Tax Stuff Archives

Tax Update for Real Estate Investors from my CPA

POST Election Congress Grapples with Extenders as Lawmakers Plan for 2015

The results of the mid-term elections create a new dynamic in Congress with Republicans poised to take control of both the House and Senate in January. Prospects for tax reform may have brightened for 2015. In the meantime, the lame-duck Congress must deal with some urgent tax bills, most notably the tax extenders.

Expired tax breaks

As the 2015 filing season grows closer, lawmakers are under pressure to renew a package of expired tax incentives, known as tax extenders. There are more than 50 expired extenders that impact individuals and businesses. For individuals, some of the most far-reaching are the above-the-line deduction for higher education expenses, state and local sales tax deduction, mortgage debt forgiveness, deduction for mortgage insurance premiums, credit for energy improvements to personal residences, and the teachers’ classroom expense deduction. For businesses, the expired incentives include the research tax credit, special expensing rules for film and television productions, bonus depreciation, enhanced small business expensing, incentives to encourage production of wind energy and alternative fuels, and many more. All of these incentives expired after December 31, 2013. That means taxpayers cannot claim them on their 2014 returns filed in 2015 unless the incentives are extended.

Many Congressional staffers and Hill observers predict that lawmakers will renew the extenders in December. A vote could come in the House and Senate before December 20. A comprehensive extenders bill, the EXPIRE Act, is pending in the Senate. A similar bill, however, has not moved in the House. Instead, the House voted to extend some but not all of the extenders. Before year-end, the Senate could approve the EXPIRE Act and send the bill to the House. The Congressional Budget Office estimates that extending all of the expired provisions would cost $94 billion over two years (reflecting a retroactive extension to January 1, 2014 and an extension through the end of 2015). Our office will keep you posted of developments as tax filing season approaches.

The IRS has cautioned that the longer Congress waits to renew the extenders the greater the likelihood that the start of the 2015 filing season will be delayed. The IRS’s return processing systems are programmed for the current tax laws. The IRS must update its return processing systems for any changes that lawmakers make to the tax laws, such as renewing the extenders. Late legislation in the past has delayed the start of the filing season by around two weeks.

Looking ahead

When the new Congress meets in January, Republicans will have majorities in the House and in the Senate. GOP leaders have started to outline some of their priorities for 2015, including tax-related issues.

Tax reform. Rep. Paul Ryan, R-Wisc., who will serve as chair of the House Ways and Means Committee, has indicated his interest in tax reform, but so far has not provided any details. Ryan’s counterpart in the Senate, Sen. Orrin Hatch, R-Utah, who will serve as chair of the Senate Finance Committee, has also expressed support for tax reform. President Obama repeated his proposal to reduce the corporate tax rate in exchange for the elimination of some unspecified business tax breaks. Whether any tax reform proposals will gain traction in 2015 is unclear.

Affordable Care Act. Shortly after the elections, Hatch said he will propose an alternative to the Affordable Care Act (ACA) as well as bills to repeal parts of the ACA, such as the medical device excise tax. House Speaker John Boehner, R-Ohio, added that the GOP-controlled House will move to repeal the ACA in 2015.

Permanent extenders. Any renewal of the extenders will be temporary, carrying a likely expiration date of December 31, 2015. Lawmakers are expected to take a close look whether to make permanent some of the extenders and allow others to expire after 2015. Good candidates for a permanent extension are the state and local sales tax deduction, the higher education tuition deduction, enhanced small business expensing, and the research tax credit. One drawback, however, is the cost of making these incentives permanent. Many lawmakers will want to offset the cost. Negotiations over the long-term fate of the extenders are likely to be contentious as taxpayers seek to preserve their special tax breaks.

Corporate profits. In 2004, lawmakers agreed to a temporary repatriation tax holiday that allowed businesses to repatriate foreign profits at lower tax levels. Similar legislation is expected to be introduced in the new Congress. Again, negotiations will be intense as some lawmakers would seek to offset the cost of a repatriation tax holiday.

If you have any questions about the lame-duck Congress and the prospect for tax legislation in the new Congress, please contact our office. Keep in mind that as 2014 draws to a close, so does the time in which to make possible tax savings moves. Renewal of some or all of the extenders could impact your year-end tax planning.


If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
 
 
GrinnanMikeCPA
 
 
 
 
J. Michael Grinnan, CPA.CITP
Certified Public Accountant
9900 Corporate Campus Drive, Suite 3000
Louisville, KY 40223
Office 502-657-6333
Fax 502-657-6334
Email Mike@JMGCPA.com

Hello and Check This Out!    
Great News for Investors and Sellers FreeGiftComments

I received the article below in an email sent to me from National REIA.

My Short Version Summary of Your Benefits:

1.) Investors who have short saled properties where the lender accepts less than the balance owed, typically had to report the amount of the discount to the IRS as income and pay income tax on the discounted dollar amount. With this new extension, it prevents the IRS from taxing your cancelled debt or the amount of your discount. It appears this expired in 2013; however this new extension act now includes both 2013 and 2014 tax years.
SPECIAL NOTE: If you have short saled any properties in 2013 and 2014, you should verify and make sure your tax preparer knows all of the details on this. I will bet many investor’s tax preparers were aware of the original act, but not this extension.

2.) SELLERS: when buying investment property using “short sale” technique, you have a brand new benefit for your seller. Get it short saled and close before the end of 2014, and they will not get taxed on the amount the lender discounts.  HUGE Benefit for your Seller. Once again, remember your seller might check with tax advisor and they may not be aware of this new extension to the Mortgage Forgiveness Debt Relief Act Extension.

Below is the email I received this morning.


 

Mortgage Forgiveness Debt Relief Act Extension:

Over the course of the first two weeks in July, National REIA’s lobbying arm in Washington, D.C., in concert with National REIA board member and my good friend Tom Zeeb, met with the key sponsors of legislation to extend the short sale tax break retroactively for 2014 and through 2015.

The extension of this tax break, which prevents the IRS from taxing cancelled debt during the utilization of short sales, is critical to restoring the use of short sales.

Since the failure to extend the Mortgage Forgiveness Debt Relief Act into 2014, short sales have fallen dramatically since the passage of the tax break implementation in 2008 to 2013 and through the passage of FHFA’s National Standard Short Sale Program, another product of National REIA’s lobbying arm.

 


What are Your Comments On This New Extension? FreeGiftComments 
(please click on the “Leave Comments” button at top right of this article)

SigMikeButler

Depreciation – IRS Tax Info

GrinnanMikeCPA  J. Michael Grinnan CPA

How do I Compute depreciation for tax purposes?

The simple concept of depreciation can get complicated very quickly when one is trying to determine the proper depreciation deduction for any particular asset. Here’s only a summary of some of what’s involved.

Identifying the asset

The modified accelerated cost recovery system (MACRS) is generally, but not always, used to depreciate tangible depreciable property placed in service after 1986. The MACRS deduction is computed on Form 4562, Depreciation and Amortization. Click Here for Full Video/Article (Members Only)

GrinnanMikeCPA

 

 

 

 

 

   J. Michael Grinnan CPA

 

FAQ: What is the self-employment tax?

Taxpayers who are self-employed must pay self-employment tax on their income from self-employment. The self-employment tax applies in lieu of Federal Insurance Contributions Act (FICA) taxes paid by employees and employers on compensation from employment. Like FICA taxes, the self-employment tax consists of taxes collected for Social Security and for Medicare (hospital insurance or HI).

The self-employment tax is levied and collected as part of the income tax. Click Here for Full Video/Article (Members Only)

I Could Not Believe It.

Is This Really True?

It Is In The Planning Stages Now

The Federal Transaction Tax!

President Obama’s finance team and Nancy Pelosi are recommending a 1% transaction tax on all financial transactions.

It is true.

The bill is HR-4646 introduced by US Rep Peter deFazio D-Oregon and US Senator Tom Harkin D-Iowa.

Their plan is to sneak it in after the November election to keep it under the radar.
See what Nancy has to say about this wonderful idea!  http://tinyurl.com/24dn5ud

It’s only 1%! This is a 1% tax on all transactions to or from any financial institution i.e. Banks, Credit Unions, Mutual funds, Brokers, etc.

Any deposit you make will have a 1% tax charged.

Any withdrawal you make, 1% tax.

Any transfer within your account, a transfer to or from savings and checking, will have a 1% tax charged.

Any ATM transaction, withdrawal or deposit, 1% tax.

If your pay check or your Social Security is direct deposited, 1% tax.

If you carry a check to your bank to deposit, 1% tax.

If you take cash in to deposit, 1% tax.

If you receive any income from a bond or a dividend from stock, 1% tax.

Any Real Estate Transaction, 1% tax.

This is from the man who promised that if you make under $250,000 per year, you will not see one penny of new tax! Remember, he is completely honest and trustworthy.
Keep your eyes and ears open.

Folks, Nancy says this would be a minimal tax on the people, but 1 percent every time you pay a bill or make a deposit is not minimal. This would no doubt tax investment transactions as well as bank account transactions.

Excerpt from American Debt Relief

Contact Your U.S. Representative AND U.S. Senator Now

Here is the Link for fill-in-the-blank email to Your U.S. Representative

https://writerep.house.gov/writerep/welcome.shtml

 


 

 

My CPA emailed me this morning

Obama Administration Announces Panelists and Agenda for Conference on the Future of Housing Finance

WASHINGTON – Today, the Obama Administration announced additional details about its August 17 Conference on the Future of Housing Finance, including a list of panelists and the conference agenda. This event will provide a forum for public input as the Administration continues its work developing a comprehensive housing finance reform proposal for delivery to Congress by January 2011.

“Across the spectrum, stakeholders agree that our current system of housing finance requires fundamental reform,” said Jeffrey A. Goldstein, Under Secretary of the Treasury for Domestic Finance.  “This conference is an opportunity for us to broaden our perspectives on a number of key issues in a transparent way to make certain that all of the best ideas are on the table.”

“This conference is an opportunity to engage stakeholders and experts with broad knowledge and many perspectives,” said Dr. Raphael Bostic, HUD Assistant Secretary for Policy Development and Research.  “It is part of our larger effort to make sure that we have a deep and wide understanding of these issues as we chart a thoughtful, sound path forward in reforming our housing finance system.”

During the conference, Treasury Secretary Tim Geithner and HUD Secretary Shaun Donovan will moderate panel discussions with a diverse group of experts about the critical issues surrounding housing finance reform. These panelists represent a cross-section of stakeholder groups with interests in the outcome of this reform process, including citizen advocacy groups, economists, investors, market researchers, originators, securitizers, servicers, and private mortgage insurers. The following individuals will be panelists at the August 17 conference:

 

·         Barbara J. Desoer, President of Bank of America Home Loans

·         Ingrid Gould Ellen, Professor of Urban Planning and Public Policy at New York University’s Wagner Graduate School of Public Service and Co-Director of the Furman Center for Real Estate and Urban Policy

·         Bill Gross, Co-founder and Co-chief Investment Officer of PIMCO

·         Mike Heid, Co-president of Wells Fargo Home Mortgage

·         S.A. Ibrahim, Chief Executive Officer of Radian Group Inc.

·         Marc H. Morial, President and Chief Executive Officer of the National Urban League

·         Alex Pollock, Resident Fellow at the American Enterprise Institute

·         Lewis Ranieri, Chairman of Ranieri and Company, Inc.

·         Ellen Seidman, Ellen Seidman, Executive Vice President for Mission and Strategy, at ShoreBank Corporation, and Chair of the Board of Directors at the Center for Financial Services Innovation

·         Michael A. Stegman, Director of Policy and Housing for the Program on Human and Community Development of the John D. and Catherine T. MacArthur Foundation

·         Susan Wachter, Richard B. Worley Professor of Financial Management, Professor of Real Estate, Finance and City and Regional Planning at the University of Pennsylvania’s Wharton School

·         Mark Zandi, Chief Economist of Moody’s Analytics

 

Details regarding the event, including topics for panel discussions and breakout sessions, and logistics for members of the media seeking to attend the conference, appear below.

Media Logistics:

WHAT:           Conference on the Future of Housing Finance

WHEN:          Tuesday August 17, 2010 
                        9:00 a.m. – 1:30 p.m. EDT

WHERE:        Cash Room 
U.S. Treasury Department 
1500 Pennsylvania Ave., NW 
Washington, D.C. 20220 
The event will also be streamed live on 
www.treasury.gov.

 

9:00 AM EDT  
Treasury Secretary Tim Geithner
Opening Remarks
Cash Room 
U.S. Treasury Department 
1500 Pennsylvania Ave., NW 
Washington, D.C.

Coverage: Open Press

 

 

9:15 AM EDT 
HUD Secretary Shaun Donovan
Delivers Remarks
Cash Room 
U.S. Treasury Department 
1500 Pennsylvania Ave., NW 
Washington, D.C. 
Coverage: Open Press

 

9:30 AM EDT
PANEL DISCUSSION ONE – Housing Finance Reform and Broader Financial Markets
Moderated by Treasury Secretary Tim Geithner
Cash Room 
U.S. Treasury Department 
1500 Pennsylvania Ave., NW 
Washington, D.C. 
Coverage: Open Press

 

10:30 AM EDT
PANEL DISCUSSION TWO – Housing Finance Reform and Broader Housing Policy Goals 
Moderated by HUD Secretary Shaun Donovan
Cash Room 
U.S. Treasury Department 
1500 Pennsylvania Ave., NW 
Washington, D.C. 
Coverage: Open Press

 

11:45 PM EDT 
WORKING BREAKOUT LUNCHES 
Hosted by Senior White House, HUD, and Treasury Officials 

Breakout Session Topics: 
Breakout Session One:  Key Players in a Reformed System: Role of the Private Sector and of Government
Breakout Session Two:  Delivering Access and Affordability
Breakout Session Three:  Funding Housing and the Role of Securitization
Breakout Session Four:  Aligning Private Market Incentives in the Housing Finance Chain
Breakout Session Five:  Supporting Capital for Multifamily Finance
Breakout Session Six:  Managing the Process of Transition

Coverage:  Open to correspondents only. No recording devices for broadcast purposes will be allowed. Space is extremely limited and will be allocated on a first-come, first-served basis. Interested reporters should gather at 11:35 AM at the Cash Room press riser for escort.

1:15 PM EDT 
CLOSING REMARKS

Media Notes: 
Conference panels and official remarks are all open to press; working breakout lunches are open to correspondents only. Space is limited and is first come, first serve. The event will also be streamed live on 
www.treasury.gov.

Media without Treasury press credentials planning to attend must contact Frances Anderson in Treasury’s Office of Public Affairs at (202) 622-2960 with the following information: full name, Social Security number, date of birth, and country of citizenship.  This information may also be emailed to frances.anderson@do.treas.gov.  Congressional and White House press passes will not grant you access to Treasury. Please note if you have camera equipment. The deadline to RSVP is Monday, August 16, 2010 at 12:00 PM EST.

Press with camera equipment should arrive at the Moat Entrance (south side of the Treasury building, adjacent to the Hamilton entrance) no later than 7:00 a.m. to allow time for equipment sweeps and escorts to the Cash Room. No vehicles will be permitted onto Treasury grounds; equipment must be carried in. All other media can enter the Treasury building through the Pennsylvania Avenue entrance and should allow 45 minutes to clear through security. Final access to the Cash Room will be 8:45 a.m.

###

 


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Mike

I have recently converted a house I bought in 1988 that was my principal residence till 2009 into a rental unit under my LLC.

How do you suggest that this conversion be recorded so that it is tax advantaged for the LLC.

Meaning, when the property gets sold at some future date the LLC does not get hit with capital gains that is non-existent.

I am thinking of cost basis of the property circa 2009, what should it be?

Since it was a principal residence up until then no depreciation was taken or reported over the 20+ years; there were some improvements done since the house was originally bought; the market value and also the assessed value have gone up and down with the market, at any rate market values are irrelevant – what then would be proper accounting for the property in the books? Would appreciate if you would enlighten me

 

Shaw Ali

 

———————————————–

 

ANSWER:

Fantastic Question Shaw!

Long story short, for the time being and in recent years, one could sell their residence for Tax Free Profit. There were some guidelines and limits. For example, a single person was limited to 250k profit and married was limited to 500k. Many investors were using this one tax strategies to generate big chunks of tax free cash about every 2 years.

Odds are, there is a time limit on such a beautiful tax strategy. This date I am not sure of and will have to check with my CPA, and I recommend you to do the same.

As far as the LLC, there are a number of variables to factor including how you are reporting the activity of your LLC. Are you reporting it as a sole proprietorship for tax purposes?

If not, you might be able to sell your residence to your LLC and get “tax free profit” on paper and start your LLC off with a high cost basis.

Either way, please get an expert real estate investor CPA to give you a very precise laser focused to your situation answer and solution.

 

Mike Butler

 

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