Real Estate

I don’t know about you, but I’ve had a lot of things I thought I knew about the real estate, credit and stock markets get turned on its ear this past week. Yet, there are people who are making a lot of money in this current economic climate. In this week’s brand new Online Workshop, I’ve got a couple of ideas to get you kick-started!

I absolutely love getting the chance to interact directly with my TaxLoopholes clients (and some Diane’s Mastermind clients and my tax firm, Diane Kennedy’s Tax Services clients) when there are new tax issues happening.

And that’s exactly what happened this past weekend. We spent a lot of time going over the Real Estate Professional audits and the distinctions that the IRS is making. There is a lot of confusion among tax professionals as well on this one.

There are TWO requirements to taking the real estate passive loss deduction against other income if your income is over $150K:

A year ago, I would have told you that you needed to avoid real estate dealer status and that you should always take advantage of the capital gains exclusion for primary residences.

Boy, things have changed. And as commonly happens when law and policy changes rapidly, not all of the loopholes are thought through. In fact, there are a couple of loopholes right now that I’m not sure Congress and the IRS intended. But, nevertheless - there they are.

It’s the second hottest fund category. Who knew that stock investors would fall in love with real estate? In this case, REITs (real estate investment trust) are up more than 7%. The leaders are natural resource funds up 13%.

Leading REIT indexes were down more than 15% last year, so the 7% gain hasn’t recovered the loss yet. But, compared to other real estate markets, this gain isn’t that bad.

There is an area about 45 min east of downtown Phoenix called “Queen’s Creek.” A couple of years ago, developers were going crazy building nice houses out there. My first issue with that is that it’s 45 minutes away when the traffic is moving like it should. When it’s not, add another hour or so of commute time each way.

In my opinion, those subdivisions were doomed just because of that. But, I walk to work, so commute is foreign to me anyway. But this has really gotten a lot of local press as one of the “bad examples” of lender and developer irresponsibility and it got me thinking. Let me ask you, is this really such a bad deal?

One of the challenges that business owners and investors face as they grow their assets is protecting those assets. After all, if you’re spending all this time and energy building your empire, the last thing you want to do is leave it open for a frivolous lawsuit.

I used to co-host a nationally syndicated radio show, “Wealth Talk America.” I’ll never forget when one elderly gentleman called in with a problem. He owned five houses free and clear in Northern Arizona. He had just gone through a trauma with a tenant from “you know where.” Although the landlord-tenant laws in Arizona are pretty reasonable for a landlord, he had not followed the rules in evicting his deadbeat tenant. Somehow it all ended up in court. There is a lesson there as well with making sure you get good advice before you try to take legal action. At any rate, during the court case, the elderly owner exclaimed, “I want her out. She’s crazy!” When asked why he rented to her in the first place he answered that she didn’t use to be like that. For some reason, she just went crazy after she moved into his rental property.

We’ve had day after day of sound bytes from Wall Street and economic analysts. It’s all doom and gloom with the only hope being a government bailout. Or, at least that’s what they say.

It’s easy to get drawn into that negative drama. It’s something to talk about, email about, IM about and above all, lose sleep about and worry about. But, is it true? Is the sky really falling?

If you’ve got a lot of different activities going on, it’s often better to use multiple business structures, to take advantage of differing tax benefits. This advice applies to those of you working in real estate especially. You already know that not every investment is the same. Sometimes you pick up a property with the intention of turning it around fairly quickly, while other times you invest in a property with the intent of hanging onto it for several years.

From a tax perspective, both of those goals can be accomplished - but not in the same business structure.

Three years ago I’d have told you that if you paid too much in taxes, you needed to buy more real estate. Today, that advice is just flat wrong if you’re subject to AMT (Alternative Minimum Tax)! Now, it’s even worse if you’re a real estate agent claiming the real estate professional loophole.

Agent Beware! The IRS is Looking for You!

We’re back! After a few long months of planning, developing, bugging, debugging and debugging some more, I’m pleased to welcome you all to TaxLoopholes 3.0. Feel free to explore!