Come BLOG With Us! - Miscellaneous

Tax Break When Selling Land Adjacent To Your Residence

Wed, 04 Nov 2009 17:40:00 -0400

Plan for Qualified Lot Sales

IRS regulations specifically allow you to use the federal income tax home sale gain exclusion privilege to shelter profit from selling vacant land adjacent to your house - even if the land sale occurs in one or more transactions that are completely separate from the sale of your house. Although this sounds too good to be true, it is true!

Gain Exclusion Qualification Rules

    If you're unmarried, you can potentially sell your principal residence for a gain of up to $250,000 without owing anything to the U.S. Treasury. If you're married and file jointly, you can potentially exclude up to $500,000 of home sale gain. To qualify, you generally must pass both of the following tests:
    1. You must have owned the property for at least two years during the five-year period ending on the sale date (the ownership test).
    2. You must have used the property as a principal residence for at least two years during the same five-year period (the use test).
    To be eligible for the $500,000 joint-filer exclusion, at least one spouse must pass the ownership test, and both spouses must pass the use test.
    If you excluded a gain from an earlier principal residence sale under these rules, you generally must wait at least two years before taking advantage of the break again. For joint filers, the $500,000 exclusion is only available when both you and your spouse have not claimed an exclusion for an earlier sale within two years of the sale date in question.
    Capital gains in excess of your exclusion are generally taxed at a maximum federal rate of no more than 15 percent. State tax may also apply.

To take advantage of this break, however, there are some restrictions:

The land must be adjacent to the parcel that contains your house, and it must be used as part of your principal residence (as opposed to being used for business or rental purposes).
The house must also be used as your principal residence.
The adjacent land must be sold within two years before or after the sale of the parcel that contains your house, and you must meet certain timing requirements for both the sale of the house and the sale, or sales, of the land. (See right-hand box for timing qualifications.)

Assuming you pass all the tests, you can use whichever gain exclusion amount applies ($250,000 for single filers or $500,000 for joint filers) to shelter from federal (and sometimes state) capital gains tax the combined profit from selling the parcel containing your house and the adjacent land.

How Much Land Can You Sell?

Based on an example in the IRS regulations, you could sell at least 29 acres without being challenged by the government (maybe more because there are no specific guidelines for the amount of land that can be considered part and parcel of your principal residence).

What happens when the adjacent land is sold in a year before or after the year you sell the parcel containing your house? If you sell the parcel with your house after the due date of the return for the earlier year when the land was sold, you must report the land sale gain on your Schedule D (your gain equals the difference between the sale price for the land and your tax basis in that part of the property). Then after you've completed the sale of the parcel that contains your house, you file an amended return on Form 1040X to use part of your gain exclusion (up to $250,000 or $500,000 if you file jointly) to shelter all or part of the profit from the land sale. You will then be due a tax refund for the year of the land sale.

If you sell the parcel with your house before the due date of the return for the preceding year when the land was sold, simply use part of your gain exclusion to shelter all or part of the land sale gain on the earlier year's return. In the later year, you can use your remaining gain exclusion to shelter all or part of the profit from selling the parcel that contains your house.

Your tax adviser can help you take advantage of the home sale gain exclusion for sales of land next to your house. Advance planning may be necessary to maximize your tax savings.

Education vs Ignorance

Sat, 21 Mar 2009 09:46:00 -0400

Recently, I’ve been hearing, again, a familiar refrain from some who really don’t reflect the whole and true picture regarding the cost of training in real estate investing. (I suspect the same would hold true of other types of training as well.)

First, there are always those among us who want something for nothing and fail to acknowledge that there are costs incurred in bringing training to them.

Second, there are usually present those who exploit this irrational attitude by claiming a “different” approach and disparaging others’ efforts in order to promote their own agendas. Those agendas, if explored, inevitably have some form of revenue to support them. Don’t be fooled.

If we consider those who have made a success in real estate investing, every single one of them have purchased books, tapes or other products or services in order to educate themselves. There is a saying, “If you think education is expensive, try ignorance!” What you don’t know CAN hurt you and cost you your entire business.

That said, not every program, like any other product, is necessarily worthy of your money. Like any other major business category, real estate investing attracts a lot of different types of characters. Some are excellent citizens with a true and professional ethic. Others are exploiters. It happens wherever there is a growth and lucrative business. Caveat emptor applies here, as it does in anything you purchase, and that applies to those who suggest that they are better.

At IRCA our goal is to provide access to the best educators for specific topics and systems. We also seek out those with unique systems and ideas not commonly known to give our members and associates an added scope to make their choices.

The challenge we face in helping our industry is not to avoid the training but to try to insure that students APPLY what is taught. It is not necessarily the quantity of training but the taking action on the new knowledge that is important.

Over the last five months, IRCA has been fine tuning our new NextLevel Real Estate Investing Academy designed to accomplish all of the above principles and to take our students all the way through the process to actually completing their first (or more) deals.

Recently, some of our slogans, which have been revealed in some of our emails, have been co-opted by others, but that’s OK. We view that as a compliment, and we will continue to use them and to state our true purpose. You decide the relative value of our programs.

Learning Can Be Fun!

Mon, 12 Jan 2009 20:19:00 -0400

What If You Could Have Fun, Eat Pizza and Improve Your Skills?
We do that when we play Cash Flow learning the risk/reward relationship in investing successfully and profitably. We play the Robert Kiyosaki inspired board game that employs real life strategies while risking only play money. It helps to develop confidence in decision making and deal analysis and IT WORKS! Join us and have some fun while improving your skills. It's all done at the monthly Cash Flow Follies and Casino Night. Pizza and beverages are provided, and there is a cash payout to winners at the end of the night to add a little something extra to the drama of the evening. Please comment with ideas about the game or questions about it.

Professional Courtesy

Wed, 07 Jan 2009 09:45:00 -0400

Time to vent (express my personal viewpoint) on something I consider one of the most basic of business (or personal) practices.

Simple professional courtesy dictates that we respond appropriately when contacted by whatever means, i.e. phone, email, etc. I don't mean unsolicited junk mail, intrusive "robo phone calls" et al, but contacts from our known friends and associates.

Everyone is busy, that's pretty much a given, but it goes for the person who contacts us as well, and I think it is a good practice to assume that they have a reason for trying to contact us, right?

If you don't want to have communications with someone, that's okay, but have the courtesy to say so in a reply. Then future lack or response is justified.

Meanwhile, practice good and courteous business relations by returning calls or emails in a timely manner. It's the professional thing to do.

That's how I see it. How about you?

"Ability is important in our quest for success, but dependability is critical."

-Zig Ziglar

We Were Warned!

Mon, 05 Jan 2009 14:30:00 -0400

Some more retrospective on the "melt down" in real estate. Back in 2006 this article appeared in Fortune.

NEW YORK (FORTUNE) - The lesson that equity can evaporate quickly is something Brooks and Judy Butler of Coral Springs, Fla., learned the hard way.

In 1989, Brooks, a sales executive for software company DataCore and a former IBMer, bought a condo in Hartford, right around the corner from the Mark Twain and Harriet Beecher Stowe homesteads. Housing prices had soared by more than 90 percent in the previous four years, and a few weeks after he plunked down $98,000, a similar condo sold for $125,000, which made him feel pretty good.

But then the insurance industry went into a slump, and Hartford's population declined. As the years went on, units in his building started to change hands for less and less.

Brooks thought about selling when he was $4,000 down, but he couldn't afford to lose that kind of money. The next time he thought about it, he was $25,000 in the hole.

When he finally cashed out in 1998, he had to bring a $40,000 check to the table. "It was awful," he says. (The condo, he heard, sold two years ago for $82,000 -- still short of its 1989 level.)

Which is why, as a matter of family philosophy, Brooks and Judy refuse to believe their current house in Florida is worth a single penny more than $210,000 -- the price they paid five years ago -- even though comparable dwellings on the street are going for close to $500,000.

Their rule: Never allow outstanding loans against the house to surpass the purchase price. In fact, their mortgage and the $9,000 they took out on a home-equity line of credit are considerably less, they say.

And where did they put that $9,000? Back into the house. They refurbished the deck and the driveway and purchased hurricane shutters. "That's a conservative approach," says Brooks. "If we stick to it, we'll be safe."

Americans have increased their home equity in the past five years by 60 percent, or more than $3.6 trillion. They have also tapped it -- to the tune of $600 billion in 2004 alone.

Some of this cash has been spent wisely: to put the kids through college, for instance. But plenty has gone toward vacations and new wheels. Great for the economy; bad for many personal balance sheets.

"A new kitchen is fine because it adds real value to your home," says Leamer. "But to buy an SUV and go out to fancy meals with expensive wines, that's spending money you may never have."

Clearly, the message of the forecast is that appreciation may not always support such spending. Some 60 percent of homeowners, according to one recent survey, expect at least 5 percent annual price growth during the next several years.

That may not sound extreme, but in dollar terms, on today's already hefty home prices, it certainly adds up.

And -- surprise -- it's way out of touch with historical norms: Home prices have risen slightly more than 1 percent annually after inflation. Chances are, appreciation in the future will look more like that, at best, than like the heady figures we've seen in recent years.

The takeaway: "Your home isn't worth as much as you think it is," says Economy.com's Zandi. "So borrow as if it were worth measurably less, because it is."

Real Estate Retrospective

Mon, 05 Jan 2009 14:11:00 -0400

Sometimes it is useful, or at least interesting, to look back at what was foretold versus what actually happened as we now know it. This is an article from FORTUNE back in 2005.

Real Estate: Is the party over?
Exclusive forecasts for the 100 largest markets.
December 16, 2005
By Ellen Florian Kratz, FORTUNE

NEW YORK (FORTUNE) -- Everybody from Los Angeles to Boston -- your mom, your doctor, your dry cleaner -- is puzzling over which way the nation's real estate market is headed. Up or down? Bubble or not?

It's a debate that's been raging for years, and recently that there have been clear signs of a slowdown. It's unlikely, however, that the housing market will come to a screeching halt.

To get a clearer picture of how things may play out, FORTUNE turned to Moody's Economy.com and home property-valuation service Fiserv CSW.

The researchers crunched numbers on the 100 largest metropolitan regions in the country, and the results of their analysis appear in the table below.

Nationally, the overall outlook seems reasonable: 7 percent appreciation for 2006 and flat for 2007. But markets that have seen the greatest appreciation over the past five years appear to be vulnerable.

Indeed, at some point in the next two years, according to the forecast, a third of the nation's 100 largest metro areas (accounting for 60 percent of the U.S. population) are expected to see modestly falling house prices.

Real estate bear markets often come in the form of steady declines over many years, rather than sudden sharp drops.

As inflation gradually gnaws away at the value of nominal home prices, regular folks might not take much notice. But in the long run the loss of wealth becomes all too real. From 1989 to 1997, for instance, Los Angeles residential real estate dropped more than 40 percent in inflation-adjusted terms.

The nation's most perilous regional market, according to the forecast data: Las Vegas, a speculator-infested hot spot. Prices there are projected to deflate by 7.9 percent next year, the year after by another 5 percent. For newcomers to the market and those with low-money-down deals who may have overleveraged themselves with adjustable-rate mortgages, even a modest downturn could mean financial jeopardy.

Click on column headings to re-sort. Click on city name for in-depth statistics.

Rank	Metro Area	State	Median home price	Projected growth 2006	Projected growth 2007
1	San Antonio	TX	$129,900	8.30%	7.00%
2	Jacksonville	FL	$164,700	8.10%	2.50%
3	El Paso	TX	$107,100	8.10%	7.10%
4	Little Rock-North Little Rock	AR	$115,700	7.80%	7.20%
5	Baton Rouge	LA	$133,800	7.60%	3.80%
6	Richmond	VA	$191,800	7.40%	3.30%
7	Virginia Beach-Norfolk-Newport News	VA	$193,100	7.30%	1.00%
8	Nashville-Davidson-Newport News	TN	$157,300	7.10%	6.70%
9	Houston-Sugar Land-Baytown	TX	$139,800	7.00%	6.60%
10	Memphis	TN	$147,600	7.00%	6.50%
11	Allentown-Bethlehem-Easton	PA	$247,400	6.90%	1.20%
12	Oklahoma City	OK	$116,900	6.90%	6.00%
13	Birmingham-Hoover	AL	$152,500	6.90%	5.40%
14	Albuquerque	NM	$166,700	6.50%	6.10%
15	Columbia	SC	$133,200	6.40%	5.40%
16	Fort Worth-Arlington	TX	$125,700	6.30%	5.00%
17	Syracuse	NY	$109,400	6.20%	5.40%
18	Dayton	OH	$116,500	6.10%	5.60%
19	McAllen-Edinburg-Mission	TX	$71,000	6.10%	6.20%
20	Salt Lake City	UT	$165,700	6.10%	3.40%
21	Austin-Round Rock	TX	$161,800	6.10%	5.00%
22	Tulsa	OK	$116,600	6.10%	6.20%
23	Pittsburgh	PA	$113,000	6.00%	5.00%
24	Cincinnati-Middletown	OH	$146,200	6.00%	6.60%
25	Albany-Schenectady-Troy	NY	$176,700	6.00%	4.50%
26	Dallas-Plano-Irving	TX	$155,500	5.90%	6.30%
27	St. Louis	MO	$134,900	5.80%	4.10%
28	Toledo	OH	$116,400	5.70%	5.00%
29	Greenville	SC	$141,300	5.70%	5.00%
30	Sarasota-Bradenton-Venice	FL	$314,300	5.60%	-3.60%
31	Indianapolis	IN	$121,700	5.60%	5.40%
32	Wichita	KS	$107,200	5.50%	4.80%
33	Columbus	OH	$150,700	5.50%	6.00%
34	Akron	OH	$117,600	5.40%	5.30%
35	Buffalo-Niagara Falls	NY	$96,400	5.40%	5.30%
36	Knoxville	TN	$140,100	5.40%	5.20%
37	New Orleans-Metairie-Kenner	LA	$149,100	5.40%	6.60%
38	Rochester	NY	$111,200	5.30%	6.80%
39	Raleigh-Cary	NC	$183,100	5.20%	5.10%
40	Philadelphia	PA	$199,400	5.10%	0.50%
41	Charlotte-Gastonia-Concord	NC	$172,800	5.10%	5.50%
42	Louisville	KY	$134,800	5.00%	4.60%
43	Milwaukee-Waukesha-West Allis	WI	$210,900	4.80%	2.50%
44	Tampa-St. Petersburg-Clearwater	FL	$193,700	4.80%	-0.50%
45	Greensboro-High Point	NC	$145,100	4.80%	5.50%
46	Kansas City	MO/KS	$154,600	4.70%	4.10%
47	Poughkeepsie-Newburgh-Middletown	NY	$265,000	4.60%	0.80%
48	Youngstown-Warren-Boardman	OH	$83,400	4.50%	5.30%
49	Gary	IN	$127,300	4.40%	3.40%
50	Cleveland-Elyria-Mentor	OH	$142,800	4.30%	5.10%
51	Omaha-Council Bluffs	NE	$136,100	4.30%	4.10%
52	Lake County, Kenosha County	IL/WI	$259,100	4.20%	1.90%
53	Atlanta-Sandy Springs-Marietta	GA	$165,300	4.20%	4.00%
54	Honolulu	HI	$570,400	4.00%	-1.00%
55	Orlando-Kissimmee	FL	$226,400	3.80%	-0.50%
56	Grand Rapids	MI	$137,300	3.60%	2.90%
57	Fort Lauderdale-Pompano Beach-Deerfield Beach	FL	$356,600	3.10%	-4.50%
58	Springfield	MA	$197,900	3.00%	1.20%
59	Portland-Beaverton-Vancouver	OR/WA	$234,600	3.00%	-0.70%
60	Baltimore-Towson	MD	$249,100	2.90%	-0.80%
61	Tucson	AZ	$220,900	2.90%	-4.00%
62	Camden	NJ	$210,800	2.70%	0.80%
63	Denver-Aurora	CO	$244,800	2.60%	2.50%
64	Wilmington	DE	$231,000	2.50%	1.70%
65	Seattle-Bellevue-Everett	WA	$335,500	2.50%	1.00%
66	Tacoma	WA	$222,700	2.30%	0.60%
67	W. Palm Beach-Boca Raton-Boynton Beach	FL	$386,200	2.10%	-3.90%
68	Phoenix-Mesa-Scottsdale	AZ	$238,100	2.00%	-3.70%
69	Warren-Farmington Hills-Troy	MI	$196,000	1.90%	0.80%
70	Washington-Arlington-Alexandria	DC/VA	$404,900	1.80%	-3.40%
71	Hartford-West Hartford-East Hartford	CT	$257,600	1.80%	0.60%
72	Miami-Miami Beach-Kendall	FL	$343,700	1.80%	-5.50%
73	Detroit-Livonia-Dearborn	MI	$120,100	1.60%	2.00%
74	Newark-Union	NJ	$407,000	1.50%	-1.80%
75	New Haven-Milford	CT	$280,300	1.40%	0.60%
76	Worcester	MA	$287,800	1.30%	-0.30%
77	Edison	NJ	$387,900	1.20%	-2.90%
78	Chicago-Naperville-Joliet	IL	$264,900	1.10%	0.20%
79	Cambridge-Newton-Framingham	MA	$448,800	0.80%	0.00%
80	Minneapolis-St. Paul-Bloomington	MN	$234,600	0.70%	0.70%
81	Bridgeport-Stamford-Norwalk	CT	$472,500	0.40%	-1.30%
82	New York City-White Plains-Wayne	NY/NJ	$504,800	0.10%	-3.50%
83	San Francisco-San Mateo-Redwood City	CA	$766,000	0.10%	-2.90%
84	Bethesda-Gaithersburg-Frederick	MD	$444,500	0.00%	-0.50%
85	Boston-Quincy	MA	$422,900	-0.10%	-1.40%
86	Essex County	MA	$380,600	-0.20%	-0.70%
87	Stockton	CA	$423,100	-0.30%	-5.90%
88	San Jose-Sunnyvale-Santa Clara	CA	$720,900	-0.40%	-3.90%
89	Oxnard-Thousand Oaks-Ventura	CA	$480,300	-0.70%	-5.00%
90	Oakland-Fremont-Hayward	CA	$651,300	-0.70%	-4.40%
91	Fresno	CA	$340,800	-0.80%	-2.80%
92	Bakersfield	CA	$286,300	-0.80%	-3.00%
93	Providence-Fall River-New Bedford	RI/MA	$292,800	-1.10%	-2.20%
94	Sacramento-Arden-Arcade-Roseville	CA	$372,900	-1.20%	-5.10%
95	Los Angeles-Long Beach-Glendale	CA	$412,900	-1.60%	-6.30%
96	Nassau-Suffolk counties	NY	$461,300	-2.00%	-4.20%
97	Riverside-San Bernardino-Ontario	CA	$362,800	-2.60%	-6.80%
98	Santa Ana-Anaheim-Irvine	CA	$682,300	-3.10%	-6.10%
99	San Diego-Carlsbad-San Marcos	CA	$598,700	-3.40%	-5.70%
100	Las Vegas-Paradise	NV	$296,000	-7.90%	-5.00%

Getting started in BLOGGING

Sun, 04 Jan 2009 21:24:00 -0400

I'm new to this, and I've never kept a diary (I'm told that that would have been a good start!), however I'm not shy about sharing opinions, ideas and so forth, so I'm looking forward to it.

Of course, your participation will be critical to the success and value.

This will be a venue for sharing anything relative to investing and entrepreneurship. We will offer tips, caveats and generally anything deemed important and/or merely interesting. Fun stuff, too, always in good taste, please.

Sources for financing are very topical concerns currently, so I'm sure there will be a lot of lively discussions on that, including informal bits about our new sourcing program.

Subject for your consideration: what would you recommend we do to spur associates into taking the plunge to do their first deal?

Please subscribe to our BLOG and participate in reading and replying with your own views.