Perhaps we should not be surprised that new real estate investors fall into the trap of self-control again. The burden of real estate investors and new private investors, some tax balance is difficult.
But just because a newbie makes these mistakes, it does not mean you need it. You just need to know where the pitfalls so you can avoid them. And here are the greatest real estate taxes, and you do not fall into the trap:
Tax Trap 1: Passive Loss Limit
At least on paper, real estate, and often confused. Even if the rent for operating expenses and mortgage, and confused accrued books to write, to receive a portion of the purchase price every year to eat.
For example, if you decide in the statement of cash flows $ 275,000 rental home can also give you discount amortization of $ 10,000 per year. If the level of your marginal tax rate is 28% and consumption need to save in 2800
Sound quality, right? Ah, this is a must. In addition to the United States Congress is the real behavior of passive real estate investments, and that, in addition to two special circumstances cannot write passive activity reduction, but all show a positive residual income.
This passive loss limitation rules that many real estate investors cannot use the tax
Real estate savings or non-deductible, at least once a year.
Two of the vulnerabilities by Congress, is not there so you can write off losses a comprehensive real estate Discount real estate investments. If you are a real estate investor actively adjusted gross income of less than $ 100,000, you can experience a passive loss of $ 25,000 per year. (If your income is between $ 100,000, $ 150,000 and $ 25,000 gets a percentage of depreciation.
Both weak here If you are a real estate professional, Congress says not to apply the rule to reduce the loss of your negative when it comes to real estate. A real estate professional, incidentally, not the person or the authorized brokers. Not create a legal test format and time: a real estate professional, who spends at least 750 hours per year more than 50% of the time, as a real estate agent, broker, property manager or business development.
Tax Trap II: Capital Increase
New Real Estate Investor, mistake next time? They think they can write down the amount spent to improve the property. Sometimes you can. Usually you cannot.
Here are the reasons: the life and property of the increase in spending or increases in utility demand drops 27.5 years (if the residential property) or more than 39 years (if the property is non-residential buildings).
Therefore, you cannot write off the money spent to repair or renovate the house, just to eat.
I saw a new real estate investor, these folds into tears. Ping said some investors from his IRA or 401 (K) 20,000 Yuan, and identifies some rent. He calculates that he has been able to improve as a tax deduction of $ 20,000 this year.
In any way. Instead, he will have to write off $ 20,000 a few hundred dollars a year and the rate will come in three or four decades.
Decoration trick, and if you want to call it that, is to keep good care when you go on the property. New paint, new carpet, general maintenance of these projects must be clean of all the elements in spent this year (uh, discussed the negative rules limit the loss of the first tax case.)
Tax Trap III: Missing Section 121 of the Exceptions
Here’s a tear jerker. I have used it several times a year. Instead, it is their primary residence for sale when the “move up” has decided for a larger home, they will be taken to the original house to rent.
It was a disastrous decision most of the time, because the Internal Revenue Code, “Article 121 Article 121 states that if you already own a home in recent years, and at least two at home, you do not pay tax on the first $ 250,000 profit in this case is to sold (for a profit of $ 500,000 married filing jointly).
With the rental of residential property, and set the taxable income if you do not sell the first three years of property tax revenue.
Quick note to eliminate the first 121 override if you do not live in your appreciation of the old master, and you will not lose any benefits to convert 121 rentals.
Secondly, if you have a lot of old masters appreciate you, and you want to use and the acquisition of real estate and equity rents, consider this: sell the old residence when you move, excluded from the income tax base. And then with the funds from the tax-free even bought another rental house next door.