We’ve worked with real estate companies for over thirty years, and serve various clients, including:
- Owners
- Brokers
- Realtors
- Developers
- Operators
- Funds
- Trusts
The tax law provides for many tax saving opportunities for holding, renting and selling of real estate. We understand the various benefits of real estate investing, as well as all of the caveats.
Important decisions must be made at various points of a property’s life span. Decisions must be made upon purchase of the property, the holding of the property, and the ultimate sale or disposition of the property.
Purchase of Property
The purchaser of real property has several options as to how to hold the property. If the property is to be the purchaser’s personal residence, he or she would want to hold the property individually or in an irrevocable trust. If the property is going to be held as rental property, a partnership or LLC will likely be the appropriate vehicle.
Operations of the Property
For rental property, you will be reporting rental income as income on the entity’s tax return. Expenses, being deducted from gross rental income should be maximized for tax purposes. Additionally, depreciation must be deducted as operating expense. Depreciation is calculated based on the amount allocated to the purchase price of the building and other fixtures (not land). This amount is depreciated over a period of years governed by Internal Revenue code.
There are certain limitations on the amount that can be deducted each year. This particularly limit can be defeated if you are deemed a “Real Estate Professional.”
Sale or Disposition of Property
There are various different types of transactions that you can enter into when the property is sold or otherwise disposed of. For example, a straight sale is accomplished by merely selling the property to another party. You will have a capital gain upon the sale. The gain is generally the sales price less the cost basis plus depreciation expense taken over time. An installment sale is another form of a sale that may take place. In this case, the sales price is paid over a period of years, and the capital gain is recognized over this period of time. If you wish to defer the gain on the sale of the property, you may enter into a “Like-Kind Exchange” under IRC Section 1031. In this transaction, you will actually purchase a replacement property for greater value than the property you sell. The gain on the sale will be deferred until the new property is sold. The basis in the new property is reduced by the amount or the gain that was deferred on the sale of the first property.