Real Estate

Real estate investment has created many millionaires. You have to ask why, since the stocks of good companies have yielded better returns than real estate. My answer is that real estate investors tend to hold for long periods of time, whereas stock market investors tend not to hold for long periods of time. In other words, traders and “flippers” must met the challenge of beating long-term returns. In addition, there are two powerful aids to real estate investing….leverage and tax advantages. This is where we come in.

There are a number of tax problems which we can help clients navigate:

1) what can be capitalized and what can be expensed,
2) why keeping records of improvements can save taxes,
3) how and how much to deduct for mortgage interest,
4) when are points deducted and when are they amortized,
5) whether your activity rises to a level which makes you ineligible for capital gain  treatment on sale of the property,
6) what entity to use as an owner of the property,
7) what IRS approved method and useful life to use for depreciation,
8) whether the tax losses will be deductible currently, in other words, will the passive activity loss rules cause delay of deductions,
9) whether a cost segregation study will be worth the cost, which includes potential sales tax on tangible personal property, depreciation recapture, and 1031 tax-free exchange issues,
10) when it comes time to dispose of the property, can a tax-free exchange be done,
11) how to avoid dealer versus investor tax pitfalls,
12) how to convert an investment property into a residential property,
13) whether to rent the vacation home,
14) whether an installment sale makes sense, in view of certain risks,
15) whether a private annuity trust makes sense,
16) whether a charitable remainder trust makes sense,
17) whether it makes sense to disrupt your personal lifestyle to live in a rental property two years just to get the $250,000/$500,000 capital gain exclusion, and
18) should you use an IRA to acquire real estate.

Returns on real estate can be substantial. They can be even greater with the right tax planning.