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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.

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Categories: Strictly TAXES!

New Mileage Rates For 2011

December 23, 2010 3 comments

The IRS has released it’s mileage rates for tax year 2011. These standard mileage rates can be used for deducting qualified miles used for business, charitable, medical or moving expenses. Beginning on Jan 1, 2011 you can deduct the following:

  • 51 cents per mile for business miles driven
  • 19 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

We’ve said it before and we’ll stress it again. The IRS requires that you keep accurate records to substantiate any mileage deduction that you claim on your tax return. This includes a detailed “mileage log” as well as receipts for gas, repairs and maintenance. If you, by chance, are audited by the IRS, they will want to see these items to prove your claims for deduction. E-File Florida cannot over emphasize:  KEEP GOOD RECORDS!

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

Revenue Procedure 2010-51 and Notice 2010-88 contain additional details regarding the standard mileage rates.

If you have any questions or concerns, feel free to contact E-File Florida. We are here as a resource to you. Visit our website atwww.efileflorida.com and sign up for our free Tax Tips newsletter. You can send inquiries to:info@efileflorida.com.

 

IRS CIRCULAR 230 Required Notice – IRS regulations require that we inform you as follows: Any Federal tax advice contained in this communication (including any attachments) is not intended to be used and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction as tax related matter(s).

 

Categories: Strictly TAXES!

Take Advantage of This Energy Tax Credit Before 2010 Expires!


Energy-Efficient Home Improvements – Homeowners who have or will make certain energy-efficient improvements to their existing homes may qualify for energy credits up to 30% of the cost (credit limited to $1,500).  This credit applies to the following qualified energy efficient improvements:  exterior windows and skylights, exterior doors, metal and asphalt roofs, heating systems, air-conditioning systems and insulation.  With many contractors without work this could be an opportune time to negotiate reasonable prices and make those home modifications, but the work must be completed before year-end if you want the credit.

Feel free to contact E-File Florida by calling 954-583-8534 or by email at: info@efileflorida.com. We are here as a resource to you. Visit our website at  http://www.efileflorida.com and sign up for our free Tax Tips newsletter.

Categories: Strictly TAXES!

Tax Break for Chinese Drywall

November 7, 2010 5 comments

Ahhhhhh. The sweet smell of sulfur in the air. Nothing could be more corrosive! Thousands of taxpayers are still dealing with the horrible mess of corrosive drywall~otherwise known as, “Chinese Drywall.” The issues began when the appearance of certain imported drywall hit the US marketplace between 2001-2008. Homeowners have reported blackening or corrosion of copper electrical wiring and copper components of household appliances, as well as the presence of sulfur gas odors. In November 2009, the Consumer Product Safety Commission (CPSC) reported that an indoor air study of a sample of 51 homes found a strong association between the problem drywall and levels of hydrogen sulfide in those homes and corrosion of metals in those homes. Many taxpayers have had to move out of their homes because of health reasons due to the heavy sulfuric odor.

There is some good news though~ The IRS is giving a helping hand to those taxpayers who have suffered a loss due to corrosive drywall. The service is allowing those who have paid for repairs to their homes, due to corrosive drywall, to treat these costs as a casualty loss on their tax return. This will at least offer some relief to homeowners who have had this sulfuric headache!

Revenue Procedure 2010-36 provides the following relief:

  • Individuals who pay to repair damage to their personal residences or household appliances resulting from corrosive drywall may treat the amount paid as a casualty loss in the year of payment.
  • Taxpayers who have already filed their income tax return for the year of payment generally have three years to file an amended return and claim the deduction.The amount of a loss that may be claimed depends on whether the taxpayer has a pending claim for reimbursement (or intends to pursue reimbursement) of the loss through property insurance, litigation or otherwise.
  • In cases where a taxpayer does not have a pending claim for reimbursement, the taxpayer may claim as a loss all unreimbursed amounts paid during the taxable year to repair damage to the taxpayer’s personal residence and household appliances resulting from corrosive drywall.
  • If a taxpayer does have a pending claim (or intends to pursue reimbursement), a taxpayer may claim a loss for 75 percent of the unreimbursed amount paid during the taxable year to repair damage to the taxpayer’s personal residence and household appliances that resulted from corrosive drywall.

If a taxpayer has received full reimbursement from their insurance company, then they are not eligible for this loss on their tax return.

If you or anyone you know has had this unfortunate experience with Chinese Drywall, please feel free to contact our office at http://www.efileflorida.com for guidance. You can also reach us by email at: info@efileflorida.com.

 

E-File Florida helps individuals and small business owners to lower their tax bills and maximize their tax refunds. We actually enjoy getting to know our clients and have built a solid reputation of delivering excellent personal service while maintaining the highest level of integrity within the tax preparation industry. We welcome the opportunity to make you a Raving Fan!

IRS CIRCULAR 230 Required Notice – IRS regulations require that we inform you as follows: Any Federal tax advice contained in this communication (including any attachments) is not intended to be used and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction as tax related matter(s).


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Fax (954) 583-8557

Are you tired of being in DEBT? Click Here.

 

 

 

Tax Increases ARE Coming~Unless Congress Takes Action! (Part 7)


Tax Increases ARE Coming~Unless Congress Takes Action! (Part 7)
This is my final update on the scheduled tax breaks that are expected to expire by this year’s end unless congress does something to re-instate them. Now that the elections are over with, I’m hopeful that our Congress will take to the task of looking at these expiring tax breaks before they become extinct.
These “Sunset Rules” will impact all taxpayers~the rich, middle class and poor. All politics aside, I would suggest that you call your senators and urge them to re-consider enacting all or some of these tax breaks. Not doing so could place a heavier tax burden on the backs of  struggling americans. I think most of us would agree that times are already financially tough enough without taking on a heavier tax bill.
I will keep you updated on any changes made in Washington, but for now here are some more changes you can expect if the “Sunset Rules” are allowed to expire:
  • Health Savings Accounts – The penalty for a nonqualified distribution from an HSA has been increased from 10% to 20% and distribution for over-the-counter medication is no longer a qualified distribution.
  • Higher Education Interest Deduction – This deduction will phase-out for joint filing taxpayers beginning at an AGI of $60,000 (down from $120,000 in 2010). The phase-out for an unmarried taxpayer remains the same. In addition, the deduction is limited to interest paid on the first 60 months (was previously unlimited) in which interest payments are required. This will impact higher-income joint filers and taxpayers who have already exceeded the 60-month limitation.
  • Estate Tax – The estate tax, which was eliminated for 2010, returns in 2011 with an exemption of $1 million dollars (down from $3.5 million in 2009), and a maximum tax rate of 55%, up from 45%.
  • On top of all these changes, there are the Health Care provisions that are taking effect in 2013, including the following: increasing the medical deduction floor to 10% for most individuals (up from 7.5%), adding a 3.8% unearned income surtax to high-income taxpayers, and tacking on an additional .9% to the current 1.45% hospitalization insurance (HI) portions of the FICA withholding (or the SE tax in case of self-employed individuals). The surtax and additional HI withholding apply to incomes in excess of $250,000 for married joint filers, $125,000 for married individuals filing separately and $200,000 for others.
E-File Florida is very happy to help you with questions regarding these “Sunset Rules”. Feel free to contact our office by calling 954-583-8534 or by email at info@efileflorida.com. You can also visit us on the Internet at http://www.efileflorida.com for more great tax tips and articles.

Esther Hastings, EA
Esther Hastings, EA

www.efileflorida.com

E-File Florida helps individuals and small business owners to lower their tax bills and maximize their tax refunds. We actually enjoy getting to know our clients and have built a solid reputation of delivering excellent personal service while maintaining the highest level of integrity within the tax preparation industry. We welcome the opportunity to make you a Raving Fan!

Follow us on Twitter Find us on Facebook

 

IRS CIRCULAR 230 Required Notice – IRS regulations require that we inform you as follows: Any Federal tax advice contained in this communication (including any attachments) is not intended to be used and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction as tax related matter(s).
Contact Us:

PH (954) 583-8534
Fax (954) 583-8557
Are you tired of being in DEBT? Click Here.

 

Categories: Strictly TAXES!

Tax Increases ARE Coming~Unless Congress Takes Action! (Part 6)


Tax Cuts Are Scheduled To Sunset!

(Part 6)

I wish that I could tell you that this is my last post on the subject, but the truth is that there are still more tax breaks that are scheduled to expire this year unless our congress re-instates them before year’s end.
If these “Sunset Rules” are allowed to become extinct, we can ALL expect to pay more in taxes to our federal government~Plain and Simple.
Here are some of the changes we can expect if nothing is done:
  • Coverdell Accounts – The contribution limit to Coverdell education savings accounts will be reduced from $2,000 per year to $500, tax-free distributions will no longer be allowed for elementary and secondary education (only post-secondary education), education credits will not be allowed in the same year as a Coverdell distribution, and contributions cannot be made to a Coverdell account and a Sec 529 plan in the same year.
  • Home Energy Improvement Credit – The $1,500 credit for making improvements that increase the energy efficiency of a taxpayer’s home expires after 2010.
  • Hybrid & Lean Burn Credits – Most manufacturers have reached the 60,000 unit maximum after which the credit is reduced or no longer allowed. As a result, this credit will have very limited application in 2011.
  • Making Work Pay Credit – Expires after 2010. This refundable credit of $800 for joint filers and $400 for unmarried individuals phases out for higher-income taxpayers so the loss of the credit impacts middle- to low-income taxpayers.
As you can see, these tax credits affect many middle and lower income taxpayers. It’s my hope that congress will act SOON!
E-File Florida is very happy to help you with questions regarding these “Sunset Rules”. Feel free to contact our office by calling 954-583-8534 or by email at info@efileflorida.com. You can also visit us on the Internet at http://www.efileflorida.com for more great tax tips and articles.
IRS CIRCULAR 230 Required Notice – IRS regulations require that we inform you as follows: Any Federal tax advice contained in this communication (including any attachments) is not intended to be used and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction as tax related matter(s).
Esther Hastings, EA
Esther Hastings, EA

E-File Florida helps individuals and small business owners to lower their tax bills and maximize their tax refunds. We actually enjoy getting to know our clients and have built a solid reputation of delivering excellent personal service while maintaining the highest level of integrity within the tax preparation industry. We welcome the opportunity to make you a Raving Fan!

Follow us on Twitter Find us on Facebook

 

Contact Us:
PH (954) 583-8534
Fax (954) 583-8557
Are you tired of being in DEBT? Click Here.
(I HIGHLY recommend this “get out of debt” program!)

 

Categories: Strictly TAXES!

Tax Increases ARE Coming~Unless Congress Takes Action! (Part 5)


Tax Cuts Are Scheduled To Sunset! 

(Part 5)

In continuing with my efforts on informing you about the coming changes in our tax code, this 5th installment on the “Sunset Rules” speaks specifically to the average working class taxpayer~You and Me! I’ve been talking to you over the past several mailings about the expiring tax credits that are set to take effect if our Congress does not reinstate them before the end of this year. Simply put, they will expire and we will ALL Pay More Taxes! 

In this issue I want to address married taxpayers who typically file “Married Filing Joint” on their tax return. As you will read, if you are married you will be penalized, unless congress acts soon to reinstate this expiring rule. I will also touch on “personal exemptions” and the “phase out rules” for higher income taxpayers.
Okay. Here we go:
  • Standard Deduction – In 2010, the standard deduction of taxpayers filing married joint status is twice the amount of someone filing under the single status. Beginning in 2011, the so-called marriage penalty is back: joint filers’ standard deduction will be only 167% (instead of 200%) of the single amount. For a married couple in the 28% bracket, the result is additional tax of about $525.
  • Phase-Out of Personal Exemptions – For years before 2006, the personal exemptions were phased out for high-income taxpayers. Then, in 2006 through 2010, that phase-out was gradually reduced to where there is no phase-out in 2010. However, the reduction will no longer apply after 2010, and, in 2011, the phase-out reverts to the rules in effect before 2006. This only impacts high-income taxpayers. Although the phase-out threshold income amounts for 2011 are not currently available, they will be approximately $250,000 for a married couple, $210,000 for head of household and $170,000 for single individuals. The loss of each exemption for a high-income taxpayer in the 36% tax bracket will result in an additional tax of approximately $1,300. Thus, a family of four would see an increase of $5,200.
  • Phase-Out of Itemized Deductions – At the same time that the exemption phase-out was being reduced (see immediately preceding item), the phase-out of itemized deductions for high-income taxpayers was also being reduced. Thus, for 2011, the high-income taxpayer’s itemized deduction phase-out returns. The phase-out impacts all deductions other than medical, investment interest, casualty and gambling losses. The deductions are phased out by an amount equal to 3% of the taxpayer’s AGI in excess of the AGI phase-out threshold, but not more than 80% of the deductions can be phased out. The phase-out threshold for most individuals will be approximately $170,000, which is significantly less than the exemption phase-out amount for married joint or head of household filers. The tax impact on an affected taxpayer will be 28% to 39.6% of the lost deductions.
Many of you have Health Savings Accounts (HSA’s) and Educational Savings Account. In my next installment of the Expiring Sunset Rules, I’m going to talk about the changes coming your way in regards to these types of accounts. I’ll also touch on the Home Energy Improvement Credit. Please stay tuned!
E-File Florida is very happy to help you with questions regarding these “Sunset Rules”. Feel free to contact our office by calling 954-583-8534 or by email at info@efileflorida.com. You can also visit us on the Internet at http://www.efileflorida.com for more great tax tips and articles.
IRS CIRCULAR 230 Required Notice – IRS regulations require that we inform you as follows: Any Federal tax advice contained in this communication (including any attachments) is not intended to be used and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction as tax related matter(s).
 

Esther Hastings, EA
Esther Hastings, EA

E-File Florida helps individuals and small business owners to lower their tax bills and maximize their tax refunds. We actually enjoy getting to know our clients and have built a solid reputation of delivering excellent personal service while maintaining the highest level of integrity within the tax preparation industry. We welcome the opportunity to make you a Raving Fan!

Follow us on Twitter Find us on Facebook
Contact Us:
PH (954) 583-8534
Fax (954) 583-8557
Are you tired of being in DEBT? Click Here.
(I HIGHLY recommend this “get out of debt” program!)
Categories: Strictly TAXES!
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