortgage Interest Deduction$1,000,000 cap$500,000 cap for new mortgages but disallows any deduction for interest on home equity loans.Retains the $1,000,000 cap but disallows any deduction for home equity loan interest.
Estate and Gift TaxesEstate Tax exemption is currently $5,490,000Effective 2018, increases the estate exemption amount to $11,200,000. Repeals the estate taxes for decedents dying after 2024. Lowers the federal gift tax from 40%-35% effective 2025.Effective 2018, increases the estate tax exemption amount to $11,200,000. Does not repeal the estate tax in the future.
Corporate Alternative Minimum TaxAlternative tax rate to calculate a corporation’s tax liability.Effective 2018, would repeal the corporate AMT. For 2019-2021, if a taxpayer has AMT credit carryforward, the taxpayer could claim a refund of 50% of remaining credits and could claim all remaining credits for 2022.Effective 2018, would repeal corporate AMT. Allows the AMT credit to offset the taxpayer’s regular tax liability for any tax year. For 2018-2020 the AMT credit would be refundable equal to 50% of the excess of the minimum tax credit for the tax year over the amount of the credit allowable for the year against regular tax liability and 100% beginning in 2021.
Historic Tax Credit20% credit to certified historic structures.Repeals the credit with a transition rule for expenditures incurred through a 24-month period beginning 180 days after January 1, 2018.Repeals the 10% credit for pre-1936 buildings and reducing the credit for qualified rehabilitation expenditures to certified historic structures to 10%.
Source:
 
Questions? Contact the Government Affairs Liaison at legislative-affairs@cciminstitute.com
 
March Newsletter – Pocket Deals & Bon Voyage 4 A Cause Charity Event

March Newsletter – Pocket Deals & Bon Voyage 4 A Cause Charity Event

 


Bon Voyage 4 a Cause
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Bon Voyage 4 A Cause

 Bon Voyage Party 4 a Cause!

Come join Gabhart Real Estate Advisors as we host a block party and open house at our new listing in Del Sur on Saturday, March 19th 3:00pm-6:00pm at 16063 Wayne Hill, San Diego, CA 92127.

https://www.facebook.com/events/239449149729410/

ATPF 3

Help us find a new owner of this home and raise money for the benefit of The Autism Tree Project Foundation.

Craft beer, food truck, face painting, silent auctions, jumpy for the kids and other fun filled activities awaits you and your family as we bid adieu and wish The Ashtons (homeowners) the best of luck on their move to Greece.

Save the date and we hope to see you there and check out this new technlolgy for doing 3D Virtual Tours Wayne Hill 3D Tour

A big thanks to our sponsors!

MM-By Steven Hyde
Green Electric Solutions
Repertoire of Events

Off Market Commercial Properties

Vacant Lot

5.32 acres lot ready for development in the South Village area of Valley Center is offered for sale for $3,600,000. The property is zoned C36 – great for commercial site. Grading has been started! 17 EDUs has been reserved by the Seller.

Property Features:

* Prime corner retail lot suited for sales and services

* High visibility, signalized intersection

* Major project developments in the area

Click here to get a copy of our marketing package.

Industrial Buildings

Another great opportunity are 2 industrial buildings in South Bay which are operating as indoor swap meet for more than 25 years. The Swap Meet currently functions five days a week, from Wednesday to Sunday, with long-established vendors selling consumer goods. The property could be continued to operate as a swap meet or could be converted to an owner-user opportunity or could be leased out as a traditional industrial. The property is offered for sale for $6,800,000.

Property Features:

* The only indoor Swap Meet in San Diego

* Located less than 2 miles from the US-Mexico border crossing

* Major destination from customers from both sides of US-Mexico border

* Recent upgrades include lighting, fencing, security system and many more.

Click here to get a copy of our marketing package.

Should you have any further questions or need additional information, please feel free to contact me.

We are building Four New Homes

We are building four new homes in El Cajon. Construction is underway with a 12-month construction schedule. The homes are planned as two-story houses – 2 homes with 4 Br/2.5 Ba and 2 homes with 3 Br/2.5 Ba.

Construction
Construction 2

Grading is done and trenching is starting for the foundations. Stay tuned for more updates.

Sincerely,

Curtis Gabhart

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JOBS Act…Plan for it

For those of you who haven’t been following the JOBS Act, it is a bill that will make it easier for startups and small businesses to raise funds, especially through online crowdfunding, is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.

 

The JOBS act was designed to help small businesses by:

 

1. Removing general solicitation and advertising restrictions for certain private offerings

 

  • Rule 506 – If all purchasers are accredited investors
  • Rule 144A – If issuer reasonably believed all purchasers are qualified institutional buyers

2. Creating a new $1M crowdfunding exemption, allowing non-accredited investors to participate in the funding rounds

  • Up to $1M of securities in a 12-month period
  • Investor’s net worth <$100k they can purchase greater of $2k or 5% of annual income or net worth
  • Investor’s net worth $100k+ they can purchase 10% of annual income or net worth up to $100k

Complete article

The SEC will have a 270 days to implement additional regulations from signing of the bill.

If you are a real estate investor who may be looking to raise private capital through this vehicle you may want to start planning in the meantime.

Planning is the foundation to your success, Execution is the material that creates the business. Execution without planning is like wanting to drive to Fargo without a map. You may end up getting there but a little planning could have saved you a lot of time.

  • Check out my previous blog post where I lay out business planning and goal setting:

http://gabhartinvestments.com/article/in-the-office-today-working-on-my-2010-real-estate-business-plan/

  • Get all the documents in place. Including your business plan, incorporation documents , financial analysis & forecasts and a full executive team bio.
  • Do market research. Get all the facts in place in order to have a strong argument as to why people should fund your project.
  • Start putting together a list of contacts and potential investors.
  • The concept of crowd funding involves work from the user seeking funds as they need to leverage their networks and ask their networks to lend a hand. We found that the initial 30-40% of activity actually comes from the users’ network.
  • Make a video
  • Start to craft your pitch in the best possible way. If someone asks what you do can you explain it in 30 seconds or less? Do you know what your most common questions are and the answers to those questions?
  • Start building your social network presence. Remember crowd sourcing is based on smaller amounts of money from multiple people. Start building your network and credibility

Time will tell exactly how much impact the JOBS Act will have on the job market and raising money for Real Estate

Some reasons it may not make sense:

IF the SEC:

  • Makes it to costly to set up
  • Makes it to complicated to create
  • Has to be sold through securities brokers

OR

  • It may be to cumbersome to have a lot of little investors on deals.
  • More red tape and reporting requirements

I am not sure yet whether this is a good thing or not. It really depends on the SEC final terms which I will report on when the grace period is over.

 

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HARP2 saving small % of underwater mortgages

The HARP2 program, combined with the $25B bank settlement (providing $20B in loan modifications), will save some underwater mortgages from foreclosure and help long-term market stabilization. However, part of the bank settlement requires banks to adopt standardized (and hopefully more efficient) servicing and foreclosure processing measures. I think better processing, combined with the sheer volume of underwater mortgages is going to keep the short sale floodgates open for quite some time.

According to researchers at CoreLogic, a leading analytics firm, 11.1 million or 22.8 percent of all residential properties in the United States were worth less than the amount their homeowners owed on the mortgages used to purchase them.

The federal government originally rolled out the HARP program in 2009 to help homeowners who were underwater or near underwater. However, the program was recently broadened to reach even more borrowers. Originally, HARP applied to 895,000 underwater borrowers; and now HARP II is expected to help up to double that amount. According to HUD, about 400,000 homeowners have taken advantage of the program since it launched in April 2012…that’s less than 4% of underwater mortgages.

HARP II allows underwater homeowners who are continuing to make payments to refinance their loan. The new program offers a number of advantages over the original HARP loans. First off, there is no loan-to-value or combined loan-to-value restriction on fixed-rate loans with terms of 30 years and under. In other words, it doesn’t matter how upside-down borrowers are on their mortgages. Previously, there was a cap that restricted borrowers who owed more than 125 percent of their home’s current worth from accessing the program. In addition, an appraisal may be waived if a value for the home can be automatically generated, and the borrower only needs to have a 620 FICO score.

There are three main components to qualifying for a HARP II refinance loan. The first requirement is that the loan must be owned by either Fannie Mae or Freddie Mac. Second, the loan must have been sold to Fannie or Freddie before June 1, 2009. Third, a HARP II refinance must benefit borrowers in at least one of four ways:

  • Reduce the loan’s monthly principal and interest payment.
  • Reduce the loan’s interest rate.
  • Reduce the loan’s amortization term.
  • Transition the loan to a more stable type of loan. (i.e. interest-only to fully-amortizing, adjustable-rate to fixed-rate, 30-year to 15-year).

For the most updated information & news on real estate & Gabhart Investments go to our Facebook & twitter pages

 

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