Show: On The Town Station: KNCO File: 10:9.mp3 Air date: 2026-10-09 Source: OpenAI whisper-1 · shrunk from 27.4 MB to 5.5 MB --- transcript --- It is time for Getting Real About Real Estate with Diane Helms. Good morning, Diane. Hey there. Good morning, Mo. How are you this morning? It's a beautiful day. Yes, it is. It's going to get even more beautiful. We have a beautiful weekend in store. Yes, it is. I'd like to hear what's going on in the real estate market. Well, thank you. Yeah, this is Diane Helms with Getting Real About Real Estate in Nevada County and Mediator of Choice. You know, folks, I come on this show once a month and I bring with me a guest that I think has valuable information for our people in the area and out of the area. And actually, it's really a pleasure this morning for me to introduce you to Debra Patterson, tax consultant with Patterson Taxes. Debra and I have known each other for a number of years and has advised me greatly in many real estate tax matters that I've had in the past. And I am just really very welcoming you to come to the show today. Thank you, Debra. Thanks, Diane. Nice to be here. Yeah. So, Debra, can you tell our listeners a little bit about yourself and how long you've been in business and what made you do what you do? Well, I got into taxes in January 1999. I actually went to H&R Block Tax School in the fall of 1998. I had had my first child January 1998, and by the time she was a year old, I was ready to go back to work. So yeah, I went to school with H&R Block and started doing taxes for them and then moved here in January of 2016. Couldn't find full-time work, so I decided to open up my own practice. Oh. Now, I've got five employees. We do bookkeeping, taxes, and incorporations, and yeah. I know that you have helped me, like I said, in real estate with my business and other people too, and you've actually come to our Association of Realtors in the past and spoke to us about certain real estate matters. So, you know, being the fact that I'm a realtor and mediator, but I do taxes like everybody else, and I know it's a really busy time of year for you in April, but I think October is also busy for you for doing... Yes. This is the real deadline. Right? For sure. So, is there a penalty really for filing late, and what do you recommend for people that need to extend on their taxes like I do once in a while? Well, I encourage my clients to extend, and in fact, comes April 1st, I put one of my employees to work full-time. Takes about 40 hours for them to go in and just... Everybody who hasn't got their taxes done, by April 1st, we put them on extension automatically so we don't have to worry about it. There's a difference between when your taxes are due and when your payments are due. Okay. It's a pay-as-you-go system. Right. So, you're supposed to pay as you earn. So, if you're working for somebody in a 9-to-5, 40-hour a week and you're getting a W-2, those taxes are withheld every time you get a paycheck. But if you're self-employed, then you need to pay what's called quarterlies. Correct. Yeah. Otherwise, those are late payments. And so, you will pay penalties on paying those quarterlies late. And if everything isn't paid that you owe for the year, by January 15, you're going to pay another kind of penalty. Oh, really? And what is that? It's based on... It's a late payment penalty also. Based on that. Huh. So, if you're late and try to pay all your taxes, say, cheat on your quarterlies and pay in October, you're going to get late payment penalties for those previous quarters, unless you're in a seasonal business. Okay. So, if you only earn money around Christmas season, then you don't have to pay those taxes until January 15 after. Oh, that's interesting. Yeah. I didn't realize that. Huh. Okay. So, speaking of taxes, you know, before we know it, we're going to have to be filing our 2026 next April. So, what sort of things should people be doing now in preparation for filing that you would recommend their 2026 taxes? Talking to your investment managers would be the number one thing. This is the time of year where people can go ahead and if they have a lot of gains, they can look and see if they have some losers, losses. And I'll set some of the taxes on those gains by selling out their losers. Oh, okay. Interesting. A lot of what we get busy with this time of year is doing projections for people. So, if they've sold some real estate or their home, so rentals or their home, if they've sold, had some big stock sales or huge dividends or whatever, we can run a scenario through the program and see what their taxes are going to look like so they know what to pay by January 15. Well, that sounds like a great idea, you know, just being a little more ahead, right? Yeah. And it's also a good idea to just kind of get to where you're getting some kind of return back so you don't waste money on penalties. Right. Exactly. Not knowing what to expect. Well, that's a really good advice. So, are there any new tax laws that should be concerning or that you're aware of yet for 2026? Not really. Some people are probably going to get surprised by a lot of the energy credits, electric vehicles. Those have all expired. Oh, they have? As of, they expired in 2025. Okay. So, if you put in, you know, dual pane windows or whatever in 2025, you're not going to get anything back for it. Okay. So, there was a deadline on that. That's good to know. Yeah. That all phased out in 2025. Okay. So, regarding filing for taxes, you know, I mean, for example, I'm a sole proprietor and some people have statuses when they file like a S-corp and corporation statuses. What's the benefit of being a filing and filing like a S-corp if you're an individual? Yeah. I have a fellow that works for me, George, and he handles all the incorporations, LLCs, S-corps. I think we do have one C-corp. But basically, to make that decision, I would recommend coming in, sitting down, and talking with them. But a general rule of thumb is if you're making profit of $80,000 to $100,000 a year, I would encourage incorporation because you could then pay yourself a salary of a portion of that that you have to pay Social Security and Medicare taxes on. But the other, maybe 50% or 70%, and there's guidelines, you don't pay those employment taxes. Okay. You only pay the income tax. So, it's a savings of, you know, maybe 35% or so. Oh, that is. That's a big savings. Yeah. So, it's really a big deal. I encourage everybody to incorporate as soon as they hit those upper digits. Okay. Well, that's good to know. So... That's for self-employed. Exactly. Self-employed. Yeah. Not wage earners. Yeah. I get that. Wage earners are different for sure. So, let's talk about a little bit more that we haven't really gone into yet, but a lot of my clients are in trusts. You know, they bought a property, and I have a trust for my husband and I on our home. And I know a lot of people do that, and many of my clients are getting to the age where their husband or their spouse or wife is passing away, their partners are passing away. And they have come to me and asked me if I would help them by giving them a value of their home that they can give to their tax accountant for the date of the person that passed away. And we go six months back, and then I do evaluation of their home, and they have to give it to their tax preparer. So, my question to you is, what is the benefit of that? Why do people need that date? And what's the purpose of that? That will be the first question. Yeah. It's not just real estate. It's any valuable asset. Okay. Like a lot of people have, you know, gold and silver and safe deposit boxes in the bank. So, that's a good reason to put it in a trust. What trusts do, the benefit of a trust is that it helps you avoid California probate taxes, which I think is like anything over $68,000 somewhere. I used to think it was about $100,000, but recently I saw $68,000. So yeah, you'd want to talk to a trust attorney about that. And if you've got assets over that value, you want it in a trust so you don't have to go through probate. Probate is very expensive. It starts at, like if your assets are over $100,000, it starts taking 3% of that for nothing. Oh really? Yeah, that's true. And then as your assets go up in value and housing values around here are pretty high, you could end up paying tens of thousands of dollars in taxes that you wouldn't have to pay if it was in a trust. Oh, so that's the benefit of a trust. I know that there is a benefit, and I think you just explained it really well. So regarding the successor trustee, okay, so let's say, for example, let's use the same scenario, and let's say my husband and I owned a lot of properties, real estate properties, and I get these values from my appraiser on my house, right, to give to my tax accountant, attorney. And a realtor's appraisal would work just as well. You wouldn't have to pay $650 or whatever. I realize that, which is why I do that for my clients. I'm not trying to say to take money away from an appraiser, but a lot of times they're clients of mine that trust my judgment, that have come to me over the years here for brokerage. And if it gets complicated, I'll definitely tell them you need an appraiser for sure. But anyway, let's just say that I have somebody that has a lot of property, and their husband passed, and I give them their values. And let's say that they don't sell or dispose of that property. Let's say they do it in increments, and they want to sell something, one or two of the properties a year or two later, or even five years later, based on that value that I gave them. What are the tax consequences of that? Because it'll probably be a lower value, maybe, if they sell it years later than the value I'm giving them. Well, if the value of the property goes down, then it's a loss. And in real estate, if it's your primary residence, you don't get to take that loss. If it was a rental residence that you had rented out, then you could, depending on your income levels. It gets a little convoluted. Things start to go not to your advantage at around $250,000 of all your income added up. So yeah, it depends. Did I answer the whole question? No. Well, that's okay. No, you have some of it. But I'm just wondering, what is a stepped-up basis? I hear about stepped-up basis. So can you explain that a little bit? If you inherit your parents' home, you don't want the basis to be what they paid for, $50,000, you know, 35 years ago. You want the value to be what it became on the date of death. And then, that way, you don't pay so much in taxes, capital gains taxes, on what is usually a huge difference. Yeah. I know that there's a lot to that. You know what? I think we have to have a commercial break. So hold that thought, Debra. We're going to come back. Hang in there, folks, because we've got a lot more information for you for Getting Real About Real Estate. Hungry? Skip the packaged stuff and mystery meals. At Robinson's Gas Station on Bennett and Main in Grass Valley, we're serving up fresh, homemade, locally crafted food. A full burrito and taco bar and traditional pasties, all made fresh daily. Need something for later? Grab a take and bake pasty. This isn't your average pit stop. It's local, fresh, and worth the stop. Robinson's Gas Station on Bennett, Main, where local eats meet the road. Hey, there. This is Diane Helms with Century 21 Cornerstone Realty in Nevada City. Hey, are you considering buying or selling now or in the future? I have the advice and the necessary resources to guide you through this process. In fact, I've been blessed to live in Nevada County and raise my family here and provide quality real estate service for 45 years. To me, real estate is about serving your needs with my experience, knowledge, and integrity. I would love the opportunity to help you. Remember, when you want to sell or buy, call Di 530-913-8598. Why is my lawn still drinking like it's July? Good question. Even when it's still hot outside, it's a good time to check your water use. Check your irrigation timer, look for leaks and broken sprinkler heads, and don't forget to check faucets and toilets for leaks around the house. A small leak may not seem like much, but over time, those drops add up. Take a few minutes to make sure you're using water wisely. Nevada Irrigation District, serving our community since 1921. That check engine light isn't going to fix itself, but don't lose any sleep over it. I'm Eli at All Star Automotive. Your check engine light scan is free. Our experienced mechanics service all makes and models, from maintenance and smog checks to brakes, diagnostics, and major repairs. Family owned and local, we will keep your vehicle safe and dependable. Call 530-274-8227 or visit allstarautomotivegv.com. All Star Automotive, the team of mechanics you can trust. It is 1150, almost 1151 and 83 degrees. And let's return back to Diane Helms and Getting Real About Real Estate. Diane? And back to you, Diane. Hello, well welcome back folks and thanks for coming back to Getting Real About Real Estate with Deborah Patterson from Patterson Tax Offices. And just going back to what we were talking about before the break, we were talking about inheriting property that's in a trust as a primary residence and the value that you have to place when one of the trustees pass away and the successor trustee has the property in their name. And let's say there's several properties, let's say there's a primary residence and let's say there's other properties. And then we were talking about what stepped up basis means. Just getting back to stepped up basis because I think we didn't quite finish that. What does that mean, stepped up basis again? So when you inherit a property, say it was the second of your parent, your first parent has died in the past and now your second parent dies and it's time to inherit that property. They may have only paid $50,000 for that property 35 years ago. And now that property is worth $500,000. So instead of paying taxes on that $450,000 gain, you're going to get what's called a stepped up basis to the $500,000. So that's a huge tax savings. That is huge, yeah. So if you turn around and sell it immediately, you're not going to experience any kind of tax consequences for doing that. Now if you hang on to it for a few years and it continues to go up, you will pay taxes on the gain from the date of death to when you sell it. Okay, so can you kind of give me an example of that, for example? Like let's just say that the property at the time of death was worth a silly number, $200,000. Let's say it was worth $200,000. And let's say I sell it, it was my parent's property and it was an investment property that they owned. And I want to sell it. And somebody says to me, well, why don't you do a 1031 exchange on it and not sell it? Is that possible? Yes. So the basis is still established, the new basis. And then when you do a 1031 exchange, the reason you would do a 1031 exchange is because you're trying to postpone taxes. Correct. That's what I want you to explain. So if you're not selling the property, you're not going to experience any taxes anyhow. Does that answer your question? Yeah, I think so. If somebody wants to sell a rental that my parents own, my parents own two rentals and a primary, and I want to sell the rentals later, but I want to defer the gains. Can you do that if you've inherited the property as an investment property? Yes. Okay. That's what I want. You still get a stepped up basis on everything. Okay. So the stepped up basis still applies? Yes. No matter what. And then let's see. What I'm trying to think about is what happens to the depreciation that you have to take on rental properties on a 1031. I guess all of that would just get postponed until you finally do sell the property. Okay. So let's just say we sell the property. Then what happens? What about that money that you owe? So that you owe? Yeah, that you may owe. Let's say there is a gain. So when you sell a rental property, you're going to be taking the sale of the property. You've already depreciated all the improvements to it as you went along. Well, you're supposed to take depreciation if you have something to depreciate. Because it's mandatory. Such as a roof or all new landscaping or a paved driveway. So you take the deduction as you earned it or used it. You're going to have to recapture it and pay taxes on that when you sell the property. Okay. Okay. So some people don't. But if you get audited, that's going to come back to you. Yeah. Okay. So capital gains will apply when you do go to sell the property, right? Based on the stepped up basis. If you have a profit. Correct. Yeah. Yeah. And like I said, if it's years later, you may have a profit. But who knows? You know, we've had years where property had devalued quite significantly. You know, that was 2008, 7, 6, that time period. And so there was a lot of people that had property that they owned then that they were trying to sell. So imagine that they just didn't have any capital gains because the value went. No. But they would have a deductible loss. Exactly. So that's a deductible loss. So that's good to know. You know, so there's always a silver lining, right? Somewhere. Not always. Not always. Okay. So what would you recommend somebody who, let's just say, has a property and they have a primary residence, husband pass, they have two other rentals that they're renting out and they want to stay in their property that they own. They don't want to sell that yet. And they want to keep the properties that they're good money makers for the rental income. What would you suggest that they do in the future to be thinking about because nobody lives forever and say that they may pass, you know, that they can prepare for their children? Well, it definitely needs to go into a trust. Okay. Anything of any. I think if I had anything other than my six months of emergency money, or one year is even better, I would put everything above and beyond that into a trust. And then, I'm sorry, I lost. Yeah. So what would you, so if it's in a trust and there's, that's the protection then, right? For the children down the line, if that other parent then passes away and those two rental properties are still being rented out, but the primary needs to be sold. Yeah. Title and such would all have to be updated, but otherwise everything just continues to flow and now there's new people gaining, enjoying the gains or the losses on those properties. Correct. One thing with rental properties is that they often show a loss because of depreciation, which is like one of the biggest expenses. And those losses go to eliminate taxes on some of your other incomes. Correct. Yeah. If you don't make, things start to go wrong after your income exceeds $250,000. Okay. If you're under that, it's a good investment. So question, another question, I'm just going to go back to exchanges again because I'm being asked a lot about them and I know the rules change. They have changed on the 1031 tax rules, you know, exchange rules like, you know, two years and you got to live in it two out of the five years. I have investment properties and I'm deciding that I want to sell one of them, but I'm thinking, well, I have a primary, so I want to sell my primary today and I won't have a gain on that. But then I'm going to move into one of my rental properties because it's smaller and I want to, that to become my primary. Is that doable? Is that what people do? Yes. If you live in something that is declared a 1031 exchange, that would violate the law. Correct. But you could end it as a 1031 exchange and make it your primary home. Correct. Just have to be sure you do the legalities on that and there's timing. The messy part about 1031 exchanges is that the timing is very important. Yeah. Well, this just, we could go on and on. I mean, you're just so much information. I've got lots of questions and we're going to have you come back again sometime. Okay. Thank you for coming. And folks, I just would like to again announce Debra Patterson, Patterson's tax office. Patterson, Debra, if somebody wants to get a hold of you, how do they do that? What's your phone number? 530-615-4917 or check out Google. Okay. Perfect. And again, Diane Helms with Century 21 Cornerstone with Getting Real About Real Estate. And I can be reached at 530-913-8598 or you can find me on YouTube or Facebook and check in for our next episode next month, which we air every Friday from 12 until 1230 I believe or 1130 to 12 right here at KNCO. Have a great day, everyone. --- end of transcript ---