Lopato & Associates CPA

Accountancy Services Computer Services Bookkeeping Services Taxation Services

Call Us Now

Call Us Now!
858.549.1295

Important Issues

Selling Rental Real Estate

Written by Administrator

Friday, 29 January 2010 13:53

As with any significant transaction, the sale of rental real estate will have income-tax consequences you’ll want to understand ahead of time. Although much will depend on the details of your specific situation, here are some key concepts to keep in mind.

Gain or Loss?

Figuring gain or loss for tax purposes involves comparing the amount realized house-for-sale on the sale to your “adjusted basis” in the property. Generally, your adjusted basis is equal to the amount you paid for the property, plus the cost of any improvements you made and minus depreciation deductions.

The tax law requires you to net your gains and losses from the sale of rental and business property held longer than one year against each other. If the result is a net gain, it generally will be taxed as long-term capital gain, except to the extent that special rules regarding prior depreciation and losses can result in less favorable treatment. If the netting process results in a net loss, you may deduct it in full against your ordinary income.

Potential Tax Benefit

Safeguarding Financial Records

If your home or business were to sustain damage from a fire, flood, or some other natural disaster, would your financial records be safe? Would you have the documentation you need for insurance claim and tax deduction purposes? Here are some ways to help ensure that you’re protected.

Create a backup set. Bank statements and other financial records that you access online can be downloaded and saved on your computer. If you have paper documents, you may want to scan them into your computer and save them along with your other electronic records on an external hard drive or burn them onto a CD. Then keep the backup set — either in electronic or hard-copy form — in a different location than the original.

Take pictures. Document the contents of your home and business through either photos or video. All equipment, buildings, vehicles, and personal items should be included. Make sure you record the date the pictures were taken. A visual record will make it easier to prove the market value of items for insurance and casualty loss claims.

Update regularly. Maintaining your records shouldn’t be a one-time event. To ensure that you’ll have the appropriate information if and when you need it, routinely update your files and keep them in a secure location.

Clock Is Ticking on Credit

Qualifying “first-time” homebuyers can benefit from a federal tax credit of up to $8,000 (or 10% of the home’s purchase price, if less). But time is running short. The credit is available only for purchases made before December 1, 2009.

DB(k) Plans

The DB(k), a new type of retirement plan that combines features of a traditional pension plan and a 401(k) salary deferral plan, will become available to small businesses with no more than 500 employees starting in 2010.

Education Expenses Were Not Deductible

In two recent cases, the Tax Court denied taxpayers’ deductions for education expenses related to obtaining doctoral degrees because the degrees qualified the taxpayers to work in new trades or businesses. The cost of education undertaken to maintain or improve skills required in a taxpayer’s current business or employment may be deductible. Since these rules can be tricky, please talk with us if you have questions about your expenses.

The general information in this publication is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purpose of avoiding tax penalties.

Last Updated on Friday, 29 January 2010 14:18