More Return On Equity For Your Investment Property Dollar
Posted by admin on Sep 18, 2008
Few would deny that real estate is a solid investment. It provides an attractive combination of stability, reliable cash flow, preservation of principal and capital appreciation. However, many investment property owners nearing retirement find themselves in a quandary. They are equity rich, but cash poor, with increases in the value of their property far outpacing income growth. They also are often tied down by the day-to-day issues of property management and, particularly in cities like San Francisco, California, shackled to the constraints of rent (and eviction) control. In fact, San Francisco is home to some of the lowest cash return on equity in the state’s real estate marketplace, which is somewhat counter-intuitive given California’s ever-booming property market.
The obvious answer is to sell the property and unleash the dormant equity, but that can be problematic. These investors face the reality of prohibitive capital gains taxes and recaptured depreciation, as well as the task of identifying an alternate investment venue; or locating, acquiring and financing suitable replacement property in the time period allowed, taking advantage of tax deferral under IRS code section 1031.
An ideal solution for many investment property owners may be to reinvest the proceeds from the sale of their property and utilize a subsequent 1031 exchange into a tenancy-in-common (TIC) ownership type, also known as co-ownership of real estate (CORE) interest in a suitable replacement property.
1031 exchanges, also known as Starker exchanges or tax-deferred exchanges, permit owners to sell investment property and defer tax payments by reinvesting the proceeds into another investment property (or investment properties). In order to completely defer the payment of tax, among other things, the replacement property must be of equal or greater value and all the equity from the sold property must be reinvested in the new property. The marriage of 1031 exchange and TIC/CORE allows investors not only to defer their capital gains taxes but also to upgrade their investment real estate.
TIC/CORE is a way of sharing ownership of property among two or more persons whereby each tenant holds an undivided interest in the property. Tenants-in-common may own interests of differing sizes. TIC/CORE investors are on the title and considered separate owners of the real estate. They share pro rata in the income, tax benefits and appreciation of the property. Their TIC/CORE interest can be purchased, sold, gifted, bequeathed by will or inherited; and it is subject to property taxes, gift tax, and estate and inheritance taxes in the same manner as any property held in sole ownership. With a TIC/CORE property, each of up to thirty-five investors have the opportunity to own an undivided fractional ownership interest in an investment-grade property, such as an office building, shopping mall, apartment complex or industrial property, costing anywhere from $10 million to $150-plus million.
The benefits of investing in TIC/CORE properties are substantial. Such properties employ professional asset and property management, relieving the investor of day-to-day tenant headaches. More important, investors often receive greater cash flow and overall returns than they had in their previous sole ownership property. Typically, many people receive between 2-3 percent of their equity in their property in rental income. By selling this property and placing the equity into a larger investment-grade property, they can potentially experience annualized cash flow from 6-8 percent, paid monthly, and 12-16 percent overall return on their investment. Also compelling is that TIC/CORE exchange investors can diversify among several property types, and geographic locations through fractionalized ownership, while still enjoying 1031 exchange benefits on each amount. Thus, investors can potentially reduce risk in their overall real estate portfolio.
Investors seeking to exchange for a TIC/CORE property are best advised to work with a financial advisor experienced in 1031 exchanges. Such advisors work closely with top real estate providers, who give the investor access to the best properties available. In addition, many TIC/CORE opportunities have pre-arranged, non-recourse financing in place, which is perfect for investors working within the 1031 exchange time frame. Numerous hours of upfront investigation, evaluation, due diligence and life cycle planning transpires before a property is offered to an investor group. Investors faced with only a 45-day window to identify a suitable replacement property to complete a 1031 exchange can select a suitable project with confidence.
Given the tax deferral, institutional-grade quality of the property, professional property management and pre-arranged, non-recourse financing aspects, a 1031 exchange replacement property structured as tenancy-in-common ownership can be a very wise and profitable solution. It allows the investor to maintain everything they like about real estate (monthly income, preservation of principal, capital appreciation, etc.), while eliminating most of the hassles of property ownership.
(c) 2005, 1031 Exchange Options. Reprint rights granted so long as the article and by-line are reprinted intact and all links made live. This article is neither an offer to sell nor an offer to buy real estate or securities. There are material risks associated with the ownership of real estate. You must be an accredited investor. Securities offered through Sigma Financial Corporation, Member NASD/SIPC.
Cary Losson is the Founder and President of 1031 Exchange Options. A luminary in the TIC/CORE 1031 exchange marketplace, Mr. Losson is frequently quoted in journals and periodicals concerned with investment property issues and advice. For more resources to assist in your learning: http://www.1031exchangeoptions.com/resources.html
Automobile Expenses - Tax Write-Offs
Posted by Richard Chapo on Sep 17, 2008
If you use a vehicle for conducting business, you can deduct certain automobile costs from your tax bill. This is true even if you use the vehicle for personal and business needs.
Automobile Deductions
The powers that be have historically written sections into the tax code promoting business activities. One of the traditional write-offs has always been the expenses associated with using a vehicle for business purposes.
The simplest automobile write-off situation is one in which a vehicle is used entirely for business. For example, if you have a van used for a delivery service and nothing personal, all expenses associated with the van can be written off. This is known as the exclusive use situation. For many small businesses, however, a vehicle will be used for both personal and business reasons.
Where you use a vehicle for both personal and business reasons, you can only deduct expenses associated with the business use. Keep in mind that driving to and from work is not considered business mileage, while driving from an office to meet a client is considered business mileage.
There are two methods for determining deductible automobile tax expenses. The first is a simple calculation known as the standard mileage deduction. The second is the actual expenses method. You can choose whichever deduction provides you with the biggest deduction unless you lease the car. With a lease, you must use the standard mileage deduction.
The standard mileage rate deduction is a calculation wherein you multiply your total business mileage for the year by a figure provided by the IRS. For the first eight months of 2005, the figure provided by the IRS is 40.5 cents per mile. For the last four months of 2005, the figure has been bumped up to 48.5 cents to reflect high gas prices.
The actual cost expense option is exactly what it sounds like. It is the actual cost associated with using the vehicle for tax purposes for a particular tax year. Automobile expenses will include gas, tires, repairs, oil changes, registration costs, licensing, insurance and so on. In many cases, the actual expense deduction will end up being larger than the standard mileage deduction.
Regardless of the method you choose, you must document the expenses you hope to write off on your vehicle. This means keeping a mileage book and receipts of anything you intend to deduct.
Richard A. Chapo is with BusinessTaxRecovery.com - obtaining tax refund recovery for overpaid small business taxes. Visit BusinessTaxRecovery.com to read more business tax articles or our new tax credits
Are Fast Track Mortgages The Same As Self Cert Mortgages?
Posted by Jerry Figueroa-Lee on Sep 16, 2008
Self Cert mortgages are available for remortgaging, when moving home, for Buy to Let mortgages and for First Time Buyers. Self Cert of income provides provides a mortgage solution for a range of people, such as the self employed and contractors, but also for the employed who find themselves among the growing number of people whose working styles now differ from the norm, and where proof of income has become complicated. Self Cert mortgages allow you make a declaration as to what your income is, but without the need to provide documentary evidence such as accounts, P60s or payslips.
However, in today’s market Self Cert income is widely misunderstood. Self Cert does not mean that no income has to be stated, and neither does it mean that any income which is stated will be ignored; these were features of mortgage schemes known as “non status” mortgages, and have been unavailable for a number of years. With today’s Self Cert, the lender will assess the income stated on the application form in the normal way, but will not ask for proof of the amount.
This type of facility can be a useful tool where an applicant’s true income differs from their provable or taxable income. The lender knows that the reason the application is on a Self Cert basis is because the applicants don’t have documents to prove what they earn, and therefore will not ask for them.
Obviously, by not seeking documentary evidence of income, the risk for the lender is higher than it would be for full status mortgages. This is often reflected in the interest rate to be charged which is often 1% higher, and with the requirement for a larger deposit.
A Fast Track mortgage on the other hand, is where a lender offers the facility to “fast track” a mortgage application by dispensing with the need for documentary evidence of certain things such as income. This facility is offered when the lender feels the credit score achieved by the applicant is sufficiently high, and they are at no greater risk by dispensing with the requirement for documentary proof of income.
The lenders would like applicants to understand that the ‘Fast Track’ facility is offered solely to streamline and speed up the process, and not to provide an application facility for those who cannot prove their income. As a result most lenders that provide a fast track facility randomly sample a percentage of their applications, and ask for proof of income to be provided.
Fast track mortgages should not be applied for by those for which there is no prospect of being able to supply documentary evidence of earnings within a reasonable timescale.
The confusion between Self Cert & ‘Fast Track’ is primarily created by the lenders and their criteria changes over the years. Whilst the lenders might “like applicants to understand that the facility is offered solely to streamline and speed up the process”, a shortening of processing times is seen by many as simply a by-product, and not the real reason at all.
Prior to the statutory regulation of mortgages by the Financial Services Authority in October 2004, the terms Self Certified and fast track were almost interchangeable. Mortgage Lenders such as Abbey and Halifax would advertise a “fast track” policy, but when their representatives came calling they would discuss their new “Self Cert” facility. Northern Rock, produced announcements denying that they offered Self Cert, whilst all the time listing fast track cases as Self Certified on their internal systems. The simple truth is that most lenders want the extra market share which comes with offering a Self Cert style product.
Since the credit crunch in the UK mortgage market, lenders have been far more specific in what their schemes are. Mortgage lenders offering a fast track service are now actively sampling a proportion and asking for evidence of income, and some, like the Woolwich are asking intermediaries to confirm that they have seen the evidence in all cases.
The Woolwich requirement for intermediaries to confirm sight of evidence demonstrates that a faster process is secondary to the real reason for offering fast track. If evidence has to be produced for the broker, it might as well be sent to the lender anyway; as the work has been done and the time already spent.
The bottom line is ‘Fast Track’ rather than Self Cert is offered today because it saves costs, and all other benefits are secondary. Statistically Lenders have come to realise that their computers make the right decision more times than the human they have replaced. However, checking paperwork is still something which has to be done by a human, and therefore, if the number of pieces of paper can be reduced, so can the number of people needed to check them.
The lenders would probably say that the savings they make allow them to offer cheaper and better products and keep fees down. In the current economic climate this would appear to be doubtful, and many would disagree.
Find out more about Self Cert and ‘Fast Track’ mortgages by reading more at the links in the article above.
Victims of Hurricane Katrina - IRS Gives Tax Relief
Posted by Richard Chapo on Sep 15, 2008
In response to the devastation along the Gulf Coast, the IRS is giving tax relief to victims of Hurricane Katrina. The following steps are expected to be expanded upon in the next few weeks. The IRS seems to realize it is hard to file your taxes if your home or business is gone.
Tax Relief – A Small Step
The Commissioner of the IRS has issued orders extending all tax filing requirements for victims of Hurricane Katrina till October 31st. The IRS is also waiving all interest and late filing penalties that would otherwise apply. As the extent of the damage becomes clear, the Commissioner is expected to issue further extensions.
If you live in any of the following areas, the extensions apply to you:
1. Louisiana parishes: Acadia, Allen, Ascension, Assumption, Avoyelles, Beauregard, Bienville, Bossier, Caddo, Caldwell, Calcasieu, Cameron, Catahoula, Claiborne, Concordia, Desoto, East Baton Rouge, East Carroll, East Feliciana, Evangeline, Franklin, Grant, Iberia, Iberville, Jackson, Jefferson, Jefferson Davis, Lafayette, Lafourche, LaSalle, Lincoln, Livingston, Madison, Morehouse, Natchitoches, Orleans, Ouachita, Pointe Coupee, Plaquemines, Rapides, Red River, Richland, Sabine, St. Bernard, St. Charles, St. Helena, St. James, St. John, St. Landry, St. Mary, St. Martin, St. Tammany, Tangipahoa, Tensas, Terrebonne, Union, Vermilion, Vernon, Washington, Webster, West Baton Rouge, West Carroll, West Feliciana and Winn;
2. Mississippi counties: Adams, Amite, Attala, Chickasaw, Choctaw, Claiborne, Clarke, Clay, Copiah, Covington, Forrest, Franklin, George, Greene, Hancock, Harrison, Hinds, Itawamba, Jackson, Jasper, Jefferson, Jefferson Davis, Jones, Kemper, Lamar, Lauderdale, Lawrence, Leake, Lee, Lincoln, Lowndes, Madison, Marion, Monroe, Neshoba, Newton, Noxubee, Oktibbeha, Pearl River, Perry, Pike, Rankin, Scott, Simpson, Smith, Stone, Walthall, Warren, Wayne, Webster, Wilkinson, and Winston;
3. Alabama counties: Baldwin, Clarke, Choctaw, Mobile, Sumter and Washington; and
4. Three Florida counties: Broward, Miami-Dade and Monroe.
If you do not live in the disaster areas, but use tax professions from there, the IRS will also give you tax relief. However, you must contact the IRS to let them know at 1-866-562-5227.
Obviously, taxes are the least of the issues facing Americans in the disaster zone. Still, it is nice to know the IRS is backing off.
Richard A. Chapo is with BusinessTaxRecovery.com - obtaining tax refund recovery for overpaid small business taxes. Visit BusinessTaxRecovery.com to read more business tax articles or our new tax credits
Benefits Solutions Group Becomes Charter Member of the Wealth Protection Alliance for Michigan
Posted by Keith Mohn on Sep 14, 2008
Keith L. Mohn, CLU, ChFC, LIC a full-service financial planner who works with business owners, physicians, and professionals throughout Michigan has joined The Wealth Protection Alliance (WPA), a national network of CPA’s, attorneys and financial planners whose goal is to help clients build and preserve their wealth. Keith states: “this is a great opportunity for our company and for clients all over Michigan– the WPA brings nationally recognized financial solutions from some of the top authors and strategists in the country to our locale, we could not be more excited to be a charter member of the WPA”.
The WPA is a partnership between Jarvis & Mandell, LLC (Los Angeles and New York) and Agilis Benefit Services, LP (Dallas), two firms who have independently become leaders in the areas of wealth preservation over the last several years. By combining these two successful firms and utilizing their strong relationships with accountants and attorneys, and the support of insurance companies and broker dealers, the WPA offers sophisticated and multi-disciplinary techniques to its clientele. This multi-disciplinary approach is designed to give clients superior alternatives to traditional planning.
As a charter WPA member in Michigan, Mr. Mohn’s firm, Benefits Solutions Group, LLC will offer these innovative solutions and participate in daily educational sessions to broaden its’ knowledge. Ultimately, it will be clients in Michigan who benefit most by having access to national expertise, and having it delivered with local service. Mr. Mohn is a financial consultant and lecturer, and President of Benefits Solutions Group, LLC, in Keego Harbor, Michigan, a full service financial consulting and planning firm specializing in working with high net worth individuals, business owners and medical professionals. Mr. Mohn has been servicing the financial needs of medical professionals since 1983, is a member of The Wealth Protection Alliance and can be reached at 248-681-9320. Keith can be reached at 248-681-9320, or keith@benefitsolutionsgroup.biz. The firm’s website is www.benefitsolutionsgroup.biz.
David Mandell JD, MBA and Christopher Jarvis MBA, the founders of Jarvis & Mandell, have been recognized as experts by the physician community for years. They have written numerous books, including The Doctor’s Wealth Protection Guide (endorsed by several state medical societies) and “Risk Management for the Practicing Physician,” accredited to give physicians up to 6.25 hours of Category I Continuing Medical Education (CME) credit. Their latest book, Wealth Preservation: Build and Preserve Your Financial Fortress and their unique concept of a “personal economy” led to appearances on Bloomberg Television and Good Day, New York (Fox-TV) – expanding their expertise to include business owners, entrepreneurs and real estate investors.
The Wealth Protection Alliance is based out of New York, Los Angeles, Dallas and St. Croix (USVI) with 57 members and affiliates nationwide. For more information about the WPA, contact Todd Goldfarb, Director of Marketing, at 212-972-0355. To reach Benefits Solutions Group, LLC call: 248-681-9320.
Early Distributions From Retirement Plans
Posted by Richard Chapo on Sep 13, 2008
An early distribution from an Individual Retirement Arrangement (IRA) or a qualified retirement plan need not be a “taxing” experience. Fortunately, there are exceptions to early distributions.
Any payment that you receive from your IRA or qualified retirement plan before you reach age 59½ is normally called an “early” or “premature” distribution. As such, these funds are subject to an additional 10 percent tax. But there are a number of exceptions to the age 59½ rule that you should investigate if you make such a withdrawal. Some of these exceptions apply only to IRAs, some only to qualified retirement plans, and some to both. IRS Publications 575, Pensions and Annuities, and 590, Individual Retirement Arrangements (IRAs), have details.
In addition to the 10 percent tax on early distributions, you will add to your regular taxable income any distributions attributable to “elective deferrals” that you contributed from your pay, your employer’s contribution and any income earned on all contributions to the account. If you made any nondeductible contributions, their portion of the distribution is not taxed, since you’ve already paid tax on this amount.
There is a way to avoid paying any tax on early distributions, however. It is called a “rollover.” Generally, a rollover is a tax-free transfer of cash or other assets from an IRA or qualified retirement plan to an eligible retirement plan. An eligible retirement plan is a traditional IRA, a qualified retirement plan, or a qualified annuity plan. You must complete the rollover within 60 days of when you received the distribution. The amount you roll over is generally taxed when the new plan pays you or your beneficiary.
If the early distribution from an employer’s plan is paid directly to you, your plan administrator will normally withhold income tax at a 20 percent rate. If you roll over the distribution to a new plan, you must replace that 20 percent of the funds that were withheld and deposit that amount in the new plan or you will owe taxes on that amount. To avoid the inconvenience of this withholding, you can have your old plan’s administrator transfer the rollover amount directly to the new plan or a traditional IRA.
All early distributions must be reported to the IRS. You will report tax-free rollovers on lines 15a and 16a of Form 1040 along with any taxable distributions, but you will enter on line 15b or 16b only the taxable amounts you don’t roll over.
Early distributions from retirement plans can involve complex tax issues. Make sure you understand the issues or get competent tax advice.
Richard A. Chapo is with BusinessTaxRecovery.com - obtaining tax refund recovery for overpaid small business taxes. Visit BusinessTaxRecovery.com to read more business tax articles or our new tax credits
Capital Gains Tax Loopholes Shrinking.
Posted by Carol Freyer on Sep 12, 2008
Seems the new 2008 housing bill was not a savior for all of us - like a scorpion there is a little kick in the tail! However, struggling home owners can breathe easy, the kick is not directed at them, in fact, it is aimed at real estate investors.
Whoever it is aimed at in the real estate market, it will not give the realty world a much needed boost as it is yet another deterrent to buying a home, this time aimed at investors.
Capital gains tax is always part of the profit and loss formula when investing in realty, and the levels were generously high for both investors and regular residents who live in their home. Residents still have the same concessions but now it has changed for investors.
To re-cap on the capital gains that was - and still is for residents owning one house in which they are living and have lived for two years: the allowance on capital gains is $250,000 for a single person and $500,000 for a married couple.
Capital gains taxation is only charged on the profit made on the sale of the house, which is usually not necessarily on the actual sale price of the house.
However, there is a marked change in the taxation laws for people who buy a home and rent it for a while and then move into the home for a two year period prior to selling it.
It used to be possible to sell the home and convert all the profits that were made when it was a rental into tax free income under the capital gains umbrella. The new law has changed all that.
Even though investors may have lived in the rental home for two years before selling it, their capital gains allowance is no longer sacred. The new law says it must be calculated pro-rata and is divided between the taxable years that it was a rental property and the non taxable years when the owner lived in it.
This new rule comes into effect on January 1st 2009 and this is a hypothetical example of how it might look. You buy a home in June 2009 for $400,000 and you rent it out for three years, live in it for two years and sell it in June 2014 for $700,000. (Dream on!)
This means that you have a capital gain of $300,000 (assuming that nothing can be used as tax write-offs). Under the old system you could be exempted from capital gains tax by using your single person’s allowance of $250,000 capital gains exemption. This means that you would have only had to pay capital gains tax on the last $50,000.
This no longer applies; now the tax department will tell you that yes, you may claim the capital gains exemption for the two years that you were actually living in the residence i.e. you can claim two fifths of the $300,000 profit against your own personal allowance of $250,000. This calculates into $120,000.
However, for the other three years -when it was a rental property - the capital gains tax is applicable. Therefore, you will pay the percentage rate of capital gains tax on the remaining $180,000 (three fifths) of the profit of $300,000 that you made when you sold the house.
PorchLight Real Estate Group combines local market knowledge with cutting edge marketing skills. For more information on Denver CO real estate or to do a search for Cherry Creek real estate, visit us online at PorchLightGroup.com.
Should I Hire A Professional?
Posted by admin on Aug 4, 2008
You may work from home part time. Or, you may work from home full time, but do not make a large profit. In either case, you may not be able to consider hiring a tax professional to handle your tax planning. The question you should be asking, though, is can you afford not to? There are hundreds of different tax deductions your small business may qualify for and without having the knowledge of what they are, you may be paying Uncle Sam more than you need to.
If you really do not feel that you can afford to deal with a tax professional, at least take some small business tax courses yourself. These are available online and locally. This way, you have a better understanding of what you should be paying for your business income in the way of taxes. Hiring a professional is a good thing, though. In most cases, you can write off their costs as a business expense anyway!
I Don’t Have A Receipt For My Expense
Posted by admin on Jul 28, 2008
Far too many small businesses fail to write off enough of their business deductions because they do not have a receipt for it. For example, in the course of your day, you may have paid for a bus ride across town to meet with a potential client. Then, you went to a seminar or trade show regarding your business and you may even have had a cup of coffee at your office shop. Each of these costs is deductible even if you do not have a receipt.
When you make purchases that do not require a receipt to be handed to you, do one of two things. First, ask for a receipt whenever possible. When this is not possible, use your planner or date book to make simple notes in it, telling the date, location, amount and reason for the purchase. This can serve as your receipt for your business expenses.
Around The Office Deductions
Posted by admin on Jul 21, 2008
Most businesses miss a handful of donations that are quite common. Just take a look around your office and you may find some that are considered write offs. On your desk, you may notice your bank statement for your business. Take a look at it. Those fees on there are able to be written off as a business expense. Do you provide internet service for your business? If it is used solely for your business, online computer services are deductible, too.
There is a stack of bills and mail to go out. Did you write down the cost of postage as a business expense? Do you provide your visitors with books and magazines to read while they wait for you? Those too are business expense deductions. Do you have to pay for parking for your vehicle or parking meters outside? Yes, those too are deductions.