The Complete Tax Guide for Real Estate Investors, A Step-by-Step Plan to Limit Your Taxes Legally is a 279-page paperback by Jaclyn Sonnenberg, published 9/08, Atlantic Publishing Group 1405 SW 6th Ave., Ocala, FL 34474. I obtained my copy from Amazon.com for $16.47. Jackie Sonnenberg uses large, easy to read font and layman terminology in writing about taxes which for most of us is a rather dull, boring topic. The book provides sufficient information on the various topics to make it easy to decide whether further investigation is warranted. Following are comments on the 20 chapters in the book; chapter titles are in blue.
1. What is Real Estate? Discusses the four major classifications of real estate for tax purposes; i.e., real estate held for business or trade use, for investment use, for personal use and for sale. Includes a discussion of the tax implications of options for both the buyer and the seller.
2. Other Classifications of Real Estate. Discusses other less common classifications of real estate such as those that may exist with farms and ranches.
3. Dealer Versus Investor: Know the Difference. Very good discussion of the difference between being a real estate dealer versus a real estate investor with tips as to how to avoid being labeled as a dealer.
4. Types of Real Estate Investments and Strategies. Discusses different types of real estate investments and how to get started. The author includes nine major tips from expert investor Steve Cook. These tips are also available on the Internet as “Advice for New Investors,” refer to www.reiclub.com/articles/advice-new-investors I was surprised that neither the author nor Steve Cook discussed the advantages of depreciation even with depreciation recapture.
5. Time to Invest: Your Goals and Objectives: Building Wealth, Protecting Assets, Providing or Restructuring a Stream of Income and Estate Planning are the author’s four objectives in investing in real estate. Return should be based upon the risk that is acceptable to the investor.
6. What is the 1031 Exchange? Good basic discussion that doesn’t get bogged down explaining the various rules.
7. 1031 Requirements: Discussion of the more important rules for a successful 1031 exchange.
8. 1031 and Tax-Free Exchanges: The advantages of a 1031 exchange along with sample situations and ideas. Included is a brief discussion of reverse exchanges. I would have liked it if the author had provide more information comparing the pro’s and con’s of a delayed exchange versus a reverse exchange along with techniques to avoid having to use a reverse exchange such as using a long closing period or an option to buy.
9. Capital Gains: How They’re Helpful: Good discussion of the advantages of buying and selling real estate versus buying and selling stocks or other investments. Not discussed was the ability to exclude up to $500,000 of gain (married) by occupying a rental property as a principal residence that was obtained via a 1031 exchange. This has had wide appeal over the years to many readers of this newsletter.
10. Stepped Up Basis: How It’s Helpful: How different forms of ownership can impact upon the buying basis used for taxes,
11. What is the Charitable Remainder Trust? Good discussion of the pro’s and con’s of using a Charitable Remainder Trust (CRT). The property owner or donor transfers a property to the CRT and gets an immediate charitable deduction. Then, the charity sells the property, which is done tax-free. The proceeds from the sale go to the CRT for investment purposes. The CRT then pays the donor a predetermined monthly amount and when the donor dies, the balance of the trust assets goes to the selected charity. The major disadvantage is the CRT is irrevocable once it has been set up regardless of changes in the financial situation of the donor. Another disadvantage is the trust assets go to charity rather than to the heirs; however, this can be offset by additional life insurance on the donor paid from the CRT income stream.
12. What is the Private Annuity Trust? In a private annuity trust, the seller is able to sell appreciated real estate, develop a life income stream and defer capital gains taxes. It is similar to insurance company annuities, but is quite different, as the private annuity trust is for private parties, hence the title. In most situations they are between parents and their children. Private annuity trusts are usually done to protect the seller’s assets for the beneficiaries.
13. Never Too Early for Retirement Plans: IRAs: Discusses self-directed investments using various forms of retirement accounts.
14. Opening Accounts with IRA, SEP-IRA, or Simple IRAs: IRA’s come in several different types. This chapter looks at what the different types entail. It explains how to open a retirement account and the steps to establish a qualified plan as well as multiple plans
15. How an IRA Gives You Tax-Free Real Estate: Real estate investing using an IRA, done properly, enables you to be able to avoid paying taxes on rental income and capital gains.
16. IRAs: Borrowing Money and Transactions: Finding lenders that will loan to an IRA can be a formidable task as the IRA cannot be used as collateral for loans or for personal use. This chapter provides various recommendations.
17. Debt, Bankruptcy, and More: This chapter discusses what has become commonplace these days . . . financial problems for investor-owners.
18. The Best Tax Results: What Not To Do: This chapter discusses prohibited transactions or inappropriate use of your IRA or annuity such as borrowing money from it, selling your own property to it, using it as a security for a loan, getting unreasonable compensation for managing it, etc. Included is advice for what to do if you find yourself in such a situation
19. Steps to a Successful Tax-Free Investment: Guidance along with a list of common myths versus facts.
20. How You Can Do All of This at Home: Explanation of the various rules for deducting a percentage of housing costs as business expenses.
George’s Final Comments: This book was published in September 2008 and is the most recent one I could find covering real estate taxes. It does not include the revised rules for taxing gain enacted July 30, 2008 by the Housing and Economic Recovery Act of 2008 with revisions that became effective January 1, 2009, refer to my Oct-Dec ’08 newsletter. More changes to the tax codes will be coming in the future such as increasing capital gains taxes. The book is a relatively easy read and should be useful for those of you that desire general information. I looked at all the websites in the Bibliography. http://www.reiclub.com/ the homepage for the Real Estate Investing Club was the only one that appeared to be useful; however, it has a lot of good information. Click on Real Estate Articles in the left column and it will take you to a list of hundreds of articles listed both by subject and by the author. I joined their newsletter and get e-mails every few days with applicable information.
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Tax Guide for Real Estate Investors
The Complete Tax Guide for Real Estate Investors, A Step-by-Step Plan to Limit Your Taxes Legally is a 279-page paperback by Jaclyn Sonnenberg, published 9/08, Atlantic Publishing Group 1405 SW 6th Ave., Ocala, FL 34474. I obtained my copy from Amazon.com for $16.47. Jackie Sonnenberg uses large, easy to read font and layman terminology in writing about taxes which for most of us is a rather dull, boring topic. The book provides sufficient information on the various topics to make it easy to decide whether further investigation is warranted. Following are comments on the 20 chapters in the book; chapter titles are in blue.
1. What is Real Estate? Discusses the four major classifications of real estate for tax purposes; i.e., real estate held for business or trade use, for investment use, for personal use and for sale. Includes a discussion of the tax implications of options for both the buyer and the seller.
2. Other Classifications of Real Estate. Discusses other less common classifications of real estate such as those that may exist with farms and ranches.
3. Dealer Versus Investor: Know the Difference. Very good discussion of the difference between being a real estate dealer versus a real estate investor with tips as to how to avoid being labeled as a dealer.
4. Types of Real Estate Investments and Strategies. Discusses different types of real estate investments and how to get started. The author includes nine major tips from expert investor Steve Cook. These tips are also available on the Internet as “Advice for New Investors,” refer to www.reiclub.com/articles/advice-new-investors I was surprised that neither the author nor Steve Cook discussed the advantages of depreciation even with depreciation recapture.
5. Time to Invest: Your Goals and Objectives: Building Wealth, Protecting Assets, Providing or Restructuring a Stream of Income and Estate Planning are the author’s four objectives in investing in real estate. Return should be based upon the risk that is acceptable to the investor.
6. What is the 1031 Exchange? Good basic discussion that doesn’t get bogged down explaining the various rules.
7. 1031 Requirements: Discussion of the more important rules for a successful 1031 exchange.
8. 1031 and Tax-Free Exchanges: The advantages of a 1031 exchange along with sample situations and ideas. Included is a brief discussion of reverse exchanges. I would have liked it if the author had provide more information comparing the pro’s and con’s of a delayed exchange versus a reverse exchange along with techniques to avoid having to use a reverse exchange such as using a long closing period or an option to buy.
9. Capital Gains: How They’re Helpful: Good discussion of the advantages of buying and selling real estate versus buying and selling stocks or other investments. Not discussed was the ability to exclude up to $500,000 of gain (married) by occupying a rental property as a principal residence that was obtained via a 1031 exchange. This has had wide appeal over the years to many readers of this newsletter.
10. Stepped Up Basis: How It’s Helpful: How different forms of ownership can impact upon the buying basis used for taxes,
11. What is the Charitable Remainder Trust? Good discussion of the pro’s and con’s of using a Charitable Remainder Trust (CRT). The property owner or donor transfers a property to the CRT and gets an immediate charitable deduction. Then, the charity sells the property, which is done tax-free. The proceeds from the sale go to the CRT for investment purposes. The CRT then pays the donor a predetermined monthly amount and when the donor dies, the balance of the trust assets goes to the selected charity. The major disadvantage is the CRT is irrevocable once it has been set up regardless of changes in the financial situation of the donor. Another disadvantage is the trust assets go to charity rather than to the heirs; however, this can be offset by additional life insurance on the donor paid from the CRT income stream.
12. What is the Private Annuity Trust? In a private annuity trust, the seller is able to sell appreciated real estate, develop a life income stream and defer capital gains taxes. It is similar to insurance company annuities, but is quite different, as the private annuity trust is for private parties, hence the title. In most situations they are between parents and their children. Private annuity trusts are usually done to protect the seller’s assets for the beneficiaries.
13. Never Too Early for Retirement Plans: IRAs: Discusses self-directed investments using various forms of retirement accounts.
14. Opening Accounts with IRA, SEP-IRA, or Simple IRAs: IRA’s come in several different types. This chapter looks at what the different types entail. It explains how to open a retirement account and the steps to establish a qualified plan as well as multiple plans
15. How an IRA Gives You Tax-Free Real Estate: Real estate investing using an IRA, done properly, enables you to be able to avoid paying taxes on rental income and capital gains.
16. IRAs: Borrowing Money and Transactions: Finding lenders that will loan to an IRA can be a formidable task as the IRA cannot be used as collateral for loans or for personal use. This chapter provides various recommendations.
17. Debt, Bankruptcy, and More: This chapter discusses what has become commonplace these days . . . financial problems for investor-owners.
18. The Best Tax Results: What Not To Do: This chapter discusses prohibited transactions or inappropriate use of your IRA or annuity such as borrowing money from it, selling your own property to it, using it as a security for a loan, getting unreasonable compensation for managing it, etc. Included is advice for what to do if you find yourself in such a situation
19. Steps to a Successful Tax-Free Investment: Guidance along with a list of common myths versus facts.
20. How You Can Do All of This at Home: Explanation of the various rules for deducting a percentage of housing costs as business expenses.
George’s Final Comments: This book was published in September 2008 and is the most recent one I could find covering real estate taxes. It does not include the revised rules for taxing gain enacted July 30, 2008 by the Housing and Economic Recovery Act of 2008 with revisions that became effective January 1, 2009, refer to my Oct-Dec ’08 newsletter. More changes to the tax codes will be coming in the future such as increasing capital gains taxes. The book is a relatively easy read and should be useful for those of you that desire general information. I looked at all the websites in the Bibliography. http://www.reiclub.com/ the homepage for the Real Estate Investing Club was the only one that appeared to be useful; however, it has a lot of good information. Click on Real Estate Articles in the left column and it will take you to a list of hundreds of articles listed both by subject and by the author. I joined their newsletter and get e-mails every few days with applicable information.
Back to Useful Newsletter Articles