Question about self rental

[dareo]

I am no tax surgeon but wouldn't you get Qualified Dividend status after 90+ days of holding? 20% federal rate even at 434k+ annual. Then of course CA will take its pound of flesh. Not sure what they would charge but i would guess 10-15% for high income in CA. Utah, thankfully, is just 5% no matter how much you make.

On the flip side, Rental income is taxed as regular income but comes with some good tax advantages such as depreciation, although this comes back to bite you if you sell later as it erodes your cost basis in the property.

Also if you choose to rent a house out instead of selling it, that is similar to agreeing to buy it at market value. Otherwise you could have that money.

 

[PandaBear]

Also if you choose to rent a house out instead of selling it, that is similar to agreeing to buy it at market value. Otherwise you could have that money.

It is a bit more complicated here. There is a prop 13 that is basically a "rent control for property tax". So if your home appreciated a lot since you bought it, you will pay the older property tax plus inflation instead of tax at market rate.

This is one of the main reason many refuse to sell, plus the transaction cost in selling (i.e. agent commission).

 

[dareo]

Oh thats right, i have a socal relative who will never move because he's still paying 1990s property tax. No wonder CA is broke, they let people get away with that!

 

[Wolf359]

Oh thats right, i have a socal relative who will never move because he's still paying 1990s property tax. No wonder CA is broke, they let people get away with that!

Technically they didn't let people get away with it. The people voted for it. I think the theory is that it's bad for the economy long term because people don't move and other things have to be high to make up for lower property taxes.

 

[dareo]

Yeah they did vote for it, and they could vote to change it but i think there is probably a lot of people enjoying the benefits. It costs liquidity in the housing market. This makes anyone who has to move pay more for the house and the tax. I won't be surprised if they find a way to change that law in their endless quest for more revenue.

 

[SeaJay]

$2M minimum for a 4 bedroom 1960s ranch style or 1990s spanish style of 1800-2000 sqft in a good district. Unless I was tied to that location with a $750K or higher annual salary I would have to move to a less expensive location.

 

[PandaBear]

Technically they didn't let people get away with it. The people voted for it. I think the theory is that it's bad for the economy long term because people don't move and other things have to be high to make up for lower property taxes.

I remember I heard the political background was, during the late 70s or early 80s, the real estate prices went up a lot and the local government didn't reduce the property tax rate, so voters voted a law that "rent control" the property taxes. This is what we ended up with, and I think indirectly leads to high state income tax.

Yeah they did vote for it, and they could vote to change it but i think there is probably a lot of people enjoying the benefits. It costs liquidity in the housing market. This makes anyone who has to move pay more for the house and the tax. I won't be surprised if they find a way to change that law in their endless quest for more revenue.

There is a clause that if you move within the county for similar home prices you can keep the same property tax (or something like that). The reality though is people usually don't move between similar home and price, they move out of state, to a bigger house because of growing family, or to a better school district as their kids enter school ages.

 

[Cujet]

Semi-related and utterly non political: It's my belief that under one future situation, the prices of homes in high tax locations like NY/CA will plateau or relax and prices of panic homes outside of those areas (tax havens) will rise dramatically. That's what we are seeing now. In scenario number 2, high tax locations will slowly rebound as the current health panic subsides and tax haven home prices will relax. I'm completely unable to predict future trends, but if I were to guess, I'd guess the latter.

In my case, I'm getting ready to retire and I'm finding that retirement location home prices have been driven up wildly by those looking to avoid the risk of cities. I'm amazed at how fast it's changed and sorry I did not purchase last year!

An interesting link: https://www.cnbc.com/2020/09/10/manhattan-rental-market-plunges-leaving-15000-empty-apartments.html

 

[PandaBear]

Semi-related and utterly non political: It's my belief that under one future situation, the prices of homes in high tax locations like NY/CA will plateau or relax and prices of panic homes outside of those areas (tax havens) will rise dramatically. That's what we are seeing now. In scenario number 2, high tax locations will slowly rebound as the current health panic subsides and tax haven home prices will relax. I'm completely unable to predict future trends, but if I were to guess, I'd guess the latter.

In my case, I'm getting ready to retire and I'm finding that retirement location home prices have been driven up wildly by those looking to avoid the risk of cities. I'm amazed at how fast it's changed and sorry I did not purchase last year!

An interesting link: https://www.cnbc.com/2020/09/10/manhattan-rental-market-plunges-leaving-15000-empty-apartments.html

People have been predicting a fall since last couple year's bull run but couldn't find a trigger. The prices of high COL area is already peaked, it may come down but a lot of the investments are propped up right now (i.e. as long as some are rented to satisfy a portfolio performance the rest are given passes), waiting for inflation or recovery to catch up. The same as 2012 or so, when banks have short sales with no buyer, they will pull them off market for a few months then put it back on again (wiping out the history of its listing duration), instead of reducing prices and sell at market.

From what I see, in the long term people still want to go to the office once a week or two, and therefore they want to still be close to a big metropolitan but will tolerate a longer commute that is now less frequent. They may spend 5 hours on the road once every 2 weeks and then work from home 9/10 days. Then gradually some of these offices will move further into the suburb and make the suburb a new job hub, sort of like how San Francisco expanded into the South Bay and indirectly build up the tech hub down there.

I do not see everyone working from Montana remote into NYC or San Francisco. Some jobs might move the whole office there call center style, but not a team with each member in a timezone 5 hours apart.

 

[Cujet]

People have been predicting a fall since last couple year's bull run but couldn't find a trigger.

Just to clarify, I'm really not thinking about or considering economic downturn. But the trends of people-movement out of the cities or back to them. I believe there are reasons for that movement that need to be reviewed carefully. The various current crime trends are among the reasons.