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

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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

If you have questions or concerns about your real estate taxes, you should contact a real estate tax attorney.  Property tax attorneys can assist you in a wide variety of ways to make sure that you are not overpaying your real estate taxes, that you get current on any delinquent taxes, and more. 

The mechanics behind real estate taxes are a mystery to many and I hope to offer some clarification. Real Estate taxes, believe it or not, are not strictly calculated on what your house is worth. I know, it’s crazy. Follow me on this one.

Real estate taxes are somewhat unique in the way they are calculated. We all are used to paying many types of taxes. The two most common taxes are sales tax and income tax. These are fairly easy to calculate because they are just a percentage of what you bought or a percentage of your adjusted gross income. If sales tax is 9%, you know you will pay $9 in tax on your $100 purchase.

Real estate taxes are a different animal. Your real estate taxes go to the county government which then distributes the money to the school districts, townships and etc. While the state government makes its money on sales tax and the federal government makes its money on income tax, the county makes its money on real estate tax.

Every year the local taxing bodies put together budgets for their annual operations and then the County divides up that amount among all the properties. Let’s assume the County needs to raise $6,750,000 this year. If there are 1,000 properties in the County it would be easy to say each property will need to pay $6,750. however, some properties are worth more than others so it wouldn’t be fair to charge each property a flat amount.

This is where property assessments come in. The county needs to figure out what every property is worth to make sure that it pays its fair share of the taxes. The county assessor (or township assessor, depending on which county you live in) will assess your property at 1/3 of market value. Assessments are broken into two parts, value of the land and value of the structure. So if your house is worth $300,000 (which is the value of your land plus your structure) your assessed value would be $100,000. Now that every parcel has an assessed value, the county adds them all together to figure out what all the property in the county is worth.

In Portfolio County, which is a very small, imaginary county, the total assessed value of all the property is $100,000,000. (Keep in mind that the total assessed value is 1/3 of market value, so the total market value of the property is $300,000,000.) After exhaustive board meetings, Portfolio County determines that it needs to raise $6,750,000 in real estate taxes to meet its budgets. Portfolio County then comes up with a multiplier to get the money it needs out of all the real estate. The multiplier is calculated by taking the amount of money needed, $6,750,000, and dividing it by the total assessed value of the real estate in the County, $100,000,000. This leaves us with a multiplier of .0675 or 6.75%.

Now any parcel can have its real estate taxes calculated. A large property with an assessed value of $250,000 will pay $16,875 (6.75%) whereas a home with a $40,000 assessed value will only pay $2,700. Now we get to the heart of the matter. How can my assessed value stay the same or go down while my tax bill goes up?! I’m glad you asked! Let’s look at an example:

In 2006, Joe’s house in Portfolio County had an assessed value of $125,000 and he paid $8,437.50 in real estate taxes. In 2007, Portfolio County had a lot of road work they had to do and needed more money for their budget. Instead of needing the $6,750,000 they did in 2006, they needed $9,000,000 in 2007. So what the county did was increased the multiplier to raise enough tax revenue. The new multiplier for 2007 was now .09 or 9%. So even thought Joe’s 2007 assessed value stayed the same at $125,000, it was multiplied by 9%, resulting in an $11,250 tax bill, a $2,812.50 increase from 2006.

Even assuming Joe challenged his assessed value and was able to get it reduced to $100,000 in 2007, at the 9% multiplier, he still would have paid $9,000 in real estate taxes, an increase from 2006.

The main factor which drives how much you will pay in real estate taxes is HOW MUCH MONEY THE COUNTY NEEDS TO RAISE, not how much your house is worth or its assessed value. If everyone had their assessed value reduced by 50%, their taxes would stay the same since the county still needs the same amount of money. All the county would do is double its multiplier. Long story short, real estate taxes are driven by how much money the county needs to raise, not necessarily your assessed value.

Even though challenging assessed value will not ensure that you pay lower real estate taxes, it will certainly result in you paying less than you otherwise would have had you not challenged them at all.

Author: Matthew Rasche

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

A real estate tax attorney can assist you in a variety of ways, and if you are looking to invest in real estate, an experienced property tax attorney can be one of the best investments you make as you create your real estate portfolio.  You will want to make sure that you are making sound investments and fully understand the tax implications and benefits that you will have to deal with as a real estate investor.

Most of the people are nowadays big or small real estate investors. If you own a home then you can be considered as a real estate investor and you need to learn various laws regarding real estate that could be of immense importance to you. Moreover, most of the laws that we should understand are very simple.

However, if you fail to understand these laws then you might suffer huge losses. Some of these basic principles are:

1) Real Estate Taxes Can Be Avoided While Selling Home- According to the law of real estate you would be exempted from profits if you are selling your home for not more than $250,000 if you file your request singly and $500,000 if you are filing it jointly. Such laws are made to safeguard the families and let them own their house or encourage investment in the real estate. What is more? If your profit is more than the specified amount then the tax is levied upon the price exceeding the limit but that home should be your primary residence to avail any such benefits. For qualifying it as your primary residence you should stay there for at least two to five years before selling it.

2) Deductible Mortgage Interest - Most of us get mortgage whenever we buy a home. Mortgage interest proves to be the largest tax deductions one can ever have. What is more? Interest you pay on mortgage for homes other than primary residence is also tax deductible. Even the payments made against your primary mortgages or home equity loans is deductible.

3) Losses Incurred In Real Estate are Tax Deductible- When you file your tax with IRS, you can claim your loss on real estate if the selling price of that real estate is less than what you paid for it. It would be deducted from your tax.

4) Save Taxes By Reinvesting In Real Estate- If the real estate you purchased is not primary residence of yours even then all your capital gains are not calculated in taxes as your profits. You need to reinvest your profits in an another real estate within a period of two years if the property you sold was not your primary residence. This way you can avoid capital gains tax on your property sales.

Therefore, you can understand the importance of understanding the semantics of tax deductions that are required to save a lot of money you would have paid otherwise as your capital gain tax. You should take advice of a good tax professional to avail many such real estate deductions that are there in the law.

Author: Abhishek Agarwal

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A real estate tax attorney can help you get your real estate taxes lowered, if the value of your home or property has declined with the burst in the housing bubble.  You may be overpaying your property taxes, and a property tax attorney can ensure that you are paying the rate that is in line with the revised value of your home and/or property.

One of the unforeseen consequences of the recent run-up of real estate values was that it affected your real estate taxes. Typically, as real estate values increased, in many jurisdictions, so did the annual real estate tax bill. While it is nice to have one’s real estate value increase at 10% or more each year, the downside to that boon is a higher tax bill. While you had to sell (or refinance) your property to realize its increase in value, your increasing tax bill had to be paid in full each year. For those on a fixed income, that could prove to be a serious problem.

There may be hope, however. In most locations throughout the US, the City or County Property Appraiser or Tax Assessor looks at comparable sales of other houses in the neighborhood. Then, via protocols required by state law, uses those to assess all of the other houses in the neighborhood. Because this system may use the recent sales of just a few houses in a given neighborhood to set the assessment for dozens of other houses there, it is possible that your house may be just different enough not to “fit the pattern”. Therefore, it might be over-assessed.

To find out if your house is really over-assessed, you need an appraisal from an experienced, professional real estate appraiser (not a broker, whose opinion carries very little weight with assessors and County property appraisers). This will cost from $250 to $1,000 (or more) depending on your house. Tell the appraiser up-front why you are getting the appraisal so the appraiser makes that clear in the appraisal report.

That way, the appraiser will know which date to use as the effective date. Then, when you get the appraisal, compare the value in it with the assessed value of your house. If the appraisal is less, then contact the taxing/assessing authorities, send them a copy of the appraisal, and ask them to lower the assessment. If that does not work, there is an appeal process (which the appraiser can explain to you) that is less expensive than going to court. If that appeal process does not result in a lowered assessment, typically the only other step is to sue the County assessor and ask the Court to determine the property’s proper tax assessment. That requires an attorney (who is a lot more expensive than an appraiser!).

Author: Timothy Andersen

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