Data Entry: Investment & Vacation Property

Adding Properties to a Financial Plan

RightCapital enables you to capture every element of a client's financial landscape including different real estate properties.

Add information about a client's real estate assets in the Profile > Net Worth screen.

1

Click on Property in the left-hand column to enter information about the Primary Home. Indicate whether the primary home is rented or owned using the drop-down and provide the relevant information.

2

Use  Add Account > Property to add additional properties - either an Investment Property or Vacation Home.

Investment Property

Investment properties added into the Net Worth allow advisors to demonstrate the value of the home as well as monthly maintenance, rental income & vacancy rates. Income flowing from investment properties will populate line 17 of Schedule 1 in the sample 1040 return.

Home Name: Name the home.

Owner: Specify if the home is owned by the client, the co-client, or owned jointly.

Purchase Year: Defaults to Already Started, which simply assumes the client purchased the home sometime in the past. The other two options allow you to enter the specific time of purchase. Select Calendar year to specify the year the home was purchased, or select Client's age to select how old the client was when the home was purchased.

Purchase price: The amount the client paid for the home at the time of purchase.

Current value: An estimate of the current market value for the home.

Annual appreciation: The rate at which the property's value will be estimated to increase or decrease moving forward. This may be taken from industry data, historical data, or some other source. This value will be used in retirement projections and tax projections.

Annual property tax: The amount the client pays in taxes on the property.

Annual tax increase: The property tax will increase by this percentage annually.

Annual insurance: The amount the client pays in homeowners insurance. Be careful not to double-count insurance, as the property may be covered by other insurance types.

Annual maintenance: Total deductible maintenance costs for the property.

Total Tax Basis: Original cost basis of the property, excluding any depreciation. Typically purchase price but can increase based on improvements

Accumulated & Annual Depreciation: Depreciation allows the client to spread the tax deduction for the property purchase over time. Residential real estate has a max of 27.5 years of depreciation. RightCapital will calculate the cap up to the 'Total Tax Basis' based on the 'Accumulated Depreciation' and the 'Annual Depreciation'.

The annual depreciation will be reflected in line 17 of Schedule 1 to the 1040. (This will adjust the rental income that you see on line 17).

Passive Loss Carryover: Occurs when the client does not have enough passive income by which to offset the losses in a given tax year. The client can carry over these losses until they sell the property or realize enough passive gains. Losses will show on Schedule 1 line 17 of the sample 1040(This will adjust the rental income that you see on line 17). An individual can deduct up to $25,000 depending on their Modified AGI.

Year of Sale: Select the year of sale for the property.

Selling an investment property

RightCapital allows you to model the financial impact of selling an investment at a future date. Simply use the drop-down menu next to Year of Sale to indicate when the investment may be sold.

The net sale proceeds are calculated as the sale price minus any outstanding loan balance and any expenses. Net proceeds will be included in that year's cash flow. If the client setting uses Traditional Cash Flow, any positive cash flow generated will be invested in the taxable account based on the current or proposed asset allocation.

Taxes -- RightCapital executes very comprehensive tax calculations related to investment properties. This includes schedule E, passive loss limitation, at risk limitation, Sale of Business Property as well as Schedule D 1250 Gain calculations.

Vacation Property

Vacation properties entered into the Net Worth allow advisors to demonstrate the value of the home as well as expenses like property tax and insurance. This home can be sold to fund cash flow needs by adjusting the year of sale.

Home Name: Name the home.

Owner: Specify if the home is owned by the client, the co-client, or owned jointly.

Purchase Year: Defaults to Already Started, which simply assumes the client purchased the home sometime in the past. The other two options allow you to enter the specific time of purchase. Select Calendar year to specify the year the home was purchased, or select Client's age to select how old the client was when the home was purchased.

Purchase price: The amount the client paid for the home at the time of purchase.

Current value: An estimate of the current market value for the home.

Annual appreciation: The rate at which the property's value will be estimated to increase or decrease moving forward. This may be taken from industry data, historical data, or some other source. This value will be used in retirement projections and tax projections.

Annual maintenance: Annual maintenance costs for the property which can also include HOA payments.

Annual property tax: The amount the client pays in taxes on the property.

Annual tax increase: The property tax will increase by this percentage annually.

Annual insurance: The amount the client pays in homeowners insurance. Be careful not to double-count insurance, as the property may be covered by other insurance types.

Year of Sale: Select the year of sale for the property.

1

Frequently Asked Questions

Can I sell my primary home and move into an existing property in the future?

Answer: Advisors can us the property goals under the Profile> Goals> Property Goal> Primary Home Relocation Goal to illustrate selling the primary residence and either purchasing a new home or relocating into an existing home.

2

How can I sell properties in the future?

You can enter the year of sale using the drop-down box at the bottom of the property card.
3

Where does the cash go when I sell an investment property?

The net sale proceeds are calculated as the sale price minus any outstanding loan balance and any expenses. Net proceeds will be included in that year's cash flow - any positive cash flow generated will be invested in the taxable account based on your current or proposed asset allocation.
4

How are taxes on investment properties calculated?

We do very comprehensive tax calculations related to investment properties. This includes schedule E, passive loss limitation, at risk limitation, sale of business property as well as Schedule D 1250 Gain calculations.