Sand Hill's Chief Investment Officer, Brenda Vingiello, CFA, joins Jenny Harrington on “Halftime Report” to go over their most recent portfolio moves. Brenda's commentary begins
Home Sweet Subsidized Home
Published Date : July 18, 2015
Home ownership has long been appealing to families, not only because it fulfills a “dream” but also because home ownership has favored status in the tax code. As with many personal financial matters, purchasing a home cannot be reduced purely to “bottom-line” calculations. Emotions, particularly the heightening sense of economic security, can come from financially-appropriate home ownership. Current low interest rates have fueled significant recovery in housing prices – and further appreciation in many locations. Since the primary residence is often a significant asset for families, it is important to understand the full financial proposition behind home ownership when considering a purchase or sale. Following are some of the more interesting and important provisions that make homeownership uniquely attractive.
It is widely understood that homeowners are entitled to deduct both their interest expenses on mortgages of up to $1 million, plus an additional $100K of home equity debt. Real estate tax payments are also deducible against taxable income. It is less well known but important to understand that taxpayers subject to Alternative Minimum Tax (AMT) treatment can see those deductions reduced under the AMT rules. Your Sand Hill Wealth Manager and CPA can work with you to understand the full impact of AMT for your specific circumstances.
In addition to interest and real estate tax deductions, favorable tax treatment is given to sellers of highly appreciated primary residences. For many years, homeowners were permitted to “roll over” gains as they sold one residence for a more valuable one, thus deferring taxation of such gains for many years. Couples over age 55 could claim a $500,000 once-in-a-lifetime capital gains exemption ($250,000 for individuals) when they “downsized.” However, in 1997 the rules changed. Now, a married couple of any age can exempt up to $500,000 in gain on the sale of their primary residence (half that amount for individuals). This exemption can be taken as often as every two years as long as the owner occupied the property for at least two of the five preceding years. Additionally, there is a full step up in cost basis available at death, which can be useful to a surviving spouse or for other estate planning purposes. Again, while a full discussion on this topic is beyond the scope of this article, your Wealth Manager or estate planning attorney can discuss the details with you in more depth.
As a result of three state propositions, Californians have additional tax benefits. In 1978 Proposition 13, or the Jarvis-Gann Amendment, fixed property tax rates based on the price at purchase as well as the rate at which taxes on properties owned could rise. The result is that taxes assessed on long-owned homes are generally considerably lower than those assessed on homes purchased at current prices. Second, the 1986 ballot initiative Proposition 60 allows homeowners older than 55 or disabled to sell and transfer the lower property tax burden on a previous residence to a new home (within two years), provided it is located in the same county and is of equal or lesser value. Third, Proposition 90 allows owners to carry over the property tax basis to a home in another county if that county accepts such transfers. Only Alameda, El Dorado, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, and Ventura counties currently participate. For example, if a couple sells their house in San Francisco County, they can transfer their lower property tax rate to a new home of equal or lesser value in San Mateo County. This once-in-a-lifetime opportunity would not work in reverse, however, because San Francisco is not a participating county.
These real tax advantages enhance the appeal of home ownership and should be incorporated into long term plans. Your Sand Hill advisor can provide personalized advice to assure that you optimize your opportunities.
Articles and Commentary
Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
Video Presentations
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
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