What Effect Does the Biden Tax Plan Have on the Luxury Client Now?
Over the last year, luxury sales have had the opposite effect from what many predicted at the onset of the pandemic. While many thought that financial uncertainty would cause a surplus of vacation properties on the market, low mortgage rates and travel restrictions have instead skyrocketed the number of people looking to buy luxurious, amenity-heavy homes in popular vacation destinations. Across the U.S., sales of luxury homes rose 41.6%, year-over-year in the first quarter of 2021.
On a larger scale, most economists believe that luxury sales will continue to flourish. Moving investment properties around and finding ways to minimize tax impact has always been a strategy of those who live in this type of ultra-luxury world.
But because of the uncertainty around whether the capital gains tax will come into effect or whom it will affect, a number of ultra-high-net-worth clients who have been sitting on properties in the hopes to see prices grow are now motivated to sell in the next few months. Some even did so before the end of 2020 in worries that certain tax changes could become retroactive.
“This is something for luxury agents like myself, and my clients to be thinking about throughout the rest of this year. I think we’re going to see a spurt of investment activity this year from clients who want to take advantage of the 1031 loss or just sell at the [current] tax rate as opposed to that future rate which is nearly double.”
These types of concerns naturally appear outrageous to people who earn average salaries. As Biden frequently says at press conferences, the proposed tax changes are an attempt to level the playing field and address the kind of extreme inequality that is often observed in the world of luxury real estate compared to the average American.
The effect of the tax hikes is something that high-earning developers and 1-percent individuals looking to sell in the short term are thinking about seriously. As many look for ways to minimize tax impact, the luxury real estate sphere could see a number of interesting sales and wider after-shock effects in the coming months. Working with an agent who understands these issues matter. I can help get you additional professional advice beyond the scope of my role in the process to protect you, my client.
2.THIS IS THIS MONTH’S BLOG: As we end the first week of May, it's time to take a snapshot of this year so far. Many buyers are looking in West Roseville. I want to look at that market and what's happening around there.
My business is focused in West Roseville. I live here. Most of my clients are here and in Rocklin, Granite Bay and El Dorado Hills. I do receive referrals from the Bay Area, mostly for retirement, which is also booming. My last listing in Sun City Roseville had 15 offers and went for $69,000 over asking, all cash. This was a smaller model. It's safe to say, every sector of the market is affected by one factor: There aren't enough homes to sell for the number of buyers.
I sit in on a Mastermind call of senior realtors every weekday morning to discuss this issue. It is the same in every market. We try to adapt practices from each other to better help our clients. These are the best agents and brokers in the country. We don't like this either. Why? For every client who gets a home, many others are outbid and unhappy. We can't grow our business with unhappy clients. We all benefit from a more normal market, but this is what we have. So, I want to share what works, so we can work together this year. Here is the data on our market:
There are 39 homes for sale today. 37 are pending. 61 Sold this week. This is up this week and homes are on the market 7 days on average. That includes the senior market. We are shutting down offers in less than 7 days often.
Rocklin: I sell Rocklin and it's just as bananas. A couple of things about the areas of Rocklin I focus on. If you look at my market area adjacent to The Bass Pro Shop area and east: you have interesting homes, 5 years of age, and I market here too. This area is served by the Loomis Del Oro high school rated10/10! Excellent. No children? Schools are the best indicator of resale value, so it's an investment. There are homes from 730-$880,000, and a gated community of Tim Lewis Homes in the mid $1M range. What to know more? I think this area is a sleeper.
Whitney Ranch is on fire. As luxury buyers migrate from other areas, this area is very hot. Established, customs, near Whitney Oaks golf, are in demand. If you go towards Lincoln, there are new homes as well. I have lots of information about those homes.
Granite Bay and El Dorado Hills. The number of homes is so low, that many do not even see the MLS. It's affected by the cash buyer and the luxury buyer from other places in California. Sacramento luxury is hot too. Jumbo loans were difficult to get at the beginning of the shutdown. That is no longer the case. The California Association of Realtors believe this market is going to stay this way through next year. So, we need a plan.
How do you get a home?
Pick an agent. Look at homes but enlist a partner. Interview 3 agents. Pick one and put together your plan. They don't understand that? Get another agent.
Broaden the search. Does your agent know and understand what you need? Can your agent recommend options to areas you may not have considered?
Is a new home a possibility?
Are you pre-approved? There is no option for this. You cannot get taken seriously, and you could end up thinking you can afford a home, you aren't going to be able to buy. This is the most important first step for every buyer.
Budget. You need one. Don't go over it. If you do, every mortgage payment is painful. You must be in a home that you are OK with the payments.
Emotion. It's a driver. Decide to stay neutral until you know your offer is the one. Tough but it will help you navigate the situation. This one is the hardest for all clients and their agent.
The plan. Stick to it:
Things to consider: Areas. Schools. Price ceiling. Amount of work to do. Additional taxes and fees (Mello-Roos and HOA's). What the offers look like to the sellers. Good agents are better navigators and negotiators on your behalf. My job is to get you a home. It's your partnership with your agent to share the process and have you understand the steps the agent does to make that happen.
Be sure to let others know if your agent is excellent. It's important to our businesses to elevate realtors who deserve good clients like you and your friends.
Normally, the market cools here when it gets hot. I think we will still be busy, as buyers are looking for any window to purchase. The number of homes will stay low. We will cover the why homes aren't listing in the next BLOG.
If you need help and want to understand my plan for buyers, send me a email or text: firstname.lastname@example.org (916) 303-1888
3. How does Proposition 19 work? Who Benefits?
The biggest winners under Proposition 19 would be homeowners 55 and older who would pay lower property taxes when moving to a new, more expensive residence.
Proposition 19 builds off the property tax system inaugurated more than four decades ago when Californians passed Proposition 13, which limits property taxes to 1% of a home’s taxable value, based on the year the house was purchased. The 1978 ballot measure also restricts how much that taxable value can go up every year, even if a home’s market value increases much more.
Homeowners receive more benefits the longer they remain in their homes because their tax bills stay restricted even as their home’s market value goes up. So residents could face a surge in tax payments if they move to a new home — this is the issue that Proposition 19 seeks to address.
Currently, homeowners who are 55 or older have a one-time opportunity to retain their existing tax benefits if they move to a home of equal or lesser value within the same county. They can do the same when moving between counties.
Proposition 19 would further ease the tax burden by allowing the same group of senior homeowners to blend the taxable value of their old house with the purchase price of a new, more expensive home, reducing the property tax payment they’d otherwise face. Disabled homeowners would
receive the benefit as well. The rules under Proposition 19 would extend to every county in the state, and homeowners could take advantage of the break as many as three times when they decide to move.
For example, a qualifying homeowner who owns a home with a taxable value of $200,000 that is worth $600,000 on the market would pay roughly $2,200 in property taxes now. If the homeowner moves to a $700,000 house, the homeowner would pay $3,300 a year in property taxes under
Proposition 19. Without the initiative, the same homeowner would pay $7,700 annually at the new home.
Jeanne Radsick, president of the Realtors group, said it’s vital for homeowners who may be empty nesters or who are looking to move for health reasons to have more options.
“If they can maintain a stable tax basis, they can live a similar life,” Radsick said. “There’s not enough senior housing to accommodate them otherwise.” Ask me about the many senior housing options available here in Placer County and surrounding areas of Sacramento.
Roseville is ready to Come Out of the Pandemic!