Monthly Archives: February 2015

26811 Vista Del Mar

This week’s listing is in Capistrano Beach (Address: 26811 Vista Del Mar). Listing price: $1,349,900

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Here’s why I think this is a great buy:

  • It has a big price tag, but the price per square foot is actually very competitive ($320/square foot)
  • It’s incredibly spacious, with 4,200 square feet for its 4 bedrooms and 3 bathrooms
  • Two words: Roof deck
  • It has a great, private backyard (check out the high fences)
  • It’s in Capistrano Beach, right in between the best of Dana Point and the best of San Clemente
  • It’s walking distance to my favorite park
  • The schools are rated well: Palisades Elementary is a 7, Shorecliffs Middle School is an 8, and San Juan Hills High School is an 8
  • The Zillow estimate is a little higher than the listing price, at $1,486,625

Want to check it out? Contact me today.

Tax time, part 2: Deductions for rental properties

Now that we’ve reviewed general tax deductions for homeowners, let’s talk about rental properties. Aside from rental income on a monthly basis, one of the major benefits of rental properties is the tax deductions.

dana point rental

Writing Off Rental Home Expenses
Many rental home expenses are tax deductible. Save receipts and any other documentation, and take the deductions on Schedule E. Figure you’ll spend four hours a week, on average, maintaining a rental property, including recordkeeping.

In general, you can claim the deductions for the year in which you pay for these common rental property expenses:

  • Advertising
  • Cleaning and maintenance
  • Commissions paid to rental agents
  • Home owner association/condo dues
  • Insurance premiums
  • Legal fees
  • Mortgage interest
  • Taxes
  • Utilities

Less obvious deductions include expenses to obtain a mortgage, and fees charged by an accountant to prepare your Schedule E. And don’t forget that a rental home can even be a houseboat or trailer, as long as there are sleeping, cooking, and bathroom facilities. Moreover, the location of the rental home doesn’t matter. It could even be outside the United States.

Limits on Travel Expenses
You can deduct expenses related to traveling locally to a rental home for such activities as showing it, collecting rent, or doing maintenance. If you use your own car, you can claim the standard mileage rate, plus tolls and parking. For 2014, it’s 56 cents per mile.

Traveling outside your local area to a rental home is another matter. You can write off the expenses if the purpose of the trip is to collect rent or, in the words of the IRS, “manage, conserve, or maintain” the property. If you mix business with pleasure during the trip, you can only deduct the portion of expenses that directly relates to rental activities.

Repairs vs. Improvements
Another area that requires rental home owners to tread carefully is repairs vs. improvements. The tax code lets you write off repairs—any fixes that keep your property in working condition—immediately as you would other expenses. The costs of improvements that add value to a rental property or extend its life must instead be depreciated over several years. (More on depreciation below.)

Think of it this way: Simply replacing a broken window pane counts as a repair, but replacing all of the windows in your rental home counts as an improvement. Patching a roof leak is a repair; re-shingling the entire roof is an improvement. You get the picture.

Deciphering Depreciation
Depreciation refers to the value of property that’s lost over time due to wear, tear, and obsolescence. In the case of improvements to a rental home, you can deduct a portion of that lost value every year over a set number of years. Carpeting and appliances in a rental home, for example, are usually depreciated over five years.

You can begin depreciating the value of the entire rental property as soon as the rental home is ready for tenants and you hold it out for rent, even if you don’t yet have any tenants. In general, you depreciate the value of the home itself (but not the portion of the cost attributable to land) over 27.5 years. You’ll have to stop depreciating once you recover your cost or you stop renting out the home, whichever comes first.

Depreciation is a valuable tax break, but the calculations can be tricky and the exceptions many. Read IRS Publication 946, “How to Depreciate Property,” for additional information, and use Form 4562 come tax time. You may need to consult a tax adviser.

Profits and Losses on Rental Homes
The rent you collect from your tenant every month counts as income. You offset that income, and lower your tax bill, by deducting your rental home expenses including depreciation. If, for example, you received $9,600 rent during the year and had expenses of $4,200, then your taxable rental income would be $5,400 ($9,600 in rent minus $4,200 in expenses).

You can even write off a net loss on a rental home as long as you meet income requirements, own at least 10% of the property, and actively participate in the rental of the home. Active participation in a rental is as simple as placing ads, setting rents, or screening prospective tenants.

If your modified adjusted gross income (same as adjusted gross income for most persons) is $100,000 or less, you can deduct up to $25,000 in rental losses. The deduction for losses gradually phases out between income of $100,000 and $150,000. You may be able to carry forward excess losses to future years.

Let’s say that for the year rental receipts are $12,000 and expenses total $15,000, resulting in a $3,000 loss. If your modified adjusted gross income is below $100,000, you can deduct the full $3,000 loss. If you’re in a 25% tax bracket, a $3,000 loss reduces your tax bill by $750, plus any applicable state income taxes.

Tax Rules for Vacation Homes
If you have a vacation home that’s mostly reserved for personal use but rented out for up to 14 days a year, you won’t have to pay taxes on the rental income. Some expenses are deductible, though the personal use of the home limits deductions.

The tax picture gets more complicated when in the same year you make personal use of your vacation home and rent it out for more than 14 days.


This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice.

See IRS Publication 527 for all the details on reporting rental income and expenses on your return.

28192 Bluebell Dr.

This week’s listing is in Laguna Niguel (Address: 28192 Bluebell Dr). Listing price: $795,000

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Here’s why I think this is a great buy:

  • It has great curb appeal. It looks like it was transported from the French countryside
  • It’s been upgraded nicely. You don’t need to do a thing before you move in
  • It’s in a great part of Laguna Niguel, close to the beach without the higher price tag of a house in Dana Point
  • It’s big for the money: 4 bed, 3 bath, almost 2,600 square feet. That’s just a little more than $300/square foot
  • You get the benefits of a Homeowner’s Association (community pool and spa, etc) without an insane fee (it’s only $93/month)
  • The schools are rated very highly: Laguna Niguel Elementary is a 9, Aliso Viejo Middle School is a 9, and Aliso Niguel High School is a 10
  • It’s right next to Laguna Niguel Regional Park–that’s 44 acres of nature!
  • The Zillow estimate is a little higher than the listing price, at $847K

Want to check it out? Contact me today.

Tax time, part 1: Deductions for homeowners

It’s that time of year again–tax time. Thankfully, owning a home can pay off at tax time. In fact, many people take the plunge of home ownership for the tax benefits.

dana point house

Here are some of the tax deductions and strategies that can lower your tax bill.


Mortgage Interest Deduction
You can claim a mortgage interest deduction on Schedule A. To get the mortgage interest deduction, your mortgage must be secured by your home–and your home can be a house, trailer, or boat, as long as you can sleep in it, cook in it, and it has a toilet.

Interest you pay on a mortgage of up to $1 million — or $500,000 if you’re married filing separately — is deductible when you use the loan to buy, build, or improve your home.

If you take on another mortgage (including a second mortgage, home equity loan, or home equity line of credit) to improve your home or to buy or build a second home, that counts towards the $1 million limit.

If you use loans secured by your home for other things — like sending your kid to college — you can still deduct the interest on loans up $100,000 ($50,000 for married filing separately) because your home secures the loan.

PMI and FHA Mortgage Insurance Premiums
You can deduct the cost of private mortgage insurance (PMI) as mortgage interest on Schedule A if you itemize your return. The change only applies to loans taken out in 2007 or later.

By the way, this year may be the last year you can claim this deduction unless Congress renews it. That remains to be seen.

What’s PMI? If you have a mortgage but didn’t put down a fairly good-sized down payment (usually 20%), the lender requires the mortgage be insured. The premium on that insurance can be deducted, so long as your income is less than $100,000 (or $50,000 for married filing separately).

If your adjusted gross income is more than $100,000, your deduction is reduced by 10% for each $1,000 ($500 in the case of a married individual filing a separate return) that your adjusted gross income exceeds $100,000 ($50,000 in the case of a married individual filing a separate return). So, if you make $110,000 or more, you can’t claim the deduction (10% x 10 = 100%).

Besides private mortgage insurance, there’s government insurance from FHA, VA, and the Rural Housing Service. Some of those premiums are paid at closing, and deducting them is complicated. A tax adviser can help you calculate this deduction. Also, the rules vary between the agencies.

Prepaid Interest Deduction
Prepaid interest (or points) you paid when you took out your mortgage is generally 100% deductible in the year you paid it along with other mortgage interest.

If you refinance your mortgage and use that money for home improvements, any points you pay are also deductible in the same year.

But if you refinance to get a better rate or shorten the length of your mortgage, or to use the money for something other than home improvements, such as college tuition, you’ll need to deduct the points over the life of your mortgage. Say you refi into a 10-year mortgage and pay $3,000 in points. You can deduct $300 per year for 10 years.

So what happens if you refi again down the road?

Example: Three years after your first refi, you refinance again. Using the $3,000 in points scenario above, you’ll have deducted $900 ($300 x 3 years) so far. That leaves $2,400, which you can deduct in full the year you complete your second refi. If you paid points for the new loan, the process starts again; you can deduct the points over the life of the loan.

Home mortgage interest and points are reported on Schedule A of IRS Form 1040.

Your lender will send you a Form 1098 that lists the points you paid. If not, you should be able to find the amount listed on the HUD-1 settlement sheet you got when you closed the purchase of your home or your refinance closing.

Property Tax Deduction
You can deduct on Schedule A the real estate property taxes you pay. If you have a mortgage with an escrow account, the amount of real estate property taxes you paid shows up on your annual escrow statement.

If you bought a house this year, check your HUD-1 settlement statement to see if you paid any property taxes when you closed the purchase of your house. Those taxes are deductible on Schedule A, too.

Energy-Efficiency Upgrades
If you made your home more energy efficient in 2014, you might qualify for the residential energy tax credit.

Tax credits are especially valuable because they let you offset what you owe the IRS dollar for dollar for up to 10% of the amount you spent on certain home energy-efficiency upgrades.

The credit carries a lifetime cap of $500 (less for some products), so if you’ve used it in years past, you’ll have to subtract prior tax credits from that $500 limit. Lucky for you, there’s no cap on how much you’ll save on utility bills thanks to your energy-efficiency upgrades.

Among the upgrades that might qualify for the credit:

To claim the credit, file IRS Form 5695 with your return.

Vacation Home Tax Deductions
The rules on tax deductions for vacation homes are complicated. Do yourself a favor and keep good records about how and when you use your vacation home.

  • If you’re the only one using your vacation home (you don’t rent it out for more than 14 days a year), you deduct mortgage interest and real estate taxes on Schedule A.
  • Rent your vacation home out for more than 14 days and use it yourself fewer than 15 days (or 10% of total rental days, whichever is greater), and it’s treated like a rental property. Your expenses are deducted on Schedule E.
  • Rent your home for part of the year and use it yourself for more than the greater of 14 days or 10% of the days you rent it and you have to keep track of income, expenses, and allocate them based on how often you used and how often you rented the house.

Next week, I’ll do posts on tax deductions for rental properties, and tax breaks when you do improvements to your home. Stay tuned!


This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice.

26365 Via California

This week’s listing is in Capistrano Beach (Address: 26365 Via California). Listing price: $1,219,000

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Here’s why I think this is a great buy:

  • Capistrano Beach is fast becoming one of the more popular parts of Dana Point, largely due to its close location to the beach (my wife and I live in Capo Beach and can walk to Doheny in about 15 minutes)
  • Many homes in Capo Beach were built in the 1950s and are relatively small (<1,500 square feet with 2-3 bedrooms and 1-2 baths); this home was built in 2007 and is 3,295 square feet (4 bedrooms, 4 baths)
  • While many homes in Capo Beach are around $500/square foot (or more), this home is $370/square foot
  • The Zillow estimate is a little higher than the listing price, at $1.5 million
  • You can see the ocean, Dana Point Harbor, and even Catalina Island from the backyard
  • No HOA or Mella Roos
  • Served by the well-rated Capistrano Unified School District

Want to check it out? Contact me today.

8 Via Destino

This week’s listing is in San Clemente (Address: 8 Via Destino). Listing price: $875,000
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Here’s why I think this is a great buy:

  • Zillow estimates its value at 985K, and homes on the same street are priced over 1 million
  • It’s located in a sought-after neighborhood in Talega, with access to trails, the Fred Couples golf course, and more
  • It’s extremely well-appointed and up-to-date stylistically–check out the Travertine tiling and custom library shelving
  • Turn-key: You can move right in
  • 3,071 square feet with 5 bedrooms and 4 baths–that’s a lot of house for the price
  • You’re looking at about $284/square foot, which is very competitive for the area
  • It’s just 4 miles from the ocean and a 7-minute drive to downtown San Clemente
  • Good schools: Vista Del Mar Elementary (rated as an 8 out of 10),  Vista Del Mar Middle School (rated 10 out of 10!), and San Clemente High (rated 8 out of 10)

Want to check it out? Contact me today.

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