Larry Hansen

If you are thinking about renting out your vacation home for extra income (or conversely, using your rental property for personal use), here are some tax tips to keep in mind.

First and foremost, be aware that the number of days you (or family members and certain others) use your vacation home will be treated by the IRS as "personal use" which can adversely affect tax benefits. The IRS uses a fourteen-day-or-ten-percent test, meaning if you stay in the home more than 14 days or 10% of the total days it's rented in a calendar year (whichever is greater), the deductiblity of related expenses will be limited to the amount of rental income. This could result in a huge loss of tax benefits if for example, your total expenses greatly exceed total rental income in a particular year (net loss). You would be unable to offset this net loss against other qualified income. So.... make sure you don't lose what might be a significant tax benefit by simply losing track of the number of "personal use" days.

If you plan to use your vacation home often, there is a "less-than-fifteen" day exception you may want to keep in mind (and verify with your tax advisor). If you rent out your vacation home for less than 15 days during the taxable year, the income may be yours, tax-free and you don't have to report it on your return. Just be aware that any expenses related to the rental are nondeductible. If you itemize, you can still deduct qualified mortgage interest and real estate taxes on your vacation home.

Other tax rules, such as passive activity and capital gains reporting, can also impact the decision to rent out your vacation home. Be sure to check with your tax advisor to review your options under the tax rules.

If you are considering a vacation home, or investment income property here in the La Quinta CA area... be sure to give me a call or email. There are some very good deals right now, particularly in the "off season" summer months.

Larry Hansen, CPA, Broker / Owner

Calif Desert Realty

www.CalifDesertRealty.com

Are you thinking about retirement? If so, it is important that you review your finances and develop a retirement strategy.....and perform a reality check on your retirement resources and expectations. Here are some helpful tips:

• Create a retirement budget.
  • Take a look at your current expenses and add or subtract items that you expect to be different when you retire. Don't forget to include things like health insurance premiums and other fringe benefits currently provided by your employer and factor in how these costs might change.
  • Estimate your retirement income. Keep in mind your life expectancy given the age you decide to retire and and the financial resources that will be needed. If you have an investment portfolio, be conservative on what your anticipated income might be. This is not the time for agressive investing. For some people, this may be the time to cash out on home equity, invest the the proceeds and pay monthly rent. However, again, be conservative in estimating the income generated from investing the proceeds.
  • Evaluate your investments. As mentioned above, now may be the time to start moving into more conservative investments. If you do not have equity in your home that you can cash out, it may still make sense to consider downsizing your home to reduce your housing costs and free up money for other types of investments.
  • Pay down your debt. Don't take on new debt. Get a handle on your current debt to prepare yourself for a reduction in income when you retire.
  • Decide where you are going to live. If you are going to relocate, don't forget to adjust your budget for the cost-of-living differences between the two communities. Also, don't forget to factor in moving expenses. And, if you are considering moving to a warmer climate such as the La Quinta, CA or Palm Springs, CA communities, give me a call and we can discuss the current housing market, prices, communities, lifestyle preferences, etc.
  • Revise your budget. Typically, it may take a number of revisions both to estimated expenses and estimated income before you reach a comfortable budget that you feel will provide yourself with a comfortable retirement. If the numbers don't work out, you may need to continue working a few years longer than expected. If so, best to know that early on to stay motivated in your job and career.
• Make wise "exit" choices. For example, if you qualify for pension benefits, you will be faced with a number of binding decisions when you leave your company. You may be eligible for COBRA coverage (extended health insurance) which could help bridge the gap between retirement and Medicare eligibility at age 65.

If you are considering a move to the Palm Springs, CA or more specifically, the La Quinta CA, The Citrus, Rancho La Quinta, La Quinta Resort and Spa, The Tradition, or PGA West communities, give me a call to see if I might be of service in your real estate needs.

Larry Hansen, CPA, Broker / Owner

Calif Desert Realty

www.CalifDesertRealty.com

760-668-2486

Real estate agents serving the La Quinta CA communities have been attempting to field a lot of questions lately regarding the Chapter 11 bankruptcy protection / debt restructuring at PGA West and The Citrus in La Quinta. To assist in explaining this, management of these operations recently released a Disclosure dated February 15, 2011.

As noted in the Disclosure, the resorts subject to the filing are Grand Wailea Resort and Spa, Arizona Biltmore Resort and Spa, La Quinta Resort and Club and PGA WEST, Doral Golf Resort and Spa, and Claremont Resort and Spa. The residences and homeowners associations located in La Quinta, California, at the developments known as PGA WEST and The Citrus, are not subject to the filing.

It was also noted that the events will have no impact on the management, staff or operations of the resorts, which will continue to provide the same uninterrupted level of luxury service and experience that guests, resort members and other customers have come to expect, and which will remain committed to their local communities. In addition, the Bankruptcy Court signed an Order on February 2, 2011 that stated that La Quinta Resort and Club and PGA WEST along with the other above referenced resorts, are authorized to honor and perform their Customer Programs which include without limitation, the Membership Programs, without regard to whether the Customer Programs arose before or after February 1, 2011.

Click HERE to read the full Disclosure

One day you may find yourself taking care of an elderly parent who is in declining physical or mental health. This can be stressful, both emotionally and financially. On the financial side, there are steps you may want to take to prepare for this situation.

Talk to your parents about their financial affairs. Parents may be reluctant to discuss their finances, but someone needs to know the names of their lawyer and accountant. Someone needs to know where their important financial papers are located. Chances are that much of the information will be in your parents' heads, or scattered in various places around their house.

Here's a general overview of the topics you might want to cover with your parents.

Vital statistics

• Where are social security cards, driver's licenses, and passports kept?
• Where are marriage or divorce records and family birth certificates?
• Where are military service records and pension records?

Financial records

• Help your parents make a list of their financial assets, bank accounts, investments, etc.
• Review the beneficiaries they have designated and how accounts are titled.
• Do they have a safe deposit box? Record the location and box number.
• Find the name of their accountant and copies of tax returns.

Physical assets

• Locate mortgage records and the deed to their house or other property.
• Locate vehicle titles.
• Do they own any assets stored elsewhere?

Insurance

• Locate records for home, vehicle, health, and life insurance.

Estate planning

• Do they have a will or living trust?
• What is the name of their attorney?
• Discuss any special wishes for bequests; encourage your parents to put them in writing.
• Have they set up directives for medical care (living wills)?
• Have they set up a Power of Attorney in case they become disabled?

Don't try to find all this information in one exhausting session. Instead, use the list as a starting point for a series of conversations. Wherever possible, involve your parents in putting their own affairs in order. You may find it's a great opportunity to bond with your parents in their golden years.

Larry Hansen, CPA and Broker / Owner

Calif Desert Realty

www.califdesertrealty.com

Many home buyers and home sellers don't understand how the appraisal process works, or how the hundreds of dollars they're charged for an appraisal are being allocated. Here's a quick overview:

In most cases, the appraisal fee isn't just going to the person who does the actual appraisal. It gets split up and sometimes your lender is getting a sizable chunk of the action. An estimated two-thirds of all home appraisals are produced by appraisal management companies, some of them owned in whole or part by big banks. While the overall appraisal fees have not come down, the amount being paid directly to the appraiser has slashed from what was traditionally $400 or $500, to $175 to $200. These appraisal management companies also require faster turnarounds, with complete appraisals delivered within 24 to 36 hours of the assignment.

Why should this matter? Many experienced appraisers are refusing to work for such low compensation and rushed delivery demands, as the reduced fee barely covers the time and expense involved in doing a thorough appraisal. Therefore, many appraisals are being assigned to newcomers to the field. In some cases, the jobs go to inexperienced appraisers who are willing to travel far beyond their home or local markets to get the assignment, and this unfamiliarity of a particular area, on top of the low fee and rushed turnaround is what is causing significant problems for both home sellers and home buyers. In the La Quinta, CA area, most communities are gated communities, each with different amenities. Some have golf courses and clubs inside the gate community and some don't. Some have key code access, while others have 24-hour manned security gates. Some are higher end homes while others may have more moderate priced homes. Even though these communities may be close to one another in proximity, relatively speaking, the homes inside them may vary significantly in price and values. In many cases, the differences are significant enough that some agents confine their real estate activities to a single community in order to market themselves as being a knowledgeable expert in that community.

So now.... as if we didn't already have enough difficulties in the appraisal process broght about by foreclosures and short sales, we now also have additional problems created by out of are appraisers unfamiliar with a particular gated or non-gated community. Sometimes the bad appraisals undervalue houses by tens of thousands of dollars and kill sales or refinancings, leaving buyers, sellers and their realty agents sputtering.

Complaints about such problems exploded in many parts of the country after Fannie and Freddie adopted the Home Valuation Code of Conduct code last year, which resulted in low ball property valuations, busted home sale transactions and higher fees to consumers. Critics flocked to Capitol Hill to get federal appraisal rules changed. That appeared to be accomplished when Congress passed the Wall Street Reform and Consumer Protection Act in July. The law instructed the Fed to issue replacement rules for home appraisals - eliminating the Fannie-Freddie code - within 90 days after enactment of the legislation.

Will the new rules protect the consumer against inaccurate valuations produced by appraisers working for low fees who are unfamiliar with your local market? Many in the appraisal industry think not, at least in the proposal's current form. Stay tuned.....