Archive for June, 2011

New Mileage Rates for 2011 July-Dec

The IRS has increased the mileage rate deduction from .51 cents to 55.5 cents per mile beginning  July 1, 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business purposes.

The IRS made this special adjustment in recognition of the crazy gas prices that we are all paying at the pump. They normally update and adjust the mileage rates only one time per year~usually announced  in the fall for the upcoming calendar year.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations  is set by statute, not the IRS, and remains at 14 cents a mile.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Mileage Rate Changes

Purpose Rates 1/1 through 6/30/11    Rates 7/1 through 12/31/11 
Business 51 55.5
  Medical/Moving 19 23.5
Charitable 14 14
Categories: Strictly TAXES!

Knowledge and Wisdom

Let’s get something straight here. I’m not a silver-haired (I admit it, I DO hit the bottle once in a while-hair color, for those of you wondering) elderly woman who has lived enough life to give the younger generation great morsels of wisdom. I hope to get to that place one day, but for now I will settle for what little I do know.

A retired friend once said this to me,” Knowledge and Wisdom are not the same.” I have pondered that little statement many times. I agreed with it when I first heard it and I agree with it now~even more so.

What good does it do to go to college, graduate school and beyond if you fail to apply wisdom with the knowledge you receive?  What’s the difference? Knowledge is the attaining of facts. I can go to school and become an outstanding surgeon with the proper training. Wisdom, or the lack of it, will dictate how I use that training. I could go on to do wonderful things and help save lives. I could also go off and use that medical knowledge for unethical, inhumane atrocities. This is a very basic comparison that I’m laying out for you.

I’ve seen, too often, where many will attain great knowledge and degrees only to use their new status in life as a pedestal to look down on others. Big mistake. Wisdom would say otherwise. Any time you give more value to things (knowledge included) rather than the relationships in your life, you make a grave error. It is my opinion that the relationships that we foster, for good or for bad, are what give us the most satisfaction or dis-satisfaction in life. We are all wired for relationship. When we don’t have good ones, we ache deep inside. When we have healthy ones, life seems to be good~even through difficult circumstances.

If you’re not careful, you could mistakenly confuse wisdom with knowledge. I don’t believe they’re even distant cousins! When used together though, wisdom and knowledge can give birth to some wonderful life-long legacies.

Just my opinion.

Categories: Life Lessons

Is Now The Time To Consider Owning Real Estate Rental Property?

Does the decline in real estate values present a business opportunity? Real estate rentals historically have been a popular long-term investment. If you believe that this market eventually will rebound from its current slump, this may be the time to consider such an investment. This article will explain some of the tax ramifications of renting residential real estate.

One of the biggest benefits of owning rental property is that the tenants, over time, buy the property for you. In addition, if structured properly, the allowable depreciation deduction will help to shelter the rental income and you will be able to benefit in the short term with legitimately favorable tax deductions. Another historical benefit of real estate rentals is property appreciation.

Before acquiring a rental property, there are several things to consider. Here are a few:

  • After-tax cash flow
  • Losses to offset income from other sources (Wages, etc)
  • Potential for long or short term appreciation
  • Property condition (with an eye on when you might get stuck with a large repair bill)
  • Debt reduction
  • Type of tenants
  • Potential for rent increases or re-zoning
  • Whether there is an HOA restriction on renting your property, etc.

Rental real estate income is business income but is not subject to Social Security taxes. (A tax savings of roughly 16%) Real estate rentals are also considered passive activities (Your property generates income without you having to be there to run things, as you would in a business for example). Generally, passive activity losses are deductible only to the extent of passive activity income. However, where there is active participation by the taxpayer in managing the rental, the taxpayer can deduct up to $25,000 of losses each year as long as his or her Adjusted Gross Income (AGI) for the year is less than $100,000. For higher-income taxpayers, the $25,000 loss exception is ratably phased out between an AGI of $100,000 and $150,000. For most taxpayers, this can be a beautiful thing. You can actually have cash flow every month (the money you take home after all expenses are paid) and yet show a legitimate rental loss on your tax return! This loss will help to reduce other taxable income that you may have, such as wages. There is also a special allowance for real estate professionals. (Call this office for details if you are a real estate professional)  Any losses not allowed under these two exceptions are not lost but suspended and carried forward indefinitely to tax years in which your passive activities generate enough income to absorb the losses. To the extent your passive losses from an activity are not used up in this fashion, you will be allowed to use those losses in the tax year in which you sell your rental property.

When a rental property is sold, it is treated as a capital asset. The gain or profit from the sale (except for depreciation recapture) is taxed at capital gains rates. Recaptured depreciation (Contact us for details), depending upon your tax bracket, can be taxed up to 25%. Besides outright selling of a rental, there are a number of options such as exchanging the existing rental for another while deferring the gain and avoiding current taxes, selling the property in an installment sale (which spreads the taxable gain over multiple years), or even converting the property to personal use (which forestalls the taxable gain until the property ultimately is sold).

Buying, operating, and selling a rental property can have profound tax ramifications and provide some interesting options not available to other investments. Please contact this office prior to the purchase or disposition of a rental property so that the tax impact can be analyzed prior to making a financial commitment.

Categories: Strictly TAXES!
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