Capital Assets Utah Valley, Inc.

06/08/2023

Besides being an AWESOME mortgage company, 'Capital Assets' financially refers to a significant piece of property or asset owned. A home, a car, a stock, a bond, and art/collectibles are considered a capital asset for an individual. Selling a capital asset (any home) triggers a tax event and the potential capital gains tax (assuming a gain was realized) needs to be considered.

To calculate that taxable 'gain', you need to know the ADJUSTED BASIS to subtract from the net proceeds of the sale. (Taxable Gain = Net sale proceeds - adjusted basis) This adjusted basis would be the initial price PLUS 'capital improvements' on a primary residence, and if it were a rental, it would be the adjusted basis OR the value at the time of conversion to a rental (whichever is lower) minus any depreciation claimed (to recapture it).

To minimize capital gains taxes, a few things should be considered:

1. If the capital asset (home) is held for more than a year before selling, then it should be treated as a 'long term' capital gain (taxed at 0%-20%) rather than 'short term' (taxed at 10%-37%).
2. Whether you sell your home or convert it to a rental in the future, you will want to keep track of the capital improvements the best you can, record and receipts if possible (saved 'long term' if its going to be a while before you get rid of that home), so you can boost the "adjusted basis" and have any future capital gain hit be minimized.
3. A 1031 exchange allows you to sell an investment property (and buy another) and defer the taxes incurred to a future date. And once the taxes are 'due', the tax situation/bracket of the person owing the debt may be different than when the earlier sale occurred. The timing of when to realize and pay for the gain should be considered based on your current and future plans for your financial picture...
4. You could move back into an investment property and as long as the home has been your primary residence for 2 of the last 5 years (non-consecutive, 730 total days), you can exclude up to $250K (individually) or $500K (married jointly) of that taxable gain.

- check with your tax preparer for the specifics on your situation, as we specialize in the mortgage side of things, not taxes :)
- remember, death and taxes are what we can count on. When income is reported, it may help you qualify for borrowing money, but you will likely have to pay some of that gain to the IRS.

11/10/2015

Bill, the elusive President of Capital Assets, has returned! He had a 10+ year break to recharge his mortgage batteries - and pursue some other life goals. He recently renewed his originator license and is planning on spending some more time doing mortgages. Welcome back Bill!

02/23/2015

Here are some recent FAQ's from a client and answers for your reading enjoyment... Thought it might be helpful :)

1. People say they don't plan to be in their house for 30 years. Why pay it off to sell?

It doesn't matter how long you live in the asset; you still have the debt, and the sooner you get away from it, or pay down the principal so your balance (and accruing interest) is smaller, the BETTER. If you sell (or in any way pay off the mortgage prior to the end of the term), you still owe less money and have less interest accrued - if you took advantage of accelerating principal payback.

2. People say that the tax break is great for the interest you're paying.

Tax break isn't dollar for dollar. If it were, THEN I would see a reason not to accelerate payoff, but its only a percentage. Meaning, if you pay $6K in interest over the year, your tax liability does NOT drop by $6K, its only a percentage of that.

3. People say that you shouldn't put all your eggs in one basket, so to speak. Not too much in accounts, real estate, cash, commodities, etc. Paying off your house would be doing that.

I somewhat agree with the diversification thing, but I wouldn't go throw money in gold or stock market or 401K if I wasn't as knowledgeable in those areas as I am with investing in mortgages, which I'm not. Also, debt investing is different than asset investing. Maybe if someone had their home paid off, and then had $100K to invest, it would make more sense to advise them to limit their exposure in any one investment. But your house is like your car, its where you live, how you get around, etc. Its not an expendable asset, like other "eggs" would be if you were investing and diversifying. But, having said that, I do agree with that principle; its just hard for me to justify it if I'm a regular JOE who has debts, a house payment, and doesn't have a lot of money to play (invest) with...

There's the $.02 for today!

01/26/2015

The Federal Housing Administration has announced they are lowering monthly MI premiums for new FHA loans starting today 1/26/15. The new factor is 50 basis points better than the most recent version before today (for 30 year amortized loans). The most recent change that came about (before today) was in April 2013, and was the last of a string of 4 increases to the MI factors. Nice to see it going in the right direction this time. If you have an FHA loan right now, let's do the math and see if it makes sense to streamline!

10/28/2014

07/03/2014

Enjoy the long weekend!!!