by on April 30, 2012 Leave a Comment

When the IRS Simplifies it Often Gets More Complicated – Depreciation Or Expense?

Over the years congress and the IRS have created a number of code sections describing the treatment of fixed assets, depreciation and when merchandise is inventory. These various code sections have become quite complex. Pieces of the investment tax credit rules for example are still part of the regulations, though for the most part the investment tax credit has been done away with.

In the last several years the IRS has been attempting to clarify and bring these various code sections back together. Several times they have issued proposed regulations. In December 2011 they finally issued temporary regulations that were supposed to fix many of these loopholes.

I believe that many investors will be surprised by what is in the new regulations. For one, investors will need to understand what the major components of a building are and track the extent of repairs to a major component. It will also be necessary to estimate the cost of a component that has been replaced.

You might ask, what does all of this mean in plain English and how does it impact your investments? [Read more...]

Filed Under: Depreciation, IRS Tagged With: , ,
by on January 3, 2012 Leave a Comment

It’s a New Year – Coming Attractions For Real Estate Investors

I apologize for the sparse posting lately. The holiday season and it’s predictably fun logistics have made it somewhat, um, challenging for me and the other contributors. However, since the calendar says that lame excuse has come ‘n gone, the regularly scheduled programs will now resume. Thanks for your patience, and Happy New Year to all of you.

Now for some real estate investment info to dazzle ya. :)

Charles Perkins is workin’ on some killer posts, some of which were by my request. ‘Course, I’ve learned to keep my topic suggestions with him as narrowly defined as possible. He tends to research the livin’ crud out of it, which makes me feel guilty sometimes. This is especially true the last month of the year — which, unfortunately is merely the precursor to ‘tax season’. For CPAs, tax season is that ugly stretch of roughly 105 days, when they sleep at least 3-5 hours a day, no matter what. [Read more...]

Filed Under: 1031 Exchanges, 401(k)'s & IRA's, Depreciation
by on December 28, 2011 9 Comments

Reader Asks Superb Real Estate Investment Questions — Answered Here

In yesterday’s post, in which I addressed why Texas is the place to put your real estate investment capital, Dave, a reader for some time, apparently, asked a couple questions. They were so good, especially the second one, I thought the answers deserved center stage. So, thanks Dave.

Here’re Dave’s questions, verbatim, with text before and after, edited out. You can still see his comment in its entirety by going to the link above. [Read more...]

Filed Under: Capital Growth, Cash Flow, Depreciation, Financing, Purposeful Planning
by on December 8, 2011 13 Comments

A Quick Primer On Depreciation – It’s Actually An Exciting Subject

Depreciation in the simplest of terms is merely the admission that whatever we build on the dirt, and sometimes below, deteriorates over time. Things get old and wear out. Who’d a thunk? The idea is that the real estate investor has put risk capital into improved real estate, an asset that by definition will be subject to breakin’ down. Therefore the Internal Revenue Code (IRC) allows the owner to assign a ‘life’ to these components, with various options as to how.

Without turnin’ this into rocket science, if you own residential income property, except for the land (Yes, Technical Tommie, there are exceptions. Leave us alone.), you’ll divide the value of the investment by 27.5 years. Every year you’ll be able to apply that ‘loss’ (A paper loss, as you haven’t lost a penny.) to the property’s cash flow. If there’s any of that year’s depreciation left, it can then be applied to your job income. The IRS calls that ‘ordinary income’. Tell me that doesn’t come off as condescending.

So, if you paid $250,000, and the market says the land value is $40,000, you’d figure your depreciation like this. [Read more...]

Filed Under: Cash Flow, Depreciation, IRS
by on November 17, 2011 2 Comments

Are Your Real Estate Losses Limited By the At Risk Rules?

In the 1980s it was common place to see limited partnerships used in real estate investing. These partnerships often offered attractive ways for investors to reap tax losses that exceeded their initial investments. Some, if not many, investors utilized these limited partnerships as vehicles for tax savings rather than as real investments at least that was how the IRS saw it.

Passive Activity Loss rules and At Risk limits were created to dissuade investors from using these limited partnerships. The feeling was they lacked economic substance — in other words they were not created to make a profit.

I think most investors are aware of what the Passive Activity Loss rules are, but these days many seem unaware of how the At Risk limit can impact any real estate losses in a given year.

Passive Activity Loss rules refresher: [Read more...]

Filed Under: Depreciation, IRS, Purposeful Planning
« Older Posts