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Niman @TReXGlobal.com

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Tax Breaks Piling Up for California Home Buyers

02-23-09
Niman @TReXGlobal.com

Thursday’s new California budget provides a $10,000 state tax credit to people who buy a new house soon. And the $787 billion stimulus bill signed Tuesday by President Obama gives an $8,000 federal tax credit to first-timers buying new or resale homes. So some home buyers this year can set themselves up for $18,000 off their taxes.

Sound like a good down payment to me!

It applies to new California houses or condos bought as primary residences between March 1, 2009, and March 1, 2010.
– It’s for 5% of the purchase price or $10,000, whichever is lower.
– The state will take $3,333 off a buyer’s state taxes starting in the year of purchase and for two following years.
– The owner must live in the new home or condo for two years or lose the break.
– Collectively, the state tax break is limited to $100 million. At $10,000 per tax break that’s 10,000 new dwellings.

So only the first 10,000 get it! Start looking!

And if you've heard, foreclosures have been getting snapped up over the last few months - and MDA DataQuick shows 78% of homes repossessed during June 2007 and November 2008 have been resold already in Sacramento County.

If you are an agent in California, and you are not marketing to investors, you are not taking advantage of the opportunities in front of you. To learn more about how to market to investors, try the real estate marketing tools from TReXGlobal.com.

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Vogue Magazine, Posters in Paris, and the Moon - What do they have in Common?

02-19-09
Niman @TReXGlobal.com

Absolutely nothing! But if you go to TReX's webinar, you might show up on the cover of Vogue, on posters in Paris, and even on the moon!

Ok, I made that last part up...
But this part I am not making up, and if you don't believe me, you can ask Tina Merritt!
I am NOT kidding you about this! Tonight, I worked on the things I learned on your webinar last week and posted my links to Craigslist, Backpage and Kijiji. Within 3 (yes, 3!) minutes, I had another investor sign up!
I may have lied about the beautiful agent who wanted to paint my face... but I am not making up what Tina said!

Register for this Friday (2/20) to see what all the hype is about.

MARKETING to Real Estate INVESTORS
25 Minute Webinar - Fridays at 2PM EST/ 11 AM PST
  1. Why are RE Investors important to me? (5 min)
  2. How can I be successful with Investors? (10 min)
  3. How can T-ReX Global help me? (5 min)
Click Here to Register
Ok, now let's try it again:

Investors are dominating the markets, and this is a golden opportunity for real estate professionals who want to learn how to be successful with investors.

We know a thing or two about investors, and we'd be happy to share the knowledge :)

Your time is valuable. 25 minutes. Don't be late!

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I Got Published!!!

11-20-08
Niman @TReXGlobal.com
I wrote a really cool article about depreciation (a huge deduction for RE investors), and it was published in November 2008's issue of INVEST MAGAZINE.

There is some great information for you and your clients, so be sure to check it out by clicking the link or reading below.

Death, Taxes, and Depreciation…
The Three Certainties in Life...
A wise man once told the world that there are only two certainties in life – death and taxes. It doesn’t take a genius to figure that one out (sorry Benjamin Franklin).

Some people will unknowingly travel a great distance to elude one or the other. One of those individuals is my friend Bob.

Bob's almost retired, and because Bob is a “small” real estate investor, he tries to save money whenever he can. That’s why Bob mows the lawns, manages the properties, and balances the books by himself.
An even wiser man told me a few years ago that there are three certainties that I should know about – death, taxes, and the regret that I would live with for the rest of my life if I didn’t maximize depreciation on my rental properties…
I thought I would regret the 25% depreciation recapture tax if I ever decided to sell my rentals. That’s because Bob told me “all that depreciation stuff is a waste of time. You have to recapture the deductions at 25 percent anyway…”

Being a new investor back then, I wasn’t exactly sure what Bob was talking about, so I went and talked to my tax advisor. He explained to me that when I purchase an income producing asset, like an investment property for my rental business – I don’t get to immediately write off the acquisition cost of the asset. Instead, the cost of my asset must be recovered over the useful life of the asset. This is called depreciation, and the IRS has ruled that residential rental property is depreciable over 27.5 years. Depreciation is a phantom paper expense that reduces your taxable profit.
I bought a single family home for $165k, and it generated $12k from rent that year. I had $8k of expense deductions, so it appears I should have claimed $4k in rental income and paid taxes on it. However, this rental property gave me a depreciation deduction of $6k ($165k/27.5 years), which allowed me to claim a $2k rental loss that I could take against my regular income. At a 28% federal tax rate, the additional depreciation deduction was allowing me to pay $1,680 less in taxes (28% * $6k less income). Eventually, I came to realize the benefit that depreciation was providing me – it was allowing me to owe less in taxes, even when I was making more profit.
Soon enough, I learned about separating my assets and segmenting my deductions, and it was saving me thousands of dollars more. People normally depreciate their properties using a straight-line deduction over 27.5 years. However, residential properties have shorter-life assets – like a refrigerator or a fence – that can be separated and depreciated sooner over 5 or 15 years. I identify these assets and depreciate them separately so I can take the deductions sooner. With the accelerated, higher deductions, I can reduce my tax liability and save thousands of dollars.
Using straight-line depreciation on a $275k property can yield a $10k yearly depreciation deduction, so $50k can be deducted over five years. However, the property might have $50k in 5 year assets (carpets, appliances, drapes, etc…) and $25k in 15 year assets (driveway, fence, patio, etc…). Depreciating these assets separately according to IRS class lives allows nearly $100k to be deducted over the first five years – almost twice the deduction from straight-line.
Three years later, I wish I could travel back in time to let Bob know that I disagree with him. Back then, I vaguely understood that the accumulated depreciation deductions would get recaptured and taxed at a rate of 25% upon the sale. This was Bob’s main concern, and he was worried about owing back a lot of money on the depreciation deductions he would have taken, if he ever sold his rental property.

The reality is that the IRS wants us to take timely depreciation deductions – that’s why they created the rule. They even know some of us want to separate assets and segment deductions according to useful class lives – that’s why they ruled on depreciable lives for common assets found in properties. If we ever sell our rental properties, the IRS will recapture the depreciation that we should have deducted – even if we never took any depreciation deductions! The important thing to learn here is that the IRS says we have to depreciate, and if we don’t, we lose the tax benefit – so we might as well follow the rules and use them to our advantage by maximizing depreciation deductions, right?
With straight-line depreciation, we get the same deduction every year – meaning our depreciation deduction in year 3 is the same as the depreciation deduction in year 23. Accelerating deductions simply means we deduct more now instead of later. Having a larger deduction now means we also have a smaller tax bill now – so why don’t people do it?

Generally speaking, there are two main reasons why investors might use straight-line depreciation. One is passive-activity limitations. Taxpayers with an AGI above $150k cannot deduct any rental losses against their wage income – the loss must be carried forward until it can be offset with future rental income. Therefore, a high income taxpayer who already has a rental loss carryover receives no benefit from the larger deductions. Their rental losses must be offset with future rental income. A real estate investor can avoid this limitation by materially participating in the rental activity and becoming a “real estate professional.” Fear of depreciation recapture is another reason. When an investor sells their rental property, they will have to recapture depreciation deductions at a rate of 25% - so they would rather not accelerate the portion that might be recaptured.
Time Value of Money
Everyone has heard the phrase “a dollar today is worth more than a dollar ten years from now.” So if a dollar paid today is worth more than a dollar paid in the future, why choose to give up the dollar now? The longer you delay paying taxes, the more money you can invest wisely and keep in your pockets. And of course you can avoid the recapture altogether and defer your taxes indefinitely using a 1031 exchange.

According to IRS data, Bob and 78% of all taxpayers in America don’t segment their assets to maximize deductions. Many do not know about the opportunity, some may think it’s too complicated, and others do not see the benefit.

I think investors should educate themselves on accelerated depreciation, and understand the opportunities that are available to them. A Cost Segregation guide is available on the IRS website. You should discuss the pros and cons with your tax advisor, and make an informed decision. I know now that the wise man was speaking the truth to me, and I certainly regret missing out on my own depreciation deductions.
Property Management Software
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Help the Sellers, Help Yourself - Cultivating Business for the Long Term

09-26-08
Niman @TReXGlobal.com
Help your Sellers, Help Yourself
Help your sellers minimize the taxable gain from the sale of their property by helping them account for sale expenses, like closing costs. It's as easy as sending a copy of their settlement statement and circling a bunch of numbers. This will help you cultivate relationships with past clients, and increase future business. Read this blog to learn why this is important and why it works!
Closing Costs
What are Closing Costs?
Closing costs are expenses (above and beyond the cost of the property itself) that are incurred by the buyer and seller during "closing," when title of the property is transferred.


Where are my Closing Costs?
Closing costs that you need to consider can be found on the property's settlement statement.


What Should I do with Closing Costs?
To minimize your taxable gain from the sale, follow these steps:
  1. Locate the Contract Sales Price (Line 401) on the settlement statement.
  2. Subtract Commissions Paid (Line 703).
  3. Subtract Title Charges (Lines 1100-1110), Recording and Transfer Charges (Lines 1200-1205) and Additional Settlement Costs (Lines 1300-1302).
  4. Subtract the property's adjusted cost basis (after depreciation deductions), which will be found on the prior years' tax return.
 

Following these steps will help your seller minimize the taxable gain from the sale of their home by accounting to deductible sale expenses. They are likely to use your services again in the future because you've gone out of your way to help them save money. This is certainly a good way to cultivate relationships with your clients.

By all means, I am not saying that you should give tax advice to your clients - that's what tax advisors are for....but it certainly is a great feeling when you know what you are talking about, understand the resources that are available, and are able to point clients in the right direction.
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