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Rent your home tax free

4/21/2021

There is a little-known provision in the tax code that allows homeowners to rent their principal residence or second home for up to 14 days a year without having to recognize the income.  In this situation, the taxpayer does not deduct the rental expenses associated with the income.

There is no restriction on how much you earn.  If your first or second home is in a desirable area where people are looking for short-term rentals, it could provide a windfall to the homeowner.

In cities where any big sports championships are played, there could be a market for a temporary rental of a home.  Events like PGA tournaments, college basketball tournaments, Bowl games, NFL playoffs and others can create a demand for this type of rental.

For instance, there are people in Augusta, Georgia who rent their homes during the Master’s Golf Tournament each year.  There are not a lot of hotel rooms in the area relative to the number of people who usually attend in non-pandemic years and the homes can fetch a nice daily rate.

There can be confusion about the different types of properties and what constitutes a home.  The intended use coupled with actual experience will usually determine the type of property.

There are four types of property.  A principal residence is the home you live in.  There is income property that you rent and do not live in.  There is investment property that is primarily held for an increase in value.  And, there is inventory, which is related to your business like homes that are built or purchased to be flipped.

A second home is one that is used for the primary enjoyment of the owner in addition to their principal residence.  Taxpayers are allowed to deduct the mortgage interest and property taxes on a first and second home up to specific limits.  A vacation home could be another name for a second home but more accurately, it is a rental property that has more than 14 days of personal use during the year.  It becomes a hybrid.

You might want to check with your insurance agent to see if your current policy covers temporary rentals, including liability in case of an accident involving personal injury.  This could affect your decision as to whether you want to consider the rental.

For more information, see IRS facts about renting out a residential property or consult your tax professional.

If you would like any professional residential Real Estate advice, contact us at Paramount Real Estate Services.  1008 12th St. SE Salem, OR 97302  503-851-1645

Also, to mobilize us right away to help you move, visit us here:

brianandnina.com/buyers

brianandnina.com/sellers

Before Paying Cash…

Before you pay cash for a home

Although in this current Real Estate market, cash is king and may make the difference between you buying a home and simply putting an offer on one.  However, before you pay cash for a home, ask yourself if there is a possibility, at some point in the future, you might put a mortgage on the home and would want to deduct the mortgage interest on your federal tax return.

Current federal tax law allows homeowners to deduct the interest on up to $750,000 in acquisition debt used to buy, build or improve a property.  When a person pays cash for a home, the acquisition debt is zero.  The only way to increase the acquisition debt is to make and finance the improvements to the home.

As with many IRS regulations, there are exceptions to this rule.  If a mortgage is secured on the first or second home within 90 days of the purchase closing, the debt is considered acquisition debt.  The interest on the funds used to purchase the home can be deducted on up to $750,000 of the mortgage balance.

Assuming a borrower has good credit, the ability to repay the loan and the home justifies the loan, lenders are willing to make mortgages for homeowners.  It does not mean that the interest on the mortgage will be deductible.

Additional information can be found in Publication 936, Home Mortgage Interest Deduction, of the Internal Revenue Service at IRS.gov.

To deduct home mortgage interest, you must file Form 1040 or 1040-SR and itemize deductions on Schedule A.  The mortgage must be secured debt on a qualified home in which you have an ownership interest.  Interest on home equity loans is only deductible if the borrowed funds are used to buy, build or substantially improve the taxpayer’s home that secures the loan.

If you answered yes or even maybe to the question first posed in this article, contact your tax professional to determine the best way to approach your individual situation.  For more information, download the Homeowners Tax Guide.

If you would like any professional residential Real Estate advice, contact us at Paramount Real Estate Services.  1008 12th St. SE Salem, OR 97302  503-851-1645

Also, to mobilize us right away to help you move, visit us here:

brianandnina.com/buyers

brianandnina.com/sellers

The Value of Pre Listing Inspections

Pre-Listing Inspections

Imagine what happens when there is not a pre-listing inspection.  The buyer contracts for the home with a provision for professional home inspection.  When it is made, there could be things that the buyer didn’t expect or even, anticipate.  If it doesn’t trigger an action to terminate the contract, the buyer will inevitably, ask the seller to make all the repairs.

When presented with the buyer’s request, the seller may take the opposite position of not wanting to do any of the repairs.  The buyer could accept the property in its “as is” condition or negotiate the repairs or a reduced price with the seller.

Any experienced agent can tell you that sometimes a mutually agreed negotiation is reached and other times, an impasse is met that cannot be resolved.  The contract is terminated, and the house has to go back on the market but this time, a disclosure has to be made to all parties looking at the home which may deter showings.

Taking a pro-active approach, by obtaining a pre-listing inspection, the seller can find out about things that will probably show up in a buyer’s inspection.  They can get them repaired before the home is shown and it will help the buyer feel more confident with the home.  Another option would be to disclose them as not working and make a price adjustment, either way, the seller is in control and is taking a position of transparency with potential buyers.

In some cases, the pre-listing inspection may show things in working order that the buyer’s inspection indicates as needing repair.  With two disinterested parties having opposing opinions, negotiations have a more likely chance for a mutual agreement.

Disclosing things that are not in working order can reduce liability in the future.  Some deficiencies with the home are not discovered prior to the closing and the surprise issues could lead to liability.  The pre-listing inspection by a professional combined with the seller disclosing it properly can reduce potential liability.

For the small investment in the pre-listing inspection, the benefits are well worth the expense.  For example, it can provide opportunities to take care of potential issues on your own time with control over who does the work at a certain cost.  For a qualified do-it-yourself type homeowner, some items may lend to offering you to perform the work before a buyer puts the house in contract.  This can save a lot of money and time without needing the work of a contractor, although it can be risky to take on the liability if repairs are not performed correctly and to code.

You and potential buyers will also have a better idea of the condition of your property and know what to expect.  You can present the property in a transparent way that will build confidence with the buyer.  You’ll avoid unpleasant surprises as well as possible delays or terminations.  Starting over as a seller can be a very challenging hurdle to overcome depending on the market conditions.  Pre-listing inspections can lead to faster sales and satisfaction for everyone involved.

For more information, download the Sellers Guide.

How much does Convenience Cost?

Convenience at a Cost

The convenience of selling your home without the hassle of getting it ready, putting it on the market, showings, open houses, negotiations and repairs comes at a cost … a significant part of your equity.

The companies, referred to as iBuyers, that buy homes from sellers are for-profit organizations.  They expect to make a profit from sellers who are willing to discount the proceeds they’ll realize as an alternative to the conventional method of selling a home for people who need a quick sale.

The promotions for these companies generally state that you can receive a cash offer in a few minutes after putting your address online.  The discount can be between 10 to 18% compared to normal selling costs from 6 to 9%.   The cost to a person with a $100,000 equity could be as much as ten thousand dollars.

Even after you have accepted an offer, there can be contingencies in the contract that allow the company to inspect the home to discover the condition and reassess the offer to possibly make even more deductions.  If the seller isn’t willing to accept them, the buyer can withdraw from the sale without penalty.

This appears on the surface to be a friendly, accommodating service but it can be an adversarial situation.  The seller wants to maximize their proceeds and the buyer wants to buy it as cheap as possible.

Compare this to working directly with a real estate professional acting as your agent.  They have to put your interests above their own.  They have a fiduciary duty of care, integrity, honesty and loyalty in their dealings with you.  Other duties include confidentiality, disclosure, obedience and accounting to the seller.

In this traditional model, your agent will provide you with the facts of what homes have sold for in the area and their opinion and recommendations on what the most likely sales price will be.  Your agent will provide you an estimate of the sales expenses based on different sales possibilities.

They can advise you on work to be done prior to putting the home on the market, staging so your home will show at its best and estimate the time it will be on the market.  Based on low inventories in some price ranges, it could be surprisingly short.

As an owner, you made an investment in your home in cash and maintenance.  You are entitled to maximize your proceeds based on the risk taken to purchase a home instead of renting.  The convenience of a quick offer has a cost to it.  You need to compare the two alternatives to see which one benefits you the most based on your individual situation.

For more information, download the Sellers Guide.

If you would like any professional residential Real Estate advice, contact us at Paramount Real Estate Services.  1008 12th St. SE Salem, OR 97302  503-851-1645

Also, to mobilize us right away to help you move, visit us here:

brianandnina.com/buyers

brianandnina.com/sellers

 

Brian & Nina (Paramount Real Estate Services) First Video Promotion-2009

We are so excited to be coming on to our 10 year anniversary here at Paramount Real Estate Services!  We dug through the archives to find this gem back in 2009!

 

25758 Taylor Park Rd Lyons Oregon

SPORTSMANS LOG HOME PARADISE! Parklike setting across the road from the little North Fork River. Seasonal creek and pond, sm. barn, fenced pasture, sm. orchard, and shed.  This beautiful log home is very well kept with A/C, open kitchen to dining area, LR w/ wood stove and lg windows throughout letting in plenty of light. Lower level can be huge master suite w/ beautifully updated bath, living area, library, walk in closet, exercise area and private office. Solid cedar logs refinished and sealed.

Beautiful Log Home near Salem Oregon!

SPORTSMANS PARADISE! On the way to the Cascade Mountains, Hoodoo Ski Resort, Elkhorn Golf Course, Detroit Lake, and Central Oregon.  This Beautiful Log Home sits on a parklike setting of over 4 acres across the road from the little North Fork River of the Santiam River! Seasonal creek and pond, small barn, fenced pasture, small orchard, and shed.  This home is very well kept with A/C, open kitchen to dining area, Living Room with wood stove and large windows throughout letting in plenty of light. Lower level can be huge master suite with beautifully updated bathroom, living area, library, walk in closet, exercise area and private office. Solid cedar logs refinished and sealed.  Enjoy fishing, hiking, hunting, skiing and all other outdoor activities near your own Log Home!  Visit our Virtual Tour here:  https://sites.google.com/site/25758taylorparkrd/

6121 Santiam Springs Ct. SE Salem, Oregon

6121 Santiam Springs Ct SE
Salem, OREGON 97317
Price: $539,900

6+ Bedrooms, 4 Bathrooms
5943 Square Ft

Listing # 652659

Enjoy the finer things in life! If you seek the privacy of abundant space & your own 900 SF Shop & 2 greenhouses away from it all, then take a close look at this gorgeous property! 7 full bedrooms & 4 baths along w/bountiful living spaces; Formal Dining, Living Rm, Family/Theatre Rm, Bonus Rm & an amazingly oversized 1200 sf 3 car garage relaxing on over 2 manicured acres with a pond make this home a desireable find. There are too many amenities to list so view this one as soon as possible! See MLS 653006.
For additional information about this 5,943 Square Foot, 6+ Bedroom, 4 Bath property located in Salem, Oregon, please fill out the Request More Information form.

 

 

Click Here for the full listing!

5439 Brookwood St S Salem Oregon

5439 Brookwood St S
Salem, OREGON 97306
Price: $155,000

3 Bedrooms, 2 Bathrooms
1249 Square Ft

Listing # 651366

Very clean, move in ready home in South Salem. Tile entry. Fenced yard. New 50 year roof in 2008. Also gutters 2008! Underground sprinklers.
For additional information about this 1,249 Square Foot, 3 Bedroom, 2 Bath property located in Salem, Oregon, please fill out the Request More Information form.

 

Click Here for more information!

Listing courtesy of COLDWELL BANKER MOUNTAIN WEST.

719 Hazeltine St SE Salem Oregon

719 Hazeltine St SE
Salem, OREGON 97306
Price: $237,400

4 Bedrooms, 2.5 Bathrooms
2894 Square Ft

Listing # 651356

Large and spacious Creekside Home. Formal living and dining rooms. Family room opens to the kitchen. All 4 bedrooms and laundry room upstairs. The den is on the main floor. Huge master suite w/WIC, and master bath includes double sinks and Jacuzzi tub. Landscaped yard with sprinkler system. Backyard has Trek Deck. Garage has loft for extra storage. Great value in top rated neighborhood!
For additional information about this 2,894 Square Foot, 4 Bedroom, 2.5 Bath property located in Salem, Oregon, please fill out the Request More Information form.

Click Here for more information!

Listing courtesy of ERA NORTHWEST PROF REALTY.