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Vail announcement starting to impact local real estate

July 11, 2018

 

June 28, 20181,073 Views

Low-hanging fruit seeing most activity at the moment

by Mark Reaman

Call it the Vail bump. While not out of the stratosphere, the local real estate market appears to have had at least a mild jolt since the June 4 announcement that Vail Resorts was under contract to purchase Crested Butte Mountain Resort later this summer. The deal is expected to close sometime in August. Local real estate professionals have seen more inquiries than normal since the Vail news was released but they expect the big bump to come after the deal is closed and improvements to the ski product are implemented.

“There most definitely has been an uptick in interest from buyers who are obviously motivated by the Vail announcement,” said Dan McElroy of Coldwell Banker Bighorn Realty. “In the last two and a half weeks we put 11 properties under contract. The downside to that is that it appears that sellers are seeing stars in their eyes and are either inclined to ‘jack up’ the price or stay firm on their list price. Keep in mind, while all sellers want to maximize their net proceeds, some sellers have more urgency in a sale and may be motivated to sell because of other factors and see this as an opportunity to have their property sell without having to reduce the price.”

Bud Bush of Bluebird Real Estate agrees. “There has been an impact especially in undervalued sectors, $250,000 Quick read more or view full article to $500,000 properties like condos and Pitchfork homes,” he said. “The lower the price, the higher the impact but it is too early to have statistics. But since inventory is low, prices are certainly firming.”

Red Lady Real Estate’s Molly Eldridge said a “handful of listings” decided to raise their prices after the June 4 announcement but concurs with Bush that the lower-priced units are moving first. “As far as I know, none of those properties that raised their price immediately are under contract yet. In the first week after the announcement all of the least expensive units at the Grand Lodge went under contract,” she said. “Other than that we continued to see lower-priced condos in Mt. Crested Butte go under contract quickly but that was already happening. We have all received a lot of phone calls from current and past clients asking for our thoughts on what this means for their property values, if they should sell now, if they should wait to sell, if they should raise their asking price, if they should buy now, etc. But we are in our sixth year of prices going up; this announcement will ensure that this continues.”

Jesse Ebner of Signature Properties said while the Vail announcement is having an impact, the summer season is just naturally busy as well. “I have seen an increase in general inquiries and a lot of questions being asked about what the future holds,” Ebner said. “I have had a couple investors call asking questions but at this point it is all speculation since the deal isn’t official and we really don’t know what Vail plans to do with the ski resort. If things solidify with the purchase late summer and Vail presents a plan for their next steps, i.e., improving the infrastructure of the resort, increasing flights into the Gunnison Airport, etc., then I expect things to change in the real estate market.

“Overall, we are seeing steady activity that is typical and consistent for this time of year,” Ebner continued. “As soon as the news broke, listing prices started to change and rise on only a handful of properties. The days of lowball offers are gone and buyers must present their best offers to sellers in order to get the deal. Sellers have been more hesitant to accept an offer that isn’t full price or close to it. However, we have been experiencing multiple offers and ‘bidding wars’ all year, well before the Vail announcement. Some sellers have pulled their listings off the market and others are increasing prices but I would say it is more like 5 percent to 10 percent increases on a small percentage of overall listings, which again is pretty typical for this time of year.”

Longtime Crested Butte real estate agent Charlie Farnan of Bluebird Real Estate sees plenty of changes coming with the Vail move and said he has definitely experienced an uptick in questions and inquiries. “The local, guest and second homeowner confidence index is high. I believe there will be decisions influenced and made as a result of the announcement. Buyer confidence will elevate and sellers may raise their price and expectations as a result,” he said. “There will be an immediate spike and increase in activity, offers and contracts. The long-term benefit is where the community, ski area, locals and guests will be positively impacted. We will see immediate changes at the resort like the point of sale system and possibly how they scan passes and lift tickets. Over time Vail will improve the skiing product, the marketing outreach, the pass product selection/distribution and the configuration and makeup of the base area and parking lot. The short term has the buzz, excitement and the spikes, while the long term increases the confidence, the stability, the strength in the market and the long-term capital improvements.”

According to Ebner, there are still 117 single-family homes for sale from Crested Butte South to Mt. Crested Butte, with the lowest priced home at $567,000. The median price, she said, is $1,397,000, with 32 of those homes priced below $1,000,000. “The condo market in Mt. Crested Butte has certainly picked up since the announcement, with the most action at the Grand Lodge,” she explained. “There are 12 under contract there and prices are going up a lot, since that building is included in the deal.”

Bush said buyers are more interested in local real estate as a result of the news but aren’t overreacting. “Since our economy is mostly driven by the resort, the depth of experience and financial strength of Vail resorts can only help all of us, at every level of employment in the valley,” Bush concluded.

McElroy is on the same page. “Folks are definitely talking about it and I think the upshot is that it will have an impact on the market similar to when the Callaways and the Muellers purchased the ski area. We are seeing some of that right now,” he said. “What we expected to happen and is in fact happening is the entry level properties across the board and base area condos, the so-called ‘low-hanging fruit,’ have the most action. The thought, I think, there is that Vail will be concentrating on improvements to the resort and as a result the real estate most to be affected by those improvements will see the biggest jump in activity. What you will see in the future is optimistic sellers putting their properties on the market at higher prices as sort of a test as what they might be able to get.”

Eldridge expects the major move from a Vail purchase to come after it actually closes and resort improvements are made. “Our market has been improving for years and we all were anticipating a busy summer selling season already,” she said. “I think we will see the impact of the Vail purchase in a year or two when the improvements to the ski area have been made and our winter season gets back to where it should be.”

Farnan agrees with that longer view. “The impact is one of firming up the value index. There is more confidence in the value of the real estate products across the board,” concluded Farnan. “We were expecting a busy summer regardless of the announcement—now we can expect a long-term stable and upwardly moving market, economy and vibrant community.”

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The Hot Debate: Can You Deduct Prepaid Property Taxes?

July 11, 2018

With just two weeks to go before the April 17 deadline, prominent tax advisers still don’t agree on whether all those people who prepaid 2018 property taxes can deduct them in full.

The debate on such deductions arose after Congress passed the largest tax overhaul in three decades late last year. In a landmark change, lawmakers capped write-offs for state and local taxes at $10,000 per return for both single filers and married couples. The provision takes effect for 2018 and will lower these write-offs for millions of Americans.

The overhaul barred deductions for many prepayments of 2018 state and local income taxes, but it was silent on deductions of prepaid property taxes. After Christmas, long lines of people rushing to prepay their 2018 property taxes before year-end gathered at local government office.

Then on Dec. 27, the Internal Revenue Service warned that not all prepayments of 2018 property taxes would be deductible on 2017 returns. The agency said that to qualify for a write-off, the tax liability actually had to have been known at the time.

Right away, some tax specialists strongly agreed with the IRS but others strongly disagreed. The IRS and its supporters argued that those who prepaid all their 2018 property taxes can only deduct the portion that was known or determined at the time. In many cases, that means only for a few months of the year or not at all.

The IRS’s opponents argued for higher deductions of reasonable estimates. They based this argument on prior tax Quick read more or view full article rulings and regulations that they think apply to this issue.

Now, three months later, little progress has been made.

Leading the opposition against the IRS’s position is Lawrence Axelrod, an attorney at Ivins, Phillips & Barker.

“The IRS position is misguided because it doesn’t take into account Treasury’s own regulations,” he said.

These regulations allow taxpayers to deduct amounts paid that will be due within 12 months. The IRS and its supporters disagree. They cite court decisions which say that to be deductible, taxes must have been imposed and the amount must be known.

Stephen Baxley, who heads tax planning for Bessemer Trust, a prominent multifamily office, agrees with Mr. Axelrod.

“If the amount is a reasonable estimate made in good faith, it’s deductible,” he says. The firm is responsible for preparing nearly 1,000 individual returns.

Other tax preparers agree with the IRS.

Brian Lovett, a certified public accountant with WithumSmith+Brown in New Jersey, where property taxes tend to be high, says his firm is following the IRS’s guidance: “We think the amount due must be determined for a prepayment to be deductible.”

The correct answer matters.

More than 80% of property-tax revenue is collected by local governments with a fiscal year other than Dec. 31, according to the latest data compiled by the Lincoln Institute of Land Policy. Frequently, the fiscal year ends on June 30.

As a result, total property tax bills for 2018 weren’t determined by year-end in many areas of the country. Many could reasonably be estimated, however.

For example, say John lives in a county with a fiscal year ending June 30. By the end of 2017, he knew he would owe $6,500 in property tax due by June 30, 2018. He could likely assume that his bill for the second half of 2018 would be about the same. So in late December, he prepaid $13,000 for 2018 to his county.

According to the IRS’s position, John can only deduct a prepayment of $6,500—because the amount due for the second half of the year hadn’t been set.

But if Jane lives elsewhere and knew she would actually owe $13,000 in property tax for 2018, she can deduct a prepayment of that amount on her 2017 return.

Some advisers allow both approaches. David Lifson, a CPA with Crowe Horwath who has many high-earning clients, says he recommends that clients deduct prepayments of known amounts. But he will allow a deduction of an estimate, “if I feel the client understands the risk that the IRS will disagree.”

The debate is ongoing. In March, Democrats on the Ways & Means Committee wrote acting IRS Commissioner David Kautter to protest the IRS’s interpretation of the law.

The good news for taxpayers who want to deduct prepayments of estimates is that neither Mr. Lifson nor Mr. Baxley thinks these write-offs need to be disclosed on IRS Form 8275. On it, taxpayers are supposed to disclose risky positions to avoid certain penalties. Supporters of the IRS’s position think the form should be filed, however.

Some taxpayers are also pushing preparers to take the deduction because the audit risk is low, given constraints on IRS resources.

Emily Matthews, a CPA with Edelstein & Co. in Boston, says she explains the IRS’s position to clients. But she says, “I think we’ll see a lot of people who prepaid estimated taxes opt to deduct them.”

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