J.K. Lasser's Real Estate Investors Tax Edge : Top Secret Strategies of Millionaires Exposed Book

Warning ix

Introduction xi

1 Understanding Capital Gains 1

What Is a Capital Asset? 1

Capital Gains Tax Rates 3

Holding Periods for Capital Assets 4

Multiple Holding Periods 7

What Is "Basis"? 7

Settlement, Closing, or Housing and Urban Development (HUD) Costs 10

Sales of Business Property (Noncapital Property) 16

Cancellation of Debt 20

Conclusion 21

2 Your Personal Residence 23

Home Mortgage Interest Tax Rules 23

Real Estate Taxes 26

Exceptions to the Two-Year Rule 30

How to Compute Reduced Capital Gain Exclusion 34

Vacant Land 35

Converting Rental Property to Your Personal Residence 36

The Home Office and Exclusion of Capital Gains 36

Sale of a Home in the Year of Divorce 37

Unmarried Couples and the Exclusion 37

Sale of a Home in the Year of Death of One Homeowner/Spouse 38

Incapacity 38

First-Time Homebuyer Credit 38

Loss on the Sale of a Personal Residence 39

Tax-Free Rental Income 39

Foreclosure of Primary Residence 39

Conclusion 40

3 Deductions for Rental Property 41

What Is Rental Income? 41

Common Rental Property Tax Deductions 43

The Real Estate Professional and Rental Property Losses 62

Tax Credits for Rental Properties 66

Recordkeeping Requirements for Rental Properties 67

Conclusion 68

4 Like-Kind Exchanges and Section 1031 69

Simultaneous Exchanges 71

Deferred (Nonsimultaneous) Exchanges 72

The Identification Period 73

Reverse (Starker) Exchanges 76

How to Permanently Eliminate the Gain on the Transfer of Property Through a Like-Kind Exchange 83

Losses 86

Real Estate Dealers 86

Business Entities 86

Tenant-in-Common Interests and Like-Kind Exchanges 87

Last-Minute or Broken Exchanges88

Related-Parly Issues 89

Basis of Property Received 90

Refinancing 91

Sale Expenses 91

When Not to Use a Like-Kind Exchange 93

Conclusion 93

5 The Dealer Issue 95

What Is a Dealer? 95

Tax Consequences of Being a Dealer 96

Tax Planning Strategies 101

Conclusion 105

6 Installment Sales 107

What Is an Installment Sale? 107

Installment Sales Between Related Parties 110

Opting Out of Installment Sale Reporting 114

Installment Sale of Your Primary Residence 115

Use of Escrow Account for an Installment Sale 115

Considerations Related to Installment Sales 116

Default Under Installment Agreements 17

Conclusion 119

7 Passive Activity Rules Related to Real Eatate 121

Participation 123

Modified Adjusted Gross Limitation 125

Former Passive Activities 131

At-Risk Limitations 134

Dispositions and Installment Sales 135

Conclusion 136

8 Trusts, Trusts, Trusts! 137

Land Trusts 137

Private Annuity Trusts 140

Charitable Remainder Trusts 142

Conclusion 145

9 Individual Retirement Accounts 147

IRA Rules and Plan Types 147

Necessary Steps to Using an IRA for Real Esta 152

Buying Notes or Liens in an IRA 153

Prohibited Transactions with Real Estate in a Retirement Account 153

The Use of Financing in an IRA 154

Conclusion 155

10 Depreciation Issues with Real Estate 157

How Is Basis Computed? 158

What Is the Recovery Period for Property Subject to Depreciation? 159

What Methods of Depreciation Are Available? 162

Depreciation Rates for New Property 163

Component Depreciation 166

Section 179 Deductions 170

Must Depreciation Be Claimed? 170

Conclusion 172

11 Business Entities and Real Estate Inve 173

The C Corporation 173

The S Corporation 180

The Limited Liability Company (LLC) 186

The Limited Partnership 188

Conclusion 194

Conclusion 195

Appendix A IRS Tax Forms 197

Appendix B Checklists and Forms 261

Notes 263

About the Authors 271

Index 273