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Hit Hard By Trmp Tax Changes? Whare Are You Doing to Deal With It?

Original post made by Struggling, Barron Park, on Nov 3, 2018

Given the recent tax changes, we probably can no longer afford our home here. If we move somewhere cheap in a few years, we may be able to almost break even on the rent and property taxes. The hope would be that we could eventually move back, or eventually afford to put in an ADU to help with the rent.

Since our home mortgage deduction was grandfathered in, if we move away and rent it out, will we still retain that deduction during the rental and if we move back?

Since property taxes became non-deductible this year, we have been really hit hard financially. Are we allowed to get the senior exemption on all bonds and measures for Palo Alto? Do we have to apply every year? How do we do this? Does Measure Z have an exemption for seniors and disabled persons? Are we exempt when one of us is over 65 or do both of us have to be over 65?

Will we be able to remain exempt if we rent out the house to someone else? Or do we get to claim the exemption only if we can afford to stay here?

Are there any software programs or inexpensive ways to better assess just how badly we are going to be hit this year? It's been very complicated trying to assess the changes exactly and plan for what we have to do.

The tax law changes have hit people across the income spectrum very differently.

If you are another Palo Alto family who has been hit negatively, please share what it has meant to you, and what you are doing to compensate for it. If you are adding an ADU, how are you able to afford the costs, and has it worked out? Can anyone share their experiences with AirBnB (not for our house, but for a spare room or ADU). We would not turn an ADU into an AirBnB unit, only rent it out as much as we had to in order to stay and then maybe rent it to a student the rest of the year. That is a frightening prospect, too, just because it's a major construction project, too. Are there any good ready-to-go ADU's?

For us, this has been a year of fear and stress much worse than even the usual financial stress. The public narratives around homeownership in this area never seems to be even remotely related to the reality for me and my neighbors. I don't see how we can afford a real accountant -- what is everyone else who has been negatively hit doing?

NOTE: Please if you are one of those who has benefited, please refrain from negative comments about others who did not or their circumstances. I am especially asking the denialists and the developer-centric who want to make it look like all homeowners in Palo Alto are living the high life in their 900sq ft rundown shacks to be considerate. Please let this be a forum where those who are already struggling to live in this area (not just Palo Alto) and have been suddenly hit with a huge bite out of our living incomes can figure out what to do.

Comments (8)

Posted by In the Same Boat
a resident of Another Palo Alto neighborhood
on Nov 3, 2018 at 3:32 pm

We bought a 'fixer-upper' that needs a lot of work. With taxes on the rise, we are facing a similar situation. At present, moving away from Palo Alto would be very disruptive from the standpoint of our children's school and our daily work commute.

Last evening, my husband arrived at this solution...

Since we cannot cover all of the remodeling costs (kitchen, windows, additional bedrooms et al), plumbing/electrical renovation, termite infestation, perimeter fence replacement, re-landscaping + interior/exterior painting at present without going further into debt, we are simply going to tear the house down leaving a vacant lot.

The electrical, water and sewage connections will still be in place and we are buying a large Airstream trailer which will be parked on the property. The slightly less than 1/4 acre lot will now be 'undeveloped' and taxed under those provisions.

Though things may get a bit cramped at times (there are two small children + us), we can get by and save money in the process. Both our parents reside nearby so there will always be an option to spend time or reside over there if needed...but only in a pinch as they do not want us around 24/7.

The first project will involve rebuilding the fence for both privacy and re-establishing property lines. For the interim, it will be an all-enclosed fence (four sides) with a front gate for entering and leaving the property. Some artificial turf within the enclosed area will be our only landscaping expenditure except for maybe some 'potted' plants. Since the trailer will not be seen by passing motorists or pedestrians, our neighbors will have little to complain about in regards to us making the neighborhood look bad.

Later on, we may decide to build or sell the property as is. In the meantime, there's no need to relocate or spend wasted dollars on a run-down house that isn't worth saving. Like unsuspecting fools, we fell for the typical RE agent BS line 'fixer-upper' when it is in reality, a 'tear-down' candidate.

Posted by Hildagaard
a resident of Community Center
on Nov 3, 2018 at 3:37 pm

What am i going to do?

I *AM* phone banking all weekend.

Please call any friends and relatives in SoCal and ask them to vote.

Posted by Abitarian
a resident of Downtown North
on Nov 3, 2018 at 5:20 pm

According to Amazon, TurboTax 2018 will be released November 12. With it, or with a similar product, you can enter your best estimates and get a reasonably realistic look at your tax burden for the year. See Web Link

Posted by some answers
a resident of Barron Park
on Nov 3, 2018 at 7:20 pm

Only one of you needs to be 65 to get the senior discount (not paying for school bonds) on your property taxes. If you rent your home, your property taxes will be deductible (no $10K SALT limit) as a business expense, assuming you declare your rental income. FYI if you and your husband are not married but continue to reside together, you each get a $10K SALT deduction. Hope this helps.

Posted by Struggling
a resident of Barron Park
on Nov 4, 2018 at 12:28 am

@some answers,@Abitarian,
Thanks so much! Do you know what happens to the interest deduction if we rent it out, are we allowed to retain our mortgage (I've never done this) and to continue to deduct the interest, including after we move back if we can move back?

Posted by Explanation
a resident of JLS Middle School
on Nov 4, 2018 at 9:39 am

In practice, you can keep the mortgage. Never heard of a case where a lender didn’t allow it.

Generally, interest on the loan would become deductible as a business expense against the rental income.

Depending on your income level, you can also deduct business expenses as passive activity loss beyond your rental income (up to a limit).

You can generally carry forward rental business losses if you can’t claim them immediately, with time limits.

Depreciation of the rental is also considered a deductible rental loss. This introduces complexity when you move back in, in part because of its connection to capital gains basis on the property.

Posted by Soon to Be Homeless
a resident of Another Palo Alto neighborhood
on Nov 5, 2018 at 8:02 am

We have been forced to buy a used RV to maintain our current residency in Palo Alto. With the school year in progress, we cannot just up and leave. Dual incomes met our mortgage payments but spouse recently got laid-off. Foreclosure proceedings in progress.

A sad way to greet the holiday season as Thanksgiving and Christmas will be observed in an RV, a first for our family. Desire to remain living rapidly fading.

Posted by Struggling
a resident of Barron Park
on Nov 5, 2018 at 8:33 am

Are you able to sell your home instead of going through foreclosure? I know the tax changes and mortgage interest changes also seem to have changed the local market, but it still seems like it's robust.

I know this is difficult but in order to keep your kids in school, is there any way to find a place in East Palo Alto and sign up through the Tinsley program for PAUSD so you kids can stay in school? EPA is way safer than it used to be and it's actually one of the markets heating up because of all the facebook and other tech workers moving in -- it's getting more expensive but is still relatively affordable.

I know it's really, really hard, but please find help, now while you can look up resources, your family love you. Thank you for speaking up about the impact on you. Can others more knowledgeable please share information for @Soon

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