General Tax Q&A
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Welcome to a beautiful thing called “depreciation”.
It frequently occurs that a limited partnership will actually have more revenue than out of pocket cash expenses. But, when the depreciation expense is factored in, the program shows a operating loss giving tax deduction to the investor while, at the same time, providing positive cash flow.
While not always […]
Written by DROdio on March 29th, 2007.
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Depreciation Recapture Rules and Tax Rates.
Disposition of Code Section 1250 Property. Non-residential real property is 39 year depreciable property that has been depreciated using the straight-line method of depreciation since 1986. When 1250 property that has been in service for over one year is disposed of, there are three (3) possible tax rates:
1. Ordinary Income […]
Written by DROdio on March 8th, 2007.
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Here is the Audit Techniques Guide which is the most comprehensive Cost Segregation document available. Chapters 1 -5 will provide the greatest benefit in understanding the process/product. Download it now: Cost Segregation Audit Techniques
Written by DROdio on March 7th, 2007.
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Here’s an excellent article on cap rates, written by Ray Alcorn
What’s it Worth? Deriving Your Capitalization Rate
How do you know what a commercial income property is worth? How do you know that you can get your desired return on your investment? Is there a way to calculate the maximum you can pay for an investment […]
Written by DROdio on January 30th, 2007.
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This informaiton is courtesy of QEA Associates, a cost segregation company:
Many Property Owners are improving cash flow and finding immediate tax savings from their business properties. They are finding these benefits from an unexpected source: the Internal Revenue Service.
Property owners are taking advantage of the significant tax benefits from accelerated depreciation deductions for commercial properties […]
Written by DROdio on January 23rd, 2007.
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http://www.irs.gov/publications/p946/ch04.html#d0e5468
See this link…most commonly if you own a residential rental property you are on a 27.5 year schedule and if you own commercial property you are on a 39 year schedule.
Written by James Brennan on January 21st, 2007.
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If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. See Filing an Amended Return, next. If you are not allowed to make the correction on an amended return, you may be able to change your accounting method […]
Written by James Brennan on January 21st, 2007.
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From the IRS 1031 FAQ website:
To figure the basis of property you get as a gift, you must know its adjusted basis to the donor just before it was given to […]
Written by DROdio on January 20th, 2007.
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Replacements of roof, rain gutters, windows, and furnace on a residential rental property are capital improvements to the structure because they materially add to the value of your property or substantially prolong its life. The items would be in the same class of property as the rental property to which they are attached. Since the […]
Written by James Brennan on January 20th, 2007.
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If you buy real property, certain fees and other expenses become part of your cost basis in the property.
Real estate taxes. If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. You cannot deduct […]
Written by James Brennan on January 20th, 2007.
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Ideally, your Cost Basis. Basis is your investment in property for tax purposes. The difference between the selling price of your assets and your basis determines whether there is a taxable gain or loss on the disposition of your property. You need to determine your basis to figure allowable depreciation deductions as well. Your original […]
Written by James Brennan on January 20th, 2007.
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When reporting the sale of or computing gain or loss on rental property, you are required to make an adjustment to your basis for allowable depreciation regardless of whether the deduction was taken. For more information refer to Publication 544, Sales or Other Dispositions of Assets, and the Form 4797 Instructions, Sales of Business Property.
You […]
Written by James Brennan on January 20th, 2007.
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Costs that are either recurring or do not specifically relate to the closing. Such costs should not be paid for using exchange proceeds without incurring a tax liability. When selling property, such costs should be paid for “out of pocket”. When buying property, such costs should either be paid for with loan proceeds, if possible, […]
Written by James Brennan on January 20th, 2007.
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Under IRC § 1014, upon death all property in the decedent’s estate is entitled to a stepped-up basis for purpose of calculating the heirs’ capital gain upon a subsequent sale. Under this rule, property is valued as of the date of the decedent’s death for purposes of determining its “basis,”without regard to when the property […]
Written by James Brennan on January 20th, 2007.
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Cash or mortgage relief received in an exchange, the result of which is a taxable gain.
Written by James Brennan on January 20th, 2007.
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The taxpayer intending to defer the taxable gain on the exchange of investment property.
Written by James Brennan on January 20th, 2007.
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Let’s say, for example, that a taxpayer disposes of land and building property he has owned for six years with a value of $3 million and an adjusted basis of $1 million. He treated the entire building as section 1250 property for depreciation purposes. He then buys land and a building with a total value […]
Written by James Brennan on January 20th, 2007.
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Generally Not. A QI may not be an agent of the taxpayer. The IRS precludes any person or entity from acting as an intermediary if he or she has performed any non-exchange related business service for the taxpayer within two years from the date of transfer of the relinquished property.
Written by James Brennan on January 20th, 2007.
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Section (g) (4) of the IRS Section 1031 deferred exchange regulations requires a “safe harbor,” such as a Qualified Intermediary (QI), to facilitate the exchange. The QI helps ensure that the taxpayer does not actually or constructively receive the exchange proceeds anytime before receiving the replacement property, as is required for deferred gain treatment.
Written by James Brennan on January 20th, 2007.
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As an individual, you report the income and deductions for rental properties on page 1 of Form 1040, Schedule E, Supplemental Income and Loss. The total income or loss computed on Schedule E carries to Form 1040.
Report the depreciation of rentals on Form 4562: Depreciation and Amortization.
Written by James Brennan on January 20th, 2007.
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Depreciation is a deduction taken over several years. You generally depreciate the cost of property that has a useful life of more than a year, but gradually wears out, or loses its value due to wear and tear, or wind and rain, when the property is used in business, or to produce income.
Example: Residential Rental with a […]
Written by James Brennan on January 20th, 2007.
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Great question. Yes there is. Assuming your client is selling an investment property that he or she has held for longer than one year, the client would defer paying capital gains taxes on 15% federal, State Capital Gains (around here between 5-9%) and 25% depreciation recapture tax on all depreciation deductions taken. Thus, this effectively […]
Written by admin on January 19th, 2007.
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