Real estate investing calls for tax planning

Business

Discussion

August 29, 2010

By David Compton The Meridian Star The Meridian Star Sun Aug 29, 2010, 08:30 AM CDT

MERIDIAN — If you invested in real estate recently, now may be a good time to review real estate tax rules. A little planning may help you take advantage of some tax breaks.

   Tax law is a bit onerous if you invest in real estate for rental income or to realize capital gains from the sale of the property. The IRS differentiates between real estate professionals and those who are passive investors. Most people are generally considered to be passive investors unless they spend more than 750 hours in real estate activities and spend most of their working hours in the real estate profession.

   The classification of your real estate activities as a professional or passive investor will have a major impact on your taxes. The biggest drawback is on the restrictions on the amount of losses that you can deduct as a passive investor or high income individual. Passive losses can only be offset against income from other passive activities, such as income from certain partnership activities and rental income. The losses cannot be deducted against income from wages or investment income from dividends and interest. Therefore, if you have passive real estate losses, you may not be able to use those losses to reduce your taxable income in the current year. However, the IRS does allow you to deduct those losses when you sell the property, or you may carry the losses forward to future years to offset passive income.

   Don’t forget to take depreciation deductions. Residential buildings are depreciated over 27.5 years. Commercial buildings are depreciated over 39 years. Land is not depreciable. Therefore, make sure that the cost of the property has a reasonable allocation between the building, improvements, and land. Remember, also, if you sell real property that you owned for more than a year, some of the gain is taxed at lower capital gains rates.

   David Compton is a Certified Public Accountant with offices in Meridian and Birmingham, Ala.

Text Only

Business

IRA dates & milestones to remember
IRAs come with complex rules and regulations. As these rules and regulations are occasionally forgotten or misinterpreted by IRA owners, here is a refresher.

May 27, 2012
Check out these tax breaks for seniors

When it comes to taxes, growing older has its advantages. Here are some of the tax breaks available as you reach a certain age.

May 27, 2012
Alternative investments, at a glance
If you’re seeking a different investment path and have a large amount of money to invest, you may already be considering an alternative investment.

May 20, 2012
John Anderson named administrator of Anderson South
May 20, 2012
EMBDC holds ribbon cutting for State Farm Insurance-Jeffrey Wilson
May 20, 2012 1 Photo
Changing jobs can have tax consequences
Taxes may be the last thing on your mind when you’re changing jobs, but overlooking their impact could mean missed tax-saving opportunities. Issues to consider include the following:

May 20, 2012
Working mothers
Recently a politician’s wife came under fire because she did not work outside of the home. The career woman implied that this stay at home mom was not intelligent or experienced to offer non-domestic advice. Instead of keeping her mouth shut and being thought of as a fool, she spoke out and removed all doubt.

May 13, 2012
CNB promotions, position announced
May 13, 2012
Why don’t you have disability income insurance?
If you can’t work and pay your bills, how are you going to cope? Let’s say an injury or illness prevents you from doing your job. How do you deal with the lost income?

May 13, 2012
You can’t hide in fixed income
When is being risk-averse too risky for the sake of your retirement? After you conclude your career or sell your company, you have a right to be financially cautious.

May 6, 2012
More Business Headlines

Business

Search Results

Discussion

Real estate investing calls for tax planning

Site Map

Contact Us