Real Estate Tax Attorney

I had recently heard of two home owners who “exchanged” homes, in part to save on the processes of sellling and buying a home, but also because there were beneficial tax savings involved.  With a bit of research, I found this information, which explains the 1031 Exchange process and procedure.  If you have questions about your real estate transactions, and want to know how to defer, or save, on a variety of taxes surrounding your real estate investment, consult with a real estate tax attorney for the detailed information you are seeking.

1031 Exchanges refers to a type of real estate transaction which allows investors to “exchange” like-kind properties while deferring depreciation recapture and capital gains taxes. In order to use this technique real estate investors are required to reinvest 100-percent of the equity into property of equal or greater value.

In order for 1031 Exchanges to be recognized by the Internal Revenue Service, property owners must retain the services of a Qualified Intermediary (QI). QIs handle every aspect of 1031 exchanges including money transfers and legal documentation.

When hiring a Qualified Intermediary, it is crucial to engage in due diligence and make certain the organization or individual possesses necessary skills and experience. One mathematical error could lead to immense penalties and fees imposed by the IRS.

Another crucial stipulation of 1031 Exchanges involves imposed time requirements. The first time requirement is referred to as the “Identification Period” and stipulates investors must identify their replacement property within 45 calendar days.

The second time requirement is referred to as the “Exchange Period.” The exchange period commences on the date the relinquished property is transferred to the new owner and expires within 180 calendar days.

Additionally, 1031 exchanges require exchanged properties to be held only for investment purposes. However, this requirement is broadly defined and allows investors to exchange different types of property. For example, investors could exchange land for a commercial warehouse or an apartment complex for a retail shopping center.

Once replacement property is identified and exchanged, it must be titled under the same name as the relinquished property. For example, if relinquished property was titled as John Doe Real Estate Investments, the replacement property must be titled the same. It could not be titled as John Doe or JD Properties.

In addition to real estate, other types of property can be exchanged under 1031 Tax Deferred Exchanges. One of the most common types of property includes equipment used in the investor’s business or trade.

1031 Exchanges require investment property to be exchanged for like-kind property. Real estate must be exchanged for real estate and equipment exchanged for equipment. Investors cannot trade real estate for equipment or vice versa.

Personal residences or vacation homes cannot be traded using 1031 Exchanges unless the property is investment real estate and rent is charged. Additionally, 1031 exchanges cannot be used to exchange a partnership interest, stocks, bonds, or inventory.

Investors are not allowed to access equity monies acquired from the sale of relinquished property. Instead the Qualified Intermediary holds all proceeds in a separate account. Once the exchange is completed, the QI prepares documentation linking exchange properties together.

Using 1031 Exchanges, capital gains taxation and depreciation recapture are deferred as long as exchange monies are used to invest in like-kind properties. This tax deferment is similar to receiving an interest-free loan on the taxes that would have been owed for a typical real estate or equipment sale.

Author: Simon Volkov

Article Source: http://EzineArticles.com/?expert=Simon_Volkov

It goes without saying that one person’s error is another person’s opportunity to gain and profit.   Such as it is with investing in real estate through tax lien investments.  When a home owner does not pay property taxes, mortgages, even their income taxes, a tax lien can be issued against the property and if not resolved, that property can be sold to settle the tax lien.  If you have questions about investing in real estate, contact a real estate tax attorney to best understand the tax liabilities and benefits before you make that investment.

Understanding Tax Lien Investment

What is a tax lien? Tax liens occur when a property owner has not paid local taxes on a property. The local government will issue a lien against the property that states that it can’t be sold and ownership cannot be transferred until the owed amount has been paid in full. How do you make money on someone else’s tax lien? It’s called a tax lien sale. An auction is held by the public authority who sells the property in order to settle the tax lien. The winning bidder is purchasing the right to own the property if the original property owner doesn’t repay the tax debt to the winning bidder.

There are 3 kinds of liens that may be placed on property:

1. Judicial liens (also called “judgments”): Come from lawsuits by a creditor.

2. Statutory liens: Typically tax liens, either from the IRS, state taxes, and property tax.

3. Consensual lien: Missed mortgage payments.

What is the Tax Lien Process?

First, the home owner does not pay their local property taxes. So the local government makes a lien against the property, which prohibits the sale or transfer of the property until the tax debt is paid in full. After that the local government offers a tax lien at auction to cover the unpaid taxes. You attend the auction and bid. Be sure to research before bidding; thoroughly inspect the property and do a lien and title search. The lowest interest bid or most favorable fixed interest goes to the highest bidder.

Next, you’ll have to wait and see. If the property owners don’t pay the lien, action is taken. In some states, the owner of the tax lien certificate needs to apply for, and then gets, the property deed. In others, there is an auction for the property. You bid on the unpaid lien plus the interest due to you as the certificate owner.

States with Tax Lien Certificates: Alabama 12% Montana 10% Arizona 16% Nebraska 14% Colorado 9% above Fed Res Rate New York 14% Connecticut 18% New Hampshire 18% District of Columbia varies New Jersey 18% Florida 18% North Carolina 12% Illinois 18% North Dakota 12% Indiana 10-25% Puerto Rico varies Iowa 24% Rhode Island 12% Kentucky 12% South Carolina 8% Louisiana 5% and up South Dakota 12% Maryland 12-24% Tennessee 10% Massachusetts 18% Vermont 12% Michigan 15-50% West Virginia 12% Mississippi 17% Wyoming 18% Missouri 10%.

To illustrate two successful lien certificate investments, review the following scenarios:

Example 1: A real estate investor purchased a tax lien certificate on a commercial property for $12,000. The property owners were unknown, and all of the required notices were sent out but there was no redemption. The certificate holder acquired the property which was appraised at over $365,000. The return on investment for this real estate investor was over 30 times his initial investment!

Example 2: Mississippi pays lien certificate holders 17% interest. After 20 years, a $2,000 certificate would have grown to more than $30,000 with earnings that are tax deferred.

Author: Nancy Geils

Article Source: http://EzineArticles.com/?expert=Nancy_Geils

There are tax incentives if you are a real estate investor, or looking  into investing in real estate with the coupling of lower housing prices and great mortgage rates.  If you have questions about how to best benefit in your real estate investing and how these tax incentives could work for you, contact a real estate tax attorney for more information.

Lower Your Taxes

Tax incentives for real estate investors can often make the difference in your tax rates. Deductions for rental property can often be used to offset wage income. Tax breaks can often enable investors to turn a loss into a profit.

For which items can investors get tax breaks? You could claim deductions for actual costs you incur for financing, managing and operating the rental property. This includes mortgage interest payments, real estate taxes, insurance, maintenance, repairs, property management fees, travel, advertising, and utilities (assuming the tenant doesn’t pay them). These expenses can be subtracted from your adjusted gross income when determining your personal income taxes. Of course, these deductions cannot exceed the amount of real estate income you receive. In addition to deductions for operating costs, you can also receive breaks for depreciation. Buildings naturally deteriorate over time, and these “losses” can be deducted regardless of the actual market value of the property. Because depreciation is a non-cash expense — you are not actually spending any money — the tax code can get a bit tricky. For more information about depreciation and various tax alternatives, ask your tax advisor about Section 1031 of the U.S. Tax Code.

Have a Positive Cash Flow

There are two kinds of positive cash flows: pre-tax and after-tax. A pre-tax positive cash flow occurs when income received is greater than expenses incurred. This sort of situation is difficult to find, but they are usually a strong and safe investment. An after-tax positive cash flow may have expenses that outweigh collected income, but various tax breaks allow for a positive cash flow. This is more common, but it is generally not as strong or safe as a pre-tax positive cash flow.

Regardless of what kind of real estate you choose to invest in, timely collections from your tenants is absolutely necessary. A positive cash flow — whether it be pre-tax or after-tax — requires rental income. Be sure to find quality tenants; a thorough credit and employment check is probably a good idea.

Use Leverage

One of the most important factors in determining a solid investment is the amount of equity you are purchasing. Equity is the difference between the actual worth of the property and the balanced owed on the mortgage.

Benefit from Growing Equity

While investing in real estate is relatively complex, it is often worth the extra work. When compared to other financial investments, like bonds or CD’s, the return on investment for real estate purchases can often be greater.

The key to real estate investing is equity. Determine an amount of equity that you want to achieve. When you reach your goal, it’s time to sell or refinance. Determining the proper amount of equity may require the assistance of a real estate professional.

Author: Neda Dabestani-Ryba

Article Source: http://EzineArticles.com/?expert=Neda_Dabestani-Ryba