Ask the Experts – Mortgages: What You Need to Know

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In 2010, Congress transformed consumer lending. But what does that mean for potential real estate sellers, and homeowners to be?

Great question. This month, we interviewed Matt Jablonski, Loan Officer at Citizens’ Bank, to find out. Matt set the record straight on loan officer commissions, rate negotiations, and whether it’s best to buy now…or wait.

Myth: Loan officers profit from higher rates

Before 2010, loan officers often received higher commissions for more profitable transactions. Naturally, this gave loan officers the incentive to hike interest rates: at your expense.

Then came the 2008 financial crisis. To safeguard the public from future harm, the federal government signed the broad-ranging Dodd-Frank Wall Street Reform and Consumer Protection Act into law. Among other things, the law prohibits profitability-related commissions for loan officers. “The lender I work for has to pay me exactly the same amount, no matter what terms are offered,” said Matt.

What does this mean for the borrower? “You are better protected than you’ve ever been,” Matt said.

Myth: You can talk the loan officer down to a lower rate

While Dodd-Frank is a significant step forward in terms of protecting borrowers, it comes with a downside, too.

“An individual loan officer doesn’t have the power to negotiate like they used to,” Matt said. In other words, you can’t haggle your way to a cheaper rate.

But there’s still one way to secure a lower rate. “A bank is allowed to offer better terms than what they have in place under one set of circumstances only: and that is for competitive purposes,” Matt said.

If a lender can document that a competitor is offering a lower rate, they can adjust their rate accordingly. But it has to be an apples-to-apples comparison: loan amount, purchase price, property type, FICO score, loan program, and fees must be the same; and the rate estimates need to be given at or around the same time.

That said, if all the criteria fit, a borrower need only show a loan or preliminary cost estimate from a competitor to, potentially, secure a matching mortgage rate from any lender.

Myth: Now is a bad time to get a loan

Because mortgage rates are currently on the rise, many people assume we’re headed toward a correction of sorts, and that as such, it’s best to hold off on taking out a mortgage until the market recalibrates.

Matt dismissed that notion. In spite of rising rates over the last few months, he said, rates are still impressively low. And if the current trend continues, those rates won’t be coming down again any time soon. In fact, this loan officer—and others we speak with—expects rates to be higher six months from now, and for that trend to continue. With that in mind, he recommends acting now.

There are multiple reasons to do so. For one thing, New York’s economy is booming. With tens of thousands of tech jobs coming into the city (witness Amazon’s upcoming move), this likely means higher demand. It’s impossible to predict how and when the market will be impacted, but suffice it to say interest in New York City will only continue to grow. Of course, there’s also the cost of waiting to buy. Waiting for prices to re-calibrate means building in a 12-24 month period for the market to adjust (sellers don’t drop prices overnight), all the while paying rent somewhere else and in the meantime if rates continue to rise, it will by default mean you’ll have less purchase power. You are probably better off using your time wisely and taking advantage of the current market dynamics: negotiate, negotiate, negotiate.

“If I was on the fence about buying, I would buy now instead of waiting,” Matt said. “It wouldn’t surprise me if we were in the low fives, or five and a quarter, before 2019.”

From what we have observed and understand, Matt’s words reflect a consensus among industry veterans and insiders. With rising interest rates still astonishingly low, now is in fact the ideal time to buy. Of course, only history is 20/20…but we are certainly bullish on this market, as you’ll read, and we think Matt is right.

 

At the Core – Navigating the New Normal

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This month, we discuss the essentials of buying, selling, and negotiating in the new real estate market.

Which way is the NYC economy heading?

By any account, the New York market is thriving. The economy is booming, with 76,000 new jobs added to the city in the last 10 years, and more increases to come. Because of the exceptional concentration of talent, companies from across the globe continue to flock here—promising durability for our thriving times.

And that’s true across all five boroughs. Amazon’s choice to move to Queens/Long Island City stands as clear evidence to what is unfolding in technology and medicine: the move is typical of what we might expect in the years to come: more well-paying jobs, more spending, and growth.

The signs of NYC’s healthy economy are exciting, and they’ve created anticipation about where our market is headed. While we don’t have a crystal ball, we feel it’s safe to say that New York will continue to be a highly desirable global capital in which to invest.

Transitioning to the new normal

Buyers and sellers alike are still adjusting to the current housing market. Over the last couple of years, that market has been re-calibrating: settling gently into its natural valuation. And across NYC, property owners and investors are still transitioning to the “new normal.”

The new normal involves a return to traditional values in terms of real estate. When our parents bought property, they knew they were making at least a 30-year investment. While most buyers today may not stay in the same place for as long, they should plan for an investment cycle of about five to 10 years.

As buyers and sellers adjust to the current market at different rates, there are bound to be some differences in approach. A buyer and seller who aren’t on the same plane regarding the current market will inevitably clash on pricing. But a broker who’s in tune with the current market can bridge that gap and help both parties reach a meeting of the minds and land on an accurate market trade.

Negotiating in the new market

Buyers often ask us what percentage of a discount, on average, they can expect for each potential purchase (for example, can they take a two to four percent discount across the board?). They assume that we can bring them the exact same discount on any property out there. While it’s an understandable question, it’s ultimately unanswerable. Because each property is different, especially in NYC, negotiation won’t work the same way in every situation — there’s no “one size fits all” approach. Even in a single building, individual units often sell for vastly different prices. Variations in pricing necessitate variations in negotiation approach. That means adapting your negotiation strategy for each individual property is crucial.

Savvy sellers who have transitioned to the new market will price their properties accordingly. Understandably when this is the case, it is logical that we would not apply the same negotiation strategy as in the case of a property in another building, which is overpriced and has been sitting on the market for a number of months. A seller who has priced aggressively in order to sell knows it—and is doing so to get a deal done. This is a very different stance than a seller who doesn’t have a firm grasp on where the market is and chooses to enter the market highly overpriced. Therefore, sellers who have already adapted to the new normal will tighten their expectations, allowing for less variance between asking and closing prices. Inevitably this will affect the approach in one kind of bid vs. the other.

With that in mind, a negotiator must be firm in their market knowledge and confident in their ability to pin down pricing. Negotiation is an art, especially in our current environment, that requires both creativity and the ability to intelligently structure and think out-of-the-box. Each phase of the process must be carefully considered and strategized—with the understanding that timeframes are flexible and everything is open for discussion.

Our New Year’s advice to you

As 2018 draws to a close and 2019 approaches, our guidance is three-fold:

First, don’t procrastinate buying or selling a property. If you’re thinking about taking that step, you’re in the perfect place to do so now.

Second, work with a solid negotiator. You’re not likely to get a better deal in the near future than you are now, but you are likely to get the best deal possible if you partner with a trusted real estate professional. (And by that, we mean us!)

Third, embrace the new normal.

Marie & Jeff

New Year’s Eve with Renée Fleming

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In “NYC Happenings,” we highlight a single, unmissable event taking place this month in the New York City area.

 

Happening in December: New Year’s Eve with Renée Fleming

When: Monday, December 31 at 7:30 pm

Where: David Geffen Hall, Lincoln Center

Internationally renowned soprano Renée Fleming has received numerous honors: including the National Medal of Arts, four Grammy Awards, and a Tony nomination. She’s sung to audiences in Buckingham Palace, at the Nobel Peace Prize ceremony, and at the Super Bowl—not to mention various locations across the globe. This New Year’s Eve, she’ll sing to you.


On December 31, Fleming shares the spotlight with the New York Philharmonic, under the direction of newly instated Music Director Jaap van Zweden. The concert promises sizzling Broadway hits and film score classics, beguiling Viennese waltzes, and dazzling operatic fireworks.

Ring in the New Year in high style at this formal dress affair.

Purchase tickets on the New York Philharmonic’s website.

ASK THE EXPERTS | HOW HAS THE NEW TAX LAW EFFECTED NYC REAL ESTATE?

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Trump’s Tax Reform and New York City Real Estate

 The Tax Cuts and Jobs Act signed by President Trump on December 22, 2017, has initiated numerous changes to how residential property owners can write off their local taxes and mortgage interest payments on their federal tax returns. It caps state and municipal property tax deductions on federal tax returns at $10,000, reduces mortgage interest deduction caps from $1.1 million to $500,000, and prohibits such deductions on second homes.

But what does this really mean for the Manhattan and Brooklyn real estate markets? Well, we’re here to ask the experts just that: does this new tax law have any effect on the real estate market here in NYC? Initial views on this were mixed, and current market trends reflect those prognostications.

The fourth quarter of 2017, when New York buzzed with a mix of suspicion and sanguinity about its native President’s impending tax overhaul, saw Manhattan housing sales activity at its lowest fourth-quarter total in six years, Douglas Elliman and Miller Samuel reported. This included a 12.3% sales volume softening from Q4-2016 to 2,514 closed sales from 2,868 in Manhattan real estate, an average sale price drop to $1,897,503—the first below-$2M figure in two years—and a 13.2% increase in luxury listing inventory to 1,439, the first increase in nine consecutive fourth quarters. To circumvent the lack of tax-write-off incentives for homeownership the Act would create, cash buyers purchased 51.2% of all co-op and condo units sold.

But why? These trends were due largely to the market cautiousness the Act’s reduction of tax benefits provoked in the minds of many buyers, Miller Samuel’s CEO Jonathan Miller told The New York Times in January. Our very own Steven James echoed this sentiment to Bloomberg and Newsweek: “The buyer is very worried about overpaying.”

The Brooklyn market fared a bit better, perhaps due to its up-and-coming status in New York’s higher-end real estate market compared to Manhattan’s long-established one. Brooklyn’s Q4-2017 closed with 2,627 sales, a 1.7% increase from 2,582 in Q4-2016, causing a 23.1% reduction in inventory over the past year. Brooklyn’s $948,706 average sales price was up 0.1% from Q4-2016’s $947,553, and its median sales price rose 2.7% from $750K to $770K over that period. Its luxury median sales price, however, went down 1.9% to $2.4M over that time frame.

Now let’s dive into the 2018 numbers. Elliman and Samuel’s Q1-2018 reports generally indicated continuation of these cautious trends. Manhattan’s home sales dropped 24.6% from 2,892 sales in Q1-2017 to 2,180, which included a 24% fall in luxury home sales. The average sales price dropped from $2,104,350 in Q1-2017 to $1,933,198 (slightly better than the Q4-2017 showing, however). Brooklyn’s market growth slowed its pace but remained strong: the average sale price reduced from $993,955 to $982,093. Then we have the luxury sales, where the median sales price fell 4.7% to $2.425M.

These reports painted quite a different picture from Dezeen’s rosy reportage that Manhattan’s high-end residential real estate market was “booming, thanks to President Donald Trump’s economic policies and tax cuts for the wealthy,” with a reported overall 27% sales volume increase by the beginning of March. Whatever truth those findings hold may be partly attributable to the downward pressure the market’s highest end was already under, pricing-wise.

Prices in the over-$8M+ market have dropped significantly over the past 18 months, possibly to move inventory faster in light of the Act’s diminution of homeowner tax benefits, even though many of these sales involve cash purchases that make the lowered interest expense write-off irrelevant. (In fact, 90% of Q4-2017’s over-$5M sales were cash transactions, Elliman reported.) To boot, some buyers are actually using Trump’s tax reforms to bargain down home prices so they hopefully won’t get socked with higher taxes once the sales are closed, The New York Times reported in June.

Manhattan’s individual neighborhoods varied in RE market sales percentages over the first half of 2018, most showing incremental increases. Downtown consistently held the largest share of the borough’s market, 36% in January and 40% by May. The East Side carried 19% in January and 20% in May. The West Side went up from 18% to 20%, Midtown increased from 16% to 20%, and Upper Manhattan dropped from 7% to 4%.

Brooklyn’s market softened slightly as well. Q2-2018 sales were 5.7% down from last year’s second quarter, from 2,845 to 2,683, the first such decline after ten consecutive year-over-year gains, though sales increased 11.3% from Q1. Inventory rose 18.5% from Q2-2017’s 2,257 to this second quarter’s 2,675, which was up 30.9% from Q1. This significant inventory expansion followed 11 consecutive quarters of year-over-year depletions. Median and average sales prices both dropped from Q2-2017—$997,654 to $984,047 and $795K to $780K, respectively—with very minimal differences from Q1.

With all of this data being enough to make your head spin, what does this mean to our buyers and sellers who are uncertain about the effects of Trump’s new tax law on the NYC real estate market? The answer is, of course, nuanced, like any complex market. Because of the multiple up-and-down pressures the real estate market must weather consistently, assigning responsibility to any individual cause, trend or force wouldn’t be fair and/or accurate.

“External influences outside of the vibrant city economy such as rising mortgage rates, the potential impact of the new federal tax law, and an unclear direction of the national economy have continued to remain a concern of market participants,” Miller reported in the Q2-2018 Elliman Report on Manhattan sales. Another external influence could be a predicted mass exodus from New York to lower-tax states like Florida, where “you can save a million [dollars] a year,” our own Richard Steinberg told The Real Deal.

So there you go. No omens of a recession or bubble-burst are on the horizon, but cards are being played cautiously in NYC real estate investment, yet with hopeful signs that Brooklyn could be a worthy “Trump” card for the homebuyer or investor. Looks like we’ll have to stick around and see what happens in Q3 and Q4.

Sources

ASK THE EXPERTS | WHAT NEGOTIATIONS IN REAL ESTATE LOOK LIKE

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As seasoned real estate brokers here at Douglas Elliman, we are often asked the question of what it’s like negotiating during the buying or selling process. People seem to want to be a fly on the wall to hear exactly how the magic happens, so we thought we’d pull together a sample scenario that does just that: realistically conveys the back and forth between seller, broker and buyer (because let’s recall:  the broker isn’t just negotiating with buyers but is always also negotiating with the seller in terms of what the market can bear).

Therefore, we welcome to the first micro-episode of “Ebb and flow: negotiations in real estate.”

Broker: We have run the comps on your apartment, and after visiting the apartment various times and assessing its value, we believe that the apartment should be listed at $1.495M, considering that its value ranges from $1.3M-$1.6M.

Seller: I have lived in this building for over 22 years and I am not selling it for under $1.6M.  Plus, it’s a renovated apartment.

Broker: We understand, however your renovation is over 5 years old now and no longer feels new to prospective buyers.

Seller: But everyone wants to be in this building; the parquet floors and the location are real attractions.  This apartment has fantastic space! I am not selling it under $1.6M so let’s price it high so then we can absolutely get the $1.5M you’re talking about.

Broker: Mr. and Mrs. Seller, nothing has sold in the building for over $1.5M but we will price it where you want it.  We do want to reiterate, that buyers today are knowledgeable and research savvy – brokers are even more so…If we go on the market at that price, we will get offers on where the property should actually be priced.  Not to mention that when buyers are researching properties below $1.5M, your property will be missed despite it being overpriced.

Seller: Let’s try $1.6M

(Hits the market at $1.595M…)

Broker: Mr. and Mrs. Seller, our Open House was well attended with 30 people.  We received four offers, one at $1.3M and three at $1.4M.

Seller: The number has to start with a 1.5 in front of it.  We put $300,000 into the renovation.  I have to have a number starting with 1.5.

Broker:  Mr. and Mrs. Buyer, thank you for your offer at $1.4M but my client is countering at $1.5M.

Buyer: The trades don’t support that price.  There is a unit in the same building, on the same line that is trading at $1.3-$1.4M.  We can come up to $1.43M

Broker: I will revert back to my client with your counteroffer.

Seller: I know what my apartment is worth and we must have a 1.5 in front of it.

(A few weeks later)

Broker: Hi, Mr. and Mrs. Buyer – I have good news, my client has lowered the price to $1.45M.  Are you still interested in the property?

Buyer: I’m sorry but we have moved on.

Broker: Mr. and Mrs. Seller, we need to move on from that offer, they have already placed an offer elsewhere.

Seller: Great, because I want an offer with a $1.5 in front of it anyhow.

 

TO BE CONTINUED…

ASK THE EXPERTS | To Sell and Buy Real Estate Simultaneously: Can it be Done?

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The answer is yes, it can be done! However, it’s very important to know that there are many factors that go into making a situation work where someone is selling and buying real estate simultaneously, especially when there’s the need to use the funds from the first transaction to purchase the new home without having to rent an apartment in between. Today we ask the experts, Howard, Marie and Jeff of the MARGOLIS ESPINAL ADLER Team if this can be done, how it can be done, and what the key factors are that go into making sure their customers are successful in buying and selling simultaneously.

Q: How many deals have you done where a customer is buying and selling at the same time?

Howard: “We’ve been doing this for years since we’ve been together. We’ve been working together for eight years and as partners for six years and we’ve done these “sell-buy” at the same time deals every year, but for some reason 2017 was the grand-daddy of all years on this. I mean, we did four or five deals, and maybe that number doesn’t sound like so much, but you have to think about all of the moving parts that are involved.”

Q: Do you think people are hesitant to sell and buy real estate simultaneously?

Jeff: “It’s so incredibly daunting and stressful for a customer who wants to buy something better and bigger, but needs to sell what they already own in order to make that purchase, and doesn’t want to rent in between. There’s a lot of detail that goes into that and a huge amount of hand-holding and this is Marie’s thing. I sit there and I’m thinking “no, they can afford a rental in the interim, and let’s do this in isolation”, and Marie just forges ahead and you’ll see from our customer testimonials how happy people are with the outcome.”

Q: Do you see a pattern of any sort with price/time of year/etc. when people will sell and buy at the same time?

Jeff: “It seems to be really common where the buyer essentially needs the funds from the sale of their current home before purchasing the new home particularly in that $1.5 to $3.5/4 million range. Someone purchasing a $6-7 million dollar apartment, in our experience, likely doesn’t need the funds to be moved so quickly. Sadly enough, a $4 million budget, while still luxury, is a middle kind of market in NYC, so it’s all financial and not about the calendar.”

Marie: “Adding to that, even though the customers normally looking to do this are extraordinarily well-qualified, with (on average) a combined income of .5 million and $1 million, they are still having to structure it this way because of the need to tap into the capital funds. In the end that’s what it all translates to – you have somebody that wants to make a move either for personal reasons, for example their family is growing, they’re having another child, etc. or they’ve been living in the same apartment for 5 years and they want change, and they simply cannot afford to go buy something without having that money from selling their current home, yet it’s a conundrum because if they rent in the interim, they are out $50-$60,000 for various moving expenses and rent for a year afterwards.”

Q: How exactly do you ensure your client will be approved for the apartment they’re applying for since they’d then be in contract with their previous home?

Jeff: “The whole other part of this equation are the banks and the buildings, right? So the mortgages are based on income, not money you have in the bank. So when they’re based on income, you have to be able to get a mortgage. Also with co-op boards, they’re all over your finances. They want to see what your monthly expenses are, what your debt-to-income ratio is, all of these things. So you really have to walk a very fine line and build a narrative to make our buyers look as attractive as possible to these buildings so they’ll get through the approval process. That’s where Marie’s background in finance comes in and my background in customer service comes in. This is 24-7 hand-holding and it can seem daunting. A transaction doesn’t happen in 15-30 days, it can take 60-90 days and when you’re doing a sell and a buy at the same time, you’re talking 4-6 months before both transactions are completed, although we have done it in less time.”

So what exactly does the process look like? Jeff, Marie and Howard give a breakdown on how the process should go with a few easy guidelines. Disclaimer – even though these are set up in easy-to-follow strategies, the process is a lot more complicated than one may think! The customer should always keep this in mind when choosing a broker to work with and make sure they’ve already been through the “sell-buy” process numerous times.

Determine your timeline.

Determine what timeline works best for you and then work backwards from the timeline you’ve created with your broker. Take into consideration any work events, life events, family events, etc. that may be scheduled to happen during this timeline that could alter plans. Is someone in your immediate family getting married? Is someone having a baby? Is someone going on a long business trip/vacation? These are all things to take into consideration when creating a timeline, because once it’s created, sticking with it is imperative.

Selling-Side

Lay everything out on the table with regards to financials, etc.

Laying everything out on the table for your brokers is something that can’t be stressed enough. Questions to ask: Are there enough assets in place to have a down payment or do we truly need to wait until the property is sold until we can tap into the cash from the previous property’s sale? Being honest with your brokers will only help the process!

Evaluate the market/agree on pricing.

Pricing correctly is everything. Working from the timeline you and your broker originally came up with, research and evaluate the market and work strategically with your broker on pricing the apartment to sell and to maximize your return in an efficient period of time. Example: Customer “A” has a six-month timeframe to be in their newly purchased home. Since that’s a constricting timeline, Customer “A” and their broker need to make sure everything is going to run smoothly by ensuring they have every detail of the process figured out. From day one, make sure the property is priced accurately and that all pieces of how the apartment go to market are thought out. Also, it’s imperative to make sure that the apartment is staged properly, the photography is spectacular, the narrative for the listing description makes sense, and that it’s going on the market at the right time. All of these factors will affect how the property does on the market, and will ultimately determine if it sits, or if it sells.

Hit the market and follow the pulse of the listing over the first month, then reevaluate if needed.

In general, it’s easy to know very quickly how the listing is doing based on client feedback. Be sure to listen to what prospective buyers and their brokers are saying about the property and how they’re engaging at open houses, etc. Usually if things are done correctly, an offer will come in within one to two weeks if there are no building issues, such as maintenance, assessments, legal issues, etc. As a rule of thumb, the barometer for knowing if anything needs to be shifted is two weeks. If no offers have come in and there are no serious prospects, it’s time for the seller and the broker to address the issues and talk about how to fix them in a timely manner. Remember: time is of the essence!

Typically in these situations, within one month (and possibly up to 45 days) the property is in contract. Once the home is in contract and the terms of the contract are understood, then creating a narrative and building a story is the next part for the customer purchasing the apartment they’re interested in. Keep in mind this entire time, the broker and customer have been viewing apartments and generally have their eye on one or two homes that they love. They have also done their due diligence and are ready to move forward once their current place is in contract.

Buying- Side

All along this process, the customer and broker have been looking at properties to purchase and will act on a property of interest once the previous property goes into contract. Once the customer is in contract on the new property, they will go before the board in their interview, which is when it’s imperative to create a story to ensure they’re approved.

Create a narrative (for Co-Ops)

It’s all about positioning a buyer strongly, in a packaged and very buttoned-up way, and creating a narrative where their qualifications are properly laid out in front of the board. All of this is built into the financial rhetoric and whoever is on the receiving end of the offer is usually much more comfortable with the financials that are being presented, especially if the funds are not reflected on the bank statements.

Close!

If all goes well, the broker ensures that the timing works out where the customer will close on the original property. Then shortly thereafter, they close on the new property with the proceeds from the sale of the other property.

Over the course of their six-year partnership, Howard, Marie and Jeff have done a significant number of transactions where their customers are buying and selling concurrently. When asked what the most important factor is, Marie says, “If you’re thinking of selling and buying simultaneously, make sure you are working with a seasoned broker who has been through the process numerous times. I can’t stress that enough: Always work with a really seasoned broker! It’s not something I would recommend doing on your own, with a broker who is just starting out or without proper guidance in general. Your broker has to understand all of the red flags and all of the little things that that need to be caught, which will happen if they’re familiar with the process.  Problems do come up every so often and things do go wrong, but in the end, things always work themselves out and our clients are very happy in their new homes once the process is done.”

Ask The Experts | “How will the tax reform affect buyers and sellers in a real estate market?”

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With April right around the corner, and with the first significant tax reform passed since Reagan’s in 1986, taxes are on everyone’s mind. With good reason, as its implications could be significant, depending on your profile.

We thought we would take the time to outline the specific changes at play.  Note: this may be worth a forward to family and friends considering buying and selling real estate in 2018. Importantly, as you may imagine, none of the below will affect you when filing 2017 taxes as the new laws will be first applied in 2018 (filing in 2019).

*Please note that the opinions below are derived from our team brainstorming and analyzing together — the final outcome from these tax cuts is still under consideration and consulting a tax specialist remains the best route to take while tax planning.

So let’s take these changes one by one, and see what’s in store:

  • SALT deduction gets salty: The existing state and local tax deduction, or SALT remains in place for those among you who itemize your taxes, however with a $10,000 cap. As of this new bill, real estate taxes are now grouped together with SALT, and thereby also capped at $10,000.   Previously, you could have deducted an unlimited amount for state and local property taxes, in addition to income or sales taxes; alas, no longer (which has Albany scrambling to create fixes or legal loopholes to bypass this material added burden for coastal blue states, including classifying taxes as charitable gifts … stay tuned on this front)
  • Lower mortgage interest deduction: Those of you who already own a home, you’re in the clear and grandfathered in.  The new home buyers among you will only be able to deduct the first $750,000 of your mortgage debt, down from $1 million previously.
  • No more deducting moving expenses: You won’t be able to expense your U-Haul costs if you relocate for work (did anyone do that?) TBD on whether exceptions will be made for the military.
  • The corporate tax rate is coming down: The corporate tax rate has been slashed from 35% to 21% starting in 2019 – that’s material and has prompted many to call foul.   The alternative minimum tax for corporations has been thrown out altogether, prompting many to call a double foul.  The greatest impact will likely be on stock holders, as earnings are expected to go up as a result of these corporate goodies; lots of debate exists around how much this additional wealth will make its way to employee salaries, if at all.
  • The endangered species of the estate tax: Prior to this tax bill, a paltry number of estates were subject to the estate tax, with the first $5.49 million being exempt for individuals and a whopping $10.98 million of transferred assets exempt for married couples.  Now, those thresholds have doubled at $10.98 million for individuals and $21.96 million for married couples … so who exactly will be paying this?
  • Pass-through entities will also get a break: Pass through entities, meaning owners, partners and shareholders of S-corporations, LLCs and partnerships (who pay their share of the business’ taxes through their individual tax return) will now benefit from a 20% tax deduction.  Although the legislation includes a rule to ensure these owners don’t game the system, tax experts remain concerned about abuse of this provision.
  • AMT minimized: The Alternative Minimum Tax came about from the intention to ensure that people who receive lots of tax breaks still pay some federal income taxes; since, it’s ensnared many W2 filers, accused of taxing working income far more heavily than investment income (aka the truly wealthy).  While the AMT will remain in place for individuals, fewer people will have to worry about calculating their tax liability under the AMT moving forward, as the exemption has been raised by $70,300 for singles and $109,400 for married couples.
  • Tax bracket simplification? Not quite: Americans will continue to be placed in one of seven tax brackets based on their income, but the rates have been lowered: 10%, 12%, 22%, 24%, 32%, 35%, 37%.  While individual provisions in the new legislation technically expire by the end of 2025, many people “in the know” expect that a future Congress won’t actually let them lapse.
  • Doubled standard deduction: Lawmakers want fewer people to itemize their taxes and so they’ve doubled the standard deduction.  Single filers’ deduction has increased from $6,350 to $12,000 and joint filers’ from $12,700 to $24,000
  • Bye bye personal exemption: No longer can you claim $4,050 personal exemption for yourself, your spouse and each of your dependents to lower taxable income.
  • Bye bye alimony deduction: Alimony payments codified in divorce agreements for ex-spouses who earn less money are no longer deductible for the payer.  This provision will apply to couples who sign divorce or separation paperwork after December 31, 2018 so … hurry up and get divorced??? That feels like an off recommendation.
  • Homeowner loss deductions toughened: Losses sustained due to a fire, storm, shipwreck, or theft that aren’t covered by insurance were deductible if they exceeded 10% of your adjusted gross income.  Now through 2025, you can only claim that deduction if you’re affected by an “official national disaster” … hmmmm.  It makes you hope that if your house is destroyed by a fire, it’s by the California wildfires and not little Johnny playing with some matches.
  • Lower inflation adjustments: The new legislation uses chained CPI to measure inflation, a slower measure than previously used; over time, this will raise more money for the federal government, but deductions, credits and exemptions will be worth less.
  • Homeowners’ profits unchanged: Homeowners who sell their house for a gain will still be able to exclude up to $500,000 (or $250,000 for single filers) of capital gains.

Phew!  Quite a list.  We hope this is a helpful compilation of the new tax legislation for you and those dear to you.  We’ll keep you updated on any updates to these changes or related information as it all unfolds.

Monthly Gem | 40 Bleecker

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Noho’s new 12-story condo at 40 Bleecker Street is our pick for February’s Gem. Broad Street Development brought on Ryan Korban as the interior design master, who Architectural Digest just named on its AD100 list yet again.

While Korban is predominantly known for his work with celebrities like James Franco, Kanye West, and Alexander Wang, along with top fashion labels, the interiors at 40 Bleecker mark his first full condo building. The overall design team on the project is rounded out by Rawlings Architects and Hollander Design, the latter of which will work on landscape at the project. When complete, this 12-story building will bring 61 one- to three-bedroom apartments to the in-demand neighborhood.

The photo the developers shared in the hyperlink above is a mock-up of the building’s lobby that’s currently located at the sales gallery for the project, which is nearing completion. Sales of the condo are expected to be underway early next year.

This is Jeff’s new development obsession for 2018, and rightfully so. It’s a must-see!

Apple Bites | Loring Place

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This month’s culinary attraction is none other than Chef Dan Kluger’s Loring Place, located at 21 W. 8th Street in the heart of Greenwich Village. The restaurant represents the culmination of a lifelong dream for the chef who has cooked in some of New York’s most beloved restaurants for the city’s very best.  Chef Kluger is best known for leading the teams at ABC Kitchen and ABC Cocina as their Executive Chef, the latter of which was famously named Best New Restaurant 2011 by the James Beard Foundation.  No small feat.

Chef Kluger’s skill for creating delicious market-driven dishes marked by unusual flavor combinations has a new home and is on full display at Loring Place via its menu.  Comprised of small and large plates, alike, the dishes feature farms and farmers whom Kluger has gotten to know intimately over his two decades frequenting the Union Square Greenmarket.

The restaurant’s name was inspired by the street that Kluger’s father grew up on in the Bronx.  This beautiful homage to Arthur Kluger is just one of the many ways in which the spirit of the city is so deeply rooted in the restaurant, itself:  from the energy of passersby seeping through its front windows, to the original beams of the late 1800’s building reincarnated as the restaurant’s refurbished tables.  The style of warm, effusive hospitality that’s a centerpiece at Danny Meyer’s establishments, Kluger’s original introduction to the industry, is palpable, as is the culinary craft of years’ worth of experience passed down to the current generation.

Loring Place, simply put, is a celebration of New York and all things local.