Ken Mousseau - B.Accy, ENROLLED AGENT
“The new Tax Cuts and Jobs Act (2017 TCJA) dramatically affects every taxpayer beginning with the 2018 tax return. The ultimate goal was to limit or eliminate the need to itemize deductions on your tax return.
The biggest negative of the TCJA is that many taxpayers will not itemize deductions. There were entire sections of Schedule A that disappeared including 2% miscellaneous deductions like unreimbursed employee expenses – union dues, investment advisory fees, tax preparation fees, and job search costs are no longer deductible on your federal return. However, California did not conform to several of these lost deductions and you may still be able to claim them. So, make sure you continue to keep track of these types of expenses as you have in the past. Other sections like State and Local Taxes (SALT) were severely limited for high tax states (like us in CA).
The positives of the TCJA: Higher standard deductions, tax rates dropped anywhere from 2%-6% depending on your income “bracket”, Alternative Minimum Tax (AMT) was all but eliminated with phase outs that doubled from 2017, and Child Tax Credits doubled from 2017!
Small business owners received one of the biggest tax deductions in history. If you have a pass through entity – Sole Proprietorship, LLC, S-Corp, or rental real estate, the new Section 199A deduction allows you to take up to a 20% deduction on your profit! You will want to prepare this deduction carefully as it is expected to be one of the most audited items on 2018 tax returns.
With all these changes, you need to seek out a professional for your tax help. We offer free preseason consultations and affordable preparation fees. New clients welcome!!” - Ken
Call us today: 714-402-8681 or email us your questions: info@KMTaxOC.com
MARKET INSIGHTS FROM BILL GRASSKA - CEO RIVERA FINANCIAL
Is There A Housing Crash Coming?
The Simple Answer Is: No But there is a correction happening.
"Buyers and Sellers are feeling opposing pressures from the real estate market. Here is an explanation, both macro and micro as to what is occurring and more importantly why.
The Federal Reserve has raised interest rates 8 times since 2015.We have been in an incredibly overheated real estate market for the past 8 years. Multiple and all cash non-contingent offers were the norm. There has been rapid appreciation with house flippers and developers dominating the market. Home values have now surpassed the previous peak of 2006.
During this cycle it has been cheaper to own than to rent.
Ownership has always been and should be a more expensive proposition compared to renting. The upside of appreciation and the rights that go along with being a homeowner are extremely valuable. We have been in an inverted renter vs owner market.
The real estate environment has been an obvious seller’s market. Remember the rule is: less than 6 month’s supply of inventory = seller’s market; more than 6 months of inventory = buyer’s market. During this sellers’ market we have also seen historically & incredibly low rates fueling the buying / flipping frenzy.
Currently in the financial markets we are seeing an inverted short term yield curve. This means short term investments are paying higher returns than long term investments. Investors are receiving a premium for a shorter term hold in bonds as the markets anticipate rising rates. At the same time national homebuilder stocks have all taken a 30% hit to value. Inverted yield curves have historically been a precursor to a recession.
The feds goal by raising rates has been to cut inflation which by definition means to lower, or slow the increase in prices. As we know the housing market has been overheated, and a home is typically the most expensive item a person will purchase. So the Feds policy is working so far as it is applying pressure in lowering prices in the housing market.
Nationwide we now have a 4.4-month supply of inventory. Still technically a seller’s market however, it is shifting to a buyer’s market. Price expectation gap between buyer and seller (this is the difference between what a seller thinks their home is worth and what a willing buyer expects to pay) has widened. We are also seeing marketing times (measured in days on market) increasing and just recently we are seeing an increase in price reductions from list prices.
The economy is still in the second largest period of expansion in history.
The recent rapid rise in rates puts additional pressure on developers to deliver promised returns to their investors.
This rise in rates is taking the flipper/developer wind out of the market. This becomes magnified by growing inventories and increased competition between sellers for qualified buyers. The rise in interest rates has undeniably made homes more expensive. Additionally, the reduction in mortgage interest deduction (from $1M to $750k) as well as the $10,000 limitation on the property tax deduction have put additional downward pressure on prices.
As far as sellers are concerned the rising inventory creates 2 categories:
- Want to sell
- Have to sell
The second category will be the driving factor to equalize market prices. This category is larger than one might think, this includes all of the investor/flippers estimated to be as high as 30% in some areas.
The real estate market is entering a “cooling off” period and a further normalization of supply and demand should be expected.
Are we in or approaching a bubble? As price expectation gap narrows inventory will be absorbed and market equilibrium will be reached.
The market decline of 2007/2008 was a perfect storm; an overheated real estate market combined with reckless lending lead to the housing crash. This was historic in proportion and sent the US into a deep recession. The current US economy is very strong and growing; with record low unemployment. Over the past 10 years lending guidelines have also been much tighter giving additional fortification to the real estate market.
As long as the fed follows through with its recent statements of moderating future rate hikes, we forecast a return to a normal and healthy real estate market." - Bill Grasska, CEO of Rivera Financial