Deferring Capital Gains Taxes on Business Property

The tax deferred exchange provides real estate owners with one
of the last true tax breaks and the only method of deferring tax
on the sale of investment and business property. Most
taxpayers know they can exclude the gain on a sale of their
personal residence. Unfortunately, many business and
investment property owners fail to capitalize on the benefits of
another type of tax-deferred exchange, under Internal Revenue
Code Section 1031.

Far too many business owners sell their business and
investment property and pay capital gain taxes because they are
unaware of provisions in the tax code that allow for deferral.
Internal Revenue Code Section 1031(a)(1) states in part that
"no gain or loss shall be recognized on the exchange of
property held for productive use in a trade or business or for
investment if such property is exchanged solely for property of
like kind which is to be held either for productive use in a trade
or business or for investment." Examples of property types that
typically qualify are vacant land, office buildings, warehouses,
farmland, single-family rental units and shopping centers. Even
leases with 30 or more years remaining are considered real
property and can be traded for other real property.

How does one get started? The procedure is fairly simple as
Treasury Regulations issued in April of 1991 provide a
guideline for taxpayers to follow. Once a buyer for the property
to be sold (the "relinquished property") has been found, a
phone call to a selected "qualified intermediary" to assist with
the Section 1031 exchange is all it takes to begin the process.
The qualified intermediary will produce the necessary legal
documentation required to facilitate the exchange process.
Once the closing of the relinquished property has occurred, the
taxpayer has 45 days from the date of closing to identify in
writing to the intermediary the possible replacement properties.
Due to significant restrictions, it is usually best to identify no
more than three replacement properties. The final step is to
close on one of the identified properties within 180 days from
the date of closing of the relinquished property.

Although the 1031 tax code section is very liberal, various
modifications over the years have resulted in a few additional
restrictions. Partnership shares, notes, stocks, bonds,
certificates of trust cannot be exchanged. A taxpayer who holds
a partnership interest or shares in a corporation that owns real
estate cannot trade that interest for similar share interests.
Business owners should consult a tax expert or legal advisor in
this situation.

With the reduction in capital gains tax rates, taxpayers were
given a rare break. However, this break was not as generous as
originally proposed. Most taxpayers are aware of the new
capital gains tax rate of 15 percent, lowered from the previous
28 percent rate. This is applicable for gain generated from the
sale of capital assets held for more than 12 months. At the last
minute, however, Congress altered the tax rate for recapture of
depreciation taken on real estate to be taxed at 25 percent. This
higher rate is applicable for all depreciation taken after May 6,
1997. Combining the 25 percent depreciation recapture rate
with state and federal tax rates could cost a taxpayer who sells
business real estate over to 40 percent or more of their profit.
On the other hand, a property owner who chooses to perform
an IRC Section 1031 tax deferred exchange can defer taxes on
the all of the capital gain! This leaves the prudent exchange or
with the entire amount available for reinvestment.

Many business owners are unaware that personal property used
in a business, such as a medical practice, can be exchanged as
well. The major difference between a real property and
personal property exchange is what the Internal Revenue
Service considers "like kind" property. I.R.C. Section 1031
defines like kind as "...property held for productive use in a
trade or business or for investment." Like kind as it applies to
real property is very broad in definition. Determining whether
personal property is like kind to other personal property
requires a much narrower scope. The Internal Revenue Code
does not define "like kind." The IRS has published regulations
that can be used to decide if an exchange involves like-kind
properties. The Treasury Regulations distinguishes between
two types of personal property: depreciable tangible personal
property (DTPP); and other personal property (OPP), which
consists of intangible and non-depreciable personal property.
DTPP can only be exchanged for other DTPP. These properties
must be of a "like class" or "like kind." In determining whether
DTPP is of a like class the Treasury Regulations designate 13
general asset classes. These classes combine particular types of
personal property into a certain class group. Some examples of
these groups are office furniture and fixtures, information
systems, airplanes and helicopters, automobiles and taxis, and
buses.

The Regulations also designate that personal property can fall
within product classes contained in the North American
Industry Classification System. These numeric codes can be
used as an alternate method to define the characteristics of a
particular property.

OPP is difficult to classify as like kind to other OPP. It does
not fall within the like class safe harbor available to DTPP.
Intangible personal property, such as a lease or copyright, can
be considered like kind to similar intangible property. The
determining factors are the nature and character of the rights
involved and the nature and character of the underlying asset.
Selling a business can create more than one personal property
group in which to exchange. The IRS looks at the sale of a
business as an exchange of each asset to be transferred, and not
the exchange of the business as a whole. The underlying assets
of a business (e.g., lease value, covenant not to compete,
equipment and fixtures) will need to be analyzed in respect to
their comparable replacement property. Each asset is placed
into the proper exchange group. An exchange group is a
subgroup of the total assets exchanged. Every exchange group
will either have a surplus (trading up in value) or a deficiency
(boot). When the total fair market values of the properties
exchanged are different, the value equal to that difference is
called the residual group. The property in the residual group
will consist of cash and other property that does not fit into an
exchange group.

An example of a business exchange would be the exchange of
one medical practice for another. The relinquished medical
practice value consisted of: (1) the medical equipment (x-ray
machines, etc.) and office fixtures; (2) a covenant not to
compete; (3) lease value for the below market lease of the
office; and (4) client patient lists and files. The medical
practice acquired will generally have similar components of
value. To balance this exchange each separate component is
matched up with its like kind counterpart. A surplus in one of
the exchange groups is not taxable as the Regulations allow for
trading up in value. Any deficiency - going down in value -
would be taxable as "boot."

The Regulations provide the non-yielding rule that goodwill
and going concern value in one business can never be like in
kind to goodwill and going concern value in another business.
In the example of the medical practice exchange, the client
patient lists and files would probably be viewed by the IRS as
goodwill, and should not be included in the exchange. A
prudent tax planner would attempt to allocate value to the
depreciable or amortizable personal property, such as the
medical equipment and office fixtures, to avoid this problem.
Additional personal property not eligible for exchange
treatment is inventory. The inventory of a business is held for
resale and does not fall within the definition of Section 1031
property.

Anyone considering deferring tax under IRC Section 1031
should obtain competent tax/legal advice before proceeding
with a transaction. A mistake can be costly.

Investment Property Jargon Explained - Capital Gains Tax

The second in our series of articles about investment property jargon looks at capital gains tax.

If you successfully make money through buying and selling an investment property you'll want to hold on to as much of that profit as possible. So a thorough understanding of capital gains tax is essential.

The concept of capital gains tax is much the same in any country or market, it is a way for the local fiscal authorities to raise cash from the profit made by investors in real estate, as well as other asset groups.

The gain in capital you make on your investment property is essentially the difference between the price you paid and the price you sell it at. In other words: the profit.

Usually, capital gains tax is calculated as a simple percentage of this profit, but it may be possible to deduct other expenses from the gain, which will bring the amount down, and with it, the tax you pay.

In some areas the rate of inflation will be taken into account too, allowing you to calculate the "real" gain in capital relative to the economy as a whole.

As with most tax laws, people have always sought loopholes or ways to avoid paying it. In less scrupulous markets it's possible that the reported sale price of some investment property is lower than the true amount, thus reducing the investor's tax burden.

In countries where the sector is poorly regulated or policed, it's possible that a large part of the purchase price is paid "under the table" in cash, so the reported transaction price is lower than the real amount.

In its simplest form, the equation to calculate capital gains tax on investment property is:

(Sell Price - Buy Price - Deductible Expenses) x Capital Gain Tax Percentage Rate.

Since capital gains tax regimes can vary significantly between different countries and property markets, it is well worth seeking out an experienced adviser, such as an accountant, notary or lawyer, who can guide you through the different solutions.

If possible, find someone that is familiar with investment property in particular, since the rules for taxing real estate may be different to those for other types of assets with gains in capital.

The money they save you could pay for their services many times over in some cases, so it is well worth seeking their advice. For example, they may have tips on how to structure your deal so you can maximize the deductible expenses that you can subtract, or find a way of charging a lower tax rate on your capital gain.

Either way it's very simple: the more you can save on capital gains tax the more you can make on the sale of your investment property.

French Property - Changes in Capital Gains Tax For Non-Residents

British owners of holiday homes in the Dordogne tend to think that French tax is irrelevant to them. It can come as a surprise when they're told on a sale that French capital gains tax will be payable. It comes as a further surprise when they learn the conditions for deductible capital expenditure. But the real sting in the tail is paying someone else to validate the figures they produce.

The basic principle

Capital gains tax is levied on the difference between the purchase and sale prices, less allowable capital expenditure. The purchase price is increased by the agency commission and notarial fees in order to give the true cost of purchase. The sale price is reduced by expenses incurred in connection with the sale - principally the survey costs associated with the obligatory "seller's pack".

The difference between these two figures will produce the gross capital gain.

Deductible expenditure

A vendor will be able to deduct from the gross capital gain certain capital expenditure - subject to conditions.

First, the expenditure must relate to "construction, reconstruction, enlargement or improvement". Construction, reconstruction and enlargement are easily understood: they will cover the extension or rebuilding of a house or building. "Construction" will extend to the installation of a swimming-pool.

The deceptive term is "improvement" - the French word used is "amelioration". You would have thought this broad enough to cover replacement kitchens and bathrooms. However, "improvement" is defined as installing equipment or raising the level of comfort without changing the structure of the property. Installing an elevator, central heating or air-conditioning are recognised as improvements, as would be the installation of a new bathroom. The refurbishment of an existing kitchen in that Dordogne home of yours may however not qualify.

Secondly, the work concerned must have been carried out by a French-registered tradesman. You cannot deduct materials you have purchased yourself - even if they are for use by the tradesman.

Thirdly, you must be able to produce supporting evidence of the expenditure in the form of invoices from the workmen concerned, and bank statements showing the payment.

If you are unable to meet these conditions, you can use instead a lump-sum allowance for expenses of 15% of the original purchase price, net of agency commission and notarial fees.

Deducting allowable capital expenditure from the gross capital gain brings you to a net figure.

Period of ownership

There is then a further allowance depending on the period of ownership. For every complete year of ownership after five years the gain is reduced by ten per cent. This means that if you own the property for fifteen years or more no capital gains tax will be payable in France.

Lump sum allowance

Once you have calculated the net capital gain you are allowed to deduct from it a fixed sum of 1,000 euros per individual owner - i.e. if the vendors are a married couple they will be able to deduct 2,000 euros.

Sting in the tail

Some of our British clients, selling their Dordogne homes, find the conditions for deductible expenses not only baffling but difficult to comply with - particularly where they have imported foreign labour or undertaken work themselves. Or they may simply not have retained the records needed by way of proof.

But the real sting in the tail comes with the requirement to appoint a French-resident tax representative in the case of all sales above a threshold of €150,000 - even if you are making a capital loss.

The tax representative assumes personal liability to the French tax authorities for the correctness of the return. And it goes without saying that he will charge a fee. In a recent straightforward case that we have had, a vendor selling at a considerable capital loss has had to pay the tax representative close to €1,000. If non-residents resent the system in the first place, the cost of a tax representative adds salt to the wound.

How Property Investors Can Defer Capital Gains Tax By Using Section 1031

As a real estate investor, you must be aware that each and every dollar that you have working for you in an investment is making you money, and, conversely, every dollar that isn't working for you represents a lost opportunity to further compound your profits. So, when the time comes to put your property up for sale, you have two options. The 1st option that you have at your disposal is simply to make a outright sale and recognize a gain. This means you must pay capital gains taxes. Whenever you pay money to the United States government you are losing potential profits.

The second, and often more lucrative option is to conduct a 1031 exchange. A great way to keep more of your investment funds making you more money is to conduct an exchange instead of making an outright sale. Section 1031 has a non-recognition provision, meaning you do not have to pay the taxes immediately; in fact, you can defer the taxes indefinitely, while your wealth is compounded by the extra income produced by investing your tax deferment.

As an example, let's say you own some small investment properties, like duplexes, whose values have increased over time. At this juncture, your first inclination might be to make an outright sale and reap the benefits of your investments. But a wise investor with an eye to the future might decide to conduct a 1031 exchange and place the proceeds from these smaller investment properties towards the purchase of another, larger property, which will, itself go on to appreciate in value over time, meanwhile continuing to make you more money. Additionally, the money available to you from your capital gains deferral will function to increase your ability to leverage for greater loans, maximizing your potential profits.

1031 exchanges aren't just for land and buildings, either. It is possible to make a 1031 exchange on any sort of real estate held for investment in your business or trade, as well as certain kinds of personal property, from cranes or backhoes to an aircraft or collector car. Section 1031 is especially beneficial for those who have money in antiques or collectibles like collector cars, because of the higher capital gains liability on the sale of these items. It is important to note, however, that you cannot make a 1031 exchange on stock, bonds, or interest in an REIT.

So, next time you find that you are planning to sell an appreciated piece of real estate or other property, pause for a moment to think of the future dividends you could reap were you to make an exchange. If you decide to conduct an exchange instead of selling your property up front, you can maximize your wealth and come out on top.

"IRS Approves New Tax Deferment Program" - 1031 Exchange Without a Replacement Property?

For years, investors have taken advantage of the 1031 exchange as a method to delay or defer capital gains taxes on the sale of an investment property. By completing an exchange, the investor can sell or dispose of an appreciated investment property, use all of the equity to buy a like-kind property of equal or greater value, defer the capital gains tax and leverage all of their equity into a replacement property. The 1031 exchange is one of the last great vehicles to build wealth and save on taxes.

There still exists the investors who do not acquire a replacement property. Maybe the next move may be difficult to find the right property. The specific time-frame or an undesirable market is not conducive to executing an exchange? That investor may just want to move on with life, dispose of the asset without a replacement, but still not pay all of the capital gains upfront. Is there a solution?

There was such a solution called the private annuity trusts (PATs) which could be used to avoid capital gains taxes by transferring the title of a property to a trustee prior to the sale. Once the trustee sold the property, the proceeds from the sale would fall into the trust and then payments would be paid to the beneficiary. Most often, the trustor and beneficiary would be one and the same, therefore allowing the beneficiary (the original title holder) a method to collect payments while avoiding any upfront capital gains tax. In the fourth quarter of 2006, however, the IRS ruled that PATs were being used inappropriately to defer capital gains and estate taxes and could no longer be used in this manner.

The deferred sales trust (DST) has become the replacement strategy for the private annuity trust. Very similar to the PATs, the deferred sales trust, recognizes capital gain, but it is deferred over a predetermined period of time that is planned in advance of the sale.

Here is a breakdown of the process for a DST:
1- Private third-party company forms a trust
2- Owner sells the property to the trust
3- Trust and owner (beneficiary) put together an installment contract
4- Contract promises to pay beneficiary predetermined amount over an agreed period of time

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Example of DST vs. a Typical Sale (California)
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Assumptions:
Owned for 8 years
Purchase Price: $ 2,750,000
Sale Price: $ 4,100,000
Loan Amount: $1,750,000
Recapture Depreciation $ 800,000
Basis: $1,950,000
Taxable Gain: $2,150,000

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Standard Sale Transaction:
-------------------------------------------------------------
Net Sale Proceeds: $ 2,350,000
Federal Tax (15%) $ 322,500
State Tax (9.3%) $ 199,950
Proceeds after tax: $ 1,827,550
Annual Interest of $ 146,204

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DST Transaction:
-------------------------------------------------------------
Net Sale Proceeds: $ 2,350,000
Annual Interest of $ 188,000

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DST income difference of 22% or $41,796
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As you can see, the deferred sales trust can be a vehicle to defer taxes without having to acquire a new property and in the long run may actually be a more viable and lucrative choice than other tax deferment methods. To find out more information, contact a commercial real estate broker or tax professional in your area.

How to Avoid Capital Gains Tax and Inheritance Tax on the Transfer of Property to Children

Capital gains tax. Lets look first at the capital gains tax position of a transfer of property. On the assumption that the parent is UK resident and domiciled any transfer of property will be subject to UK capital gains tax. You'll therefore need to calculate the gain arising and crucially to consider the offset of reliefs to reduce this gain.

It's worth noting that the residence of the child is irrelevant for UK tax purposes. Therefore, even if they are tax resident in a tax haven, the UK resident and domiciled parent will still have to consider their own capital gains tax position.

As parents are classed as 'connected' with their children for capital gains tax purposes, any transfer from the parents to the child is treated as a market value transfer. As such, even though the children don't pay any proceeds to the parent for the property when calculating the capital gain it is the market value of the property that needs to be considered.

The gain will therefore represent the uplift in value from the date of acquisition or probate value to the market value at the date of transfer. Note if the property was acquired before March 1982 there are special provisions that can apply to deem the cost to be the market value at March 1982.

What reliefs are offset?

It is the reliefs that can significantly reduce any capital gain. The main reliefs that any parent would be looking to consider to reduce the capital gain would be:

Indexation relief if the property was acquired before April 1998. This adjusts the cost (or probate value) for the effects of inflation up until April 1998
Taper relief. You'll need to consider what type of property it is. If you're looking at transferring a residential property it will nearly always be a non business asset. This will reduce the capital gain by up to 40% if you've owned it for at least ten years. Ownership of less than this will qualify for a reduced rate of taper relief (eg ownership of 5 years will qualify for taper relief of 15%) dependent on the period of ownership above three years. So three years ownership qualifies for 5% relief, four years for 10% etc.If however the property is either a Furnished holiday let or is used for the purposes of a trade (eg it is a shop, office or factory that is transferred and it has been used by a trader) it will qualify for at least some business asset taper relief. This can be very beneficial as maximum business asset taper relief can reduce the gain by 75%. So if you're looking at transferring a business asset the gain is likely to be significantly reduced.




Gift relief. If a property is used for the purposes of the parents trade or their trading company they may be able to claim gift relief. This allows a deferral of the gain arising (provided the child agrees!) and allows the parent to pass the property to the child free of capital gains tax. The future disposal of the property by the child would then crystallise the deferred capital gain.
Annual exemption. If the parents own the property jointly the humble annual capital gains tax exemption should not be forgotten. It allows each individual to exempt (currently) £9,200 of any gains from capital gains tax in each tax year. So if the parents had no other capital gains, the annual exemption could ensure that a gain of around £18,400 was fully exempt from tax.
Other capital gains tax exemptions such as rollover relief and the EIS deferral relief would not apply as there are no disposal proceeds!

Non UK resident parents

If the parents are non UK resident and non UK ordinarily resident they can transfer UK property to their children free of CGT subject to two caveats.

Firstly this doesn't apply to any property that is used for the purposes of a UK trade. Therefore if you run a UK business and use the property for that business you can't claim the CGT exemption even if you're non UK resident.
Secondly if you own the property at the date you leave the UK you'll need to ensure that you remain non UK resident for at least five complete tax years to avoid UK capital gains tax. If you come back before the expiry of five tax years the capital gain will be charged in the tax year of your return.

Non UK domiciled parents

If the parents are UK resident but non UK domiciled they can transfer overseas property to their children free of capital gains tax. This applies irrespective of the residence and domicile status of the children. If the property was UK property this exemption would not be available and the capital gain would simply be charged as usual.

Form of transfer

It's important to note that the transfer needs to be of the beneficial interest in the property. This does not necessarily tie in with the legal interest.

This means that if you wanted to transfer the property to your children you could transfer just the beneficial interest and retain the legal interest, or transfer the legal and beneficial interest together. If you transferred just the legal interest and retained the beneficial interest there would be no effective transfer for Capital Gains purposes and you'd still be treated as the owner of the property in law.

It can sometimes be easier to just draft a deed of gift and arrange for the beneficial interest to be transferred.

Inheritance taxAny transfer at undervalue from the parents to the children will usually be a potentially exempt transfer ('PET') for inheritance tax purposes. Again I'm assuming initially that the parents are UK resident and domiciled.

So in the case of a gift of the property the full market value of the property will be treated as a PET. If the children were to pay some of the value to the parents it would only be the difference between the market value and the amount paid that would be a PET.

With a PET there is no immediate Inheritance tax charge on the parents and provided they survive for at least seven years from the date of the transfer the amount gifted would be excluded from their estates for inheritance tax purposes.

Note that the residence and domicile status of the children is again irrelevant.

Non Resident parents

Non UK resident parents would have no impact on the Inheritance tax position, and the transfer would still be a PET for inheritance tax purposes.

Non Domiciled parents

If the parents are non UK domiciled they can transfer overseas property to their children free of any Inheritance tax implications -- irrespective of whether they survive for seven years or not. UK property is unaffected (unless it's owned via an offshore company) and non UK domiciled parents would still be classed as making a PET on the transfer of UK property to their children.

Gift with reservation of benefit rules

If the parents make a gift to the children and retain a benefit in the property transferred there are special anti avoidance rules than can ensure that the property is not classed as a PET for Inheritance tax purposes.

Instead the property remains within their estate for Inheritance tax purposes until the benefit ceases. This could apply for instance if the parents continue to live in the property, of if they continue to benefit from the rental income obtained from the property. One way that they could get around having the property still in their estate would be to pay the children a market rate for the benefit that they get from the property (eg market rental).

Stamp duty Land TaxUnless the property is mortgaged the parents should be able to transfer the property to the children free of stamp duty providing it is a genuine gift. If there was any proceeds payable to the parents this would then be classed as 'chargeable consideration' for stamp duty purposes and a stamp duty charge would need to be calculated.

Note that if there is a mortgage or any other form of debt that is transferred from parents to the children with the property this would also be classed as 'consideration' for the purposes of stamp duty.

Selling Your Investment Property in 2010 Could Save You Thousands in Taxes

If you are an investor looking to sell one or more of your real estate holdings, you might want to consider completing the sales transaction in the next year. At the end of 2010, tax cuts put in place by President Bush will be reset to standard income tax rates and you will lose your opportunity to take advantage of the lower rates.

As an investor looking to sell a house fast, you are most likely already familiar with capital gains taxes, but most home buyers are not. Therefore, the decision to buy houses in PA is not made because of the capital gains tax reductions that you, the seller, will get if the property sells before the end of 2010.

The current capital gains tax rate is actually a two-fold calculation. If you are selling a property for which you have claimed depreciation, then you must be aware of the total amount of the depreciation claimed. Many investment home buyers bought properties as part of a we buy houses type program and want to sell the house now. In that case, the capital gains tax rate will be 10%.

On the other hand, if you have claimed depreciation be aware that when you find a home buyer, you will be taxed at 25% for the amount that you claimed in depreciation when you sell your house now. The advantage of selling is still in your favor however, since the remaining sales revenue will be taxed at the lower 10% rate.

This advantage means that you will keep more of the profits when you sell your house now, instead of waiting until after the end of 2011. Whether you pay just the lower amount of capital gains tax, or you split the percentage rate, you will still likely earn more from the sale in the next year than at any point in the future.

The market is definitely leaning toward sellers right now, because there are many individual home buyers in Philadelphia and investors looking to buy houses in PA. They are looking for deals, and although the idea of selling at a lower price does not always seem appealing in comparison to waiting a year or so to sell, today it is not a bad idea to sell a house fast for a lower price. This is because even at a lower selling price, your property is going to bring you larges profits than if you wait a year and sell for a significantly higher price.

Keep this information in mind as you make decisions regarding your real estate investments, particularly if you are already planning to sell in the near future. There hasn't been a better market for home buyers in years, and fortunately for the investor, prices are higher than they were over the last few years and there is a significant profit to be made by selling in the next year.

Buying Investment Property in Australia - What You Must Know About Tax, GST and Capitals Gains

Investment properties are a great long-term investment. However, if you're considering buying residential or commercial investment property you need to be up to speed on important tax, GST and capital gains rules.

That way, you know exactly where you can save money - and what you're up for depending on your situation.

Tax rates if you don't have an Australian Business Number (ABN)

If you buy a residential property you don't need an ABN. However, if you ever purchase any goods or services for the property that cost more than $50, your supplier has to include an ABN on their invoice, or 48.5% of your payment will have to go to the tax office.

For example, if an electrician invoices you $500 to install some lights and there's no ABN on the invoice, you pay him $257.50 and withhold $247.50 for the Tax Office.

If you own a commercial property, you definitely need an ABN, or the business renting your property has to withhold 48.5% of their rent for tax - and we don't want that!

GST and commercial property rent

You usually only have to worry about GST when you buy a commercial property. If your:

gross rent, excluding GST, is more than $50,000 a year, you need to be registered for GST.
gross rent is less than $50,000 you can voluntarily register for GST.

And if you are registered for GST you:

must include it in the rent you charge
can claim GST credits for any rental expenses
need a tax invoice to claim the GST credits on any purchases you make
must give your business tenant a tax invoice so that they can claim the GST in the rent.

GST and your renter

If your renter is registered for GST and they use the premises solely for business:

the amount of rent will include GST
you can claim GST credits.

If your renter is not registered for GST or the rent is partly for private use:

GST is based on the market value not the amount they pay you.

For example, say you rent office space to someone who's not registered for GST and they pay you $220 per week, but the market value rent is $440 per week. You'll still need to account for $40 GST so you can claim GST credits.

Are you earning additional income from the property?

On top of rent, there are other potential income streams to remember, such as:

profit generated from the use of the rental property.
bond money if you entitled to keep any
insurance payouts for things like such as compensation for lost rent

Claiming on property expenses

At the other end of the scale, there are the inevitable expenses such as:

maintenance costs
body corporate fees and charges.

What you might be able to claim expenses for

In addition, there are things you might be able to claim for over a number of years including:

borrowing expenses
amounts for decline in value of depreciating assets
a capital works deduction for the cost of capital improvements
capital repairs once the cost has been charged to the appropriate fund.

What you can't claim expenses for

Make sure you don't include:

time rented below commercial value. For example, if you let your daughter run her business out of there at no cost until she gets on her feet, you can't claim deductions for this period.
levies paid to a special fund for particular capital expenditure.
special contributions for major capital expenses to be paid out of the general purpose sinking fund.
costs of buying and selling the property (see capital gains below)

More than one owner

If you own your property with someone else then rental income and expenses must be attributed to each co-owner according to your legal interest in the property regardless of any other agreement you might have.

Capital gains tax on rental property

Capital gains tax is the tax you pay on any gain made on an income-producing asset eg investment properties. Depending on when you bought your rental property, capital gains tax might apply when you sell it.

Some of your expenses can reduce your capital gains tax. However, there are some expenses - like the costs of buying or selling the property - you can't claim as deductions.

And if the property is owned by more than one person, each of you may have to pay capital gains tax based on your legal interest in the property.

Keep records of everything

You need to keep records of all your income and expenses relating to your rental property. And hold on to them for five years after you sell it.

For capital gains tax purposes, you must have records stating whether you:

bought the property
inherited it
received it in a divorce settlement or as a gift
make improvements to property.

Note: The information within this text and any reference to Australian taxation issues are intended as a guide only. You should seek accounting and tax advice based on your personal situation.

Top Ten Tax Tips For Foreign Property Owners

1. Don't Forget You Still Have UK Tax To Pay!

Arguably, this is more of a warning than a tip, but it is vital to remember that any UK resident individual buying property abroad is still exposed to UK tax on that property. This may include UK Income Tax on rental income, UK Capital Gains Tax on property sales and UK Inheritance Tax on any foreign properties you leave to your children.

The UK tax burden is often greater than any foreign tax liabilities, so it makes sense to undertake UK tax planning for your foreign property. Many of the same planning techniques that work well on UK property can be used equally on foreign property, although the overseas angle adds an extra dimension and brings both additional opportunities and additional pitfalls to be wary of.

2. Main Residence Relief for Foreign Holiday Homes

There is nothing in the UK tax legislation to say that a foreign holiday home cannot be a UK resident individual's main residence for Capital Gains Tax purposes.

A holiday home can be treated as your main residence by making an election to that effect, generally within two years of buying the property.

The foreign property must be your own holiday home for at least part of the time but, by making the election, you will be able to exempt some or all of the capital gain on your foreign home from UK Capital Gains Tax.

Beware, however, that you're only allowed one main residence and, if you're married or in a civil partnership, you're only allowed one between you, so electing to treat your holiday home as your main residence could backfire if you sell your main house back in the UK.

You can get the best of both worlds though, if you only elect to treat your foreign property as your main residence for a short period, say a week. How does this help? Well, since every main residence is also exempt for the last three years of ownership, that week buys you three years. In other words, you lose one week's worth of exemption on your main house but gain three years (and a week) of exemption on your foreign holiday home.

3. Travel at the Treasury's Expense

If you're renting out foreign property, you have a foreign rental business. Like any other business, you're entitled to claim tax relief for your business expenses. That includes any travel costs which you incur for business purposes.

Furthermore, all foreign property rentals are treated as one business. Hence, for example, you could claim the cost of going to Dubai to look for a possible new rental property against the rental income from a villa which you already have in Spain.

4. Understand the Local Taxes

Most countries will tax foreigners on any property they own in the country. Local taxes often apply to property purchases and sales and to rental income. Furthermore, you will often have to pay annual taxes on foreign property, even if you do not rent it out, and many countries also have gift and death taxes.

You will get double tax relief in the UK for any foreign tax on the same income or capital gains when the UK accepts that the foreign tax is broadly equivalent to the UK tax you are paying.

Beware, however, that every country has a different tax regime and not all of them are compatible with the UK tax system. If you suffer a foreign tax which is different in character to any UK tax, or which arises when no UK tax is due, you may not get any relief for it in the UK.

So, a foreign tax at 30% which is deductible from your UK tax liability on the same income may actually cost you less than a foreign tax at 10% for which no double tax relief is available. All these factors need to be considered before you invest in foreign property.

5. Do You Want Double Tax Relief?

As a general rule it is usually worth claiming double tax relief for any foreign taxes whenever you can. By claiming double tax relief, you deduct the amount of foreign tax paid from your UK tax liability.

However, you cannot get any repayment of foreign tax through a double tax relief claim and the best you can ever do is to reduce your UK tax liability to nil.

Sometimes, the foreign tax may actually exceed the amount of the taxable income or capital gain for UK tax purposes. In these situations, it is better to claim the foreign tax as an expense rather than to claim double tax relief.

Where you claim foreign tax as an expense, it reduces the amount of the taxable income or capital gain and can even create a loss. This loss can be carried forward to give you future tax relief and hence, in some situations, can actually give you better value for your foreign tax than a double tax relief claim.

6. Reduce Your Foreign Exchange Tax Risk

All UK tax calculations for individual taxpayers are carried out in pounds sterling. This creates some particular problems when it comes to capital gains on foreign property. You may make very little gain in the local currency, but when you translate your purchase and sale costs back into sterling, you may have a big Capital Gains Tax exposure in the UK.

Let's say you buy a property in Utopia for 100,000 Utopian Dollars at a time when the exchange rate is two Utopian Dollars to the pound. That means you have a purchase cost of £50,000.

Later, you sell the property for 120,000 Utopian Dollars. In local terms, you have a modest gain of 20,000 Utopian Dollars. However, let us suppose that the exchange rate is now 1.2 Dollars to the pound. This means that your sale proceeds for UK Capital Gains Tax purposes are £100,000 and you have a taxable gain of £50,000.

Maybe that's fair: after all, if you bring the money back to the UK, you will have made a profit of £50,000 on your investment.

Beware, however, that if you hang on to your Utopian Dollars, they will become a new chargeable asset for UK Capital Gains Tax purposes and may give rise to a capital gain or capital loss when you eventually spend them or exchange them into sterling or any other currency.

The real problem to watch is that if you make a capital loss on your foreign currency in a later UK tax year (year ended 5 th April), you will not be able to set that loss off against the earlier capital gain on your foreign property.

The tax tip here, therefore, is to make sure that you dispose of your foreign currency sale proceeds in the same UK tax year as you dispose of the foreign property itself.

7. Get VAT back with leaseback

In the UK, we are accustomed to the idea that any purchase of residential property is exempt from VAT. This is not the case in every country, however, and many European countries charge VAT, at rates of up to 20%, on new residential property purchases.

One way to recover the VAT on such a purchase is to enter into a 'leaseback' scheme. Under these schemes you, the owner, lease the property back to a hotel operator. This means that your property becomes a business property and you are able to recover the VAT. Typically, you are allowed a few weeks of personal use of the property each year and, eventually, after a suitable number of years, it is yours outright again.

The scheme only works for certain types of property, such as hotel rooms and apartments, and may carry disadvantages for other foreign taxes, such as higher Income Tax rates; so it's one to investigate carefully before you sign up.

8. Borrow to Save

Many countries impose Wealth Tax, Inheritance Tax, or both, on foreigners owning property in their country.

Wealth Tax is usually an annual charge on the property owner's net wealth in the country.

Foreign Inheritance Tax also usually applies only to a foreigner's net assets in the country.

In most cases, you can reduce your net wealth in the foreign country for tax purposes by taking out a mortgage on your foreign property. In this way, it will usually be just your net equity in the property which attracts foreign tax.

If you don't actually need a mortgage, you can invest the borrowed funds somewhere else outside the country where your property is located.

9. Avoid Evasion

When you buy property in a foreign country, you will usually also be acquiring tax obligations in that country. In fact, many countries require prospective foreign property purchasers to register themselves with the local tax authority before they can complete their purchase.

If you want to sleep at night, you need to make sure that you fulfil your local tax obligations in the country where your property is situated. Many foreign tax authorities have the power to seize property where taxes are unpaid.

Naturally enough, the local tax authority will write to you in their own language. Do not ignore this correspondence just because you don't understand it: this is no defence. You will need local help and advice to make sure that you deal with the local tax authority appropriately and meet all of your obligations as a taxpayer in the country.

10. Expect the Unexpected

If the UK tax system is all Greek to you, or seems like Double Dutch, why should you expect foreign taxes to be any different? Every country has its own tax and legal system and, when you buy property abroad, you must abandon all of your preconceptions.

Assume nothing until you have investigated the local tax system thoroughly. Your destination country will have different taxes, different tax rates, a different tax year and a whole different set of rules, regulations, reliefs and exemptions.

Local property law and succession law is likely to be different too and a UK investor who overlooks this fact may suffer a great deal more than just tax!

Florida Property Taxes - Reduce Them, Or Your Capital Gains Tax, With These Strategies

If you decide to relocate to Florida, you'll have property taxes just as in any other state. The good news is that Florida property taxes are very reasonable. The median home value in Florida is $189,500. The average property tax is $1,495, which means Florida has the 22nd highest average tax amount in a comparison of all 50 states. As a percentage of a home's value, Florida property taxes are approximately .79% of the home's value (28th highest out of 50).

Florida property taxes as a percentage of a person's income are slightly higher, measuring an average of 2.95% and putting Florida at the 19th highest position in this measurement. So from these statistics, you will likely find that the dollar amount of your Florida property taxes and the percentage of your home's value that the taxes represent will be similar to or lower than what you pay now. However, if you were earning a salary in Florida, you'd find your property taxes might represent a higher percentage of your annual income than you were paying in your old state.

However, there are two strategies you can use to reduce the amount of tax that you will have to pay. One will reduce your annual property tax, and one will allow you to reduce the tax you will pay on the sale of your home. Unfortunately, only one or the other will apply at the same time.

First, there is the Florida homestead exemption that is applied to a home that is your permanent and full-time residence. In other words, it's not just your vacation home.

If you do have a vacation home in Florida, you will have to pay full Florida property taxes. However, there has been an interesting change in the IRS laws regarding 1031 exchanges, more commonly referred to as the 'swapping' of investment property. Under the IRS laws, an investment or business property can be sold and the proceeds will be tax-free if they are reinvested in a 'like-kind' property. However, this meant that homeowners were not allowed to use their own property as a vacation home without risking that it would be considered 'mixed-use' (taxable) rather than an investment property.

With the changes in the law, there is now a 'safe harbor' for these sales that so that you can enjoy your vacation home in Florida and eventually sell it at a higher value, then roll the proceeds into another home in a tax-deferred sale. The advantage is two-fold; you get to rent the home for the majority of the year, earning income to pay the mortgage. And you get to enjoy the home yourself without losing your earnings to taxation at the time of sale. In order to avoid taxation on the gains as personal income, you need to do the following:

· Purchase the home and keep it for a minimum of 24 months
· For each of the 12 month periods you own it, you must rent it out for at least 14 days of the year at market value
· Stay in it yourself no more than 14 days or 10% of the time you rented it out, whichever is greater.

Remember to always consult your accountant or tax attorney before making a 1031 exchange. The rules can change quickly, and you don't want to act under a false assumption.

Landlord Tax and Property Management Software

'Provision for tax liabilities' is a phrase that sends a shudder through the heart and soul of any businessman and businesswoman and without doubt the thought of calculating capital gains tax liabilities can fill even the hardiest and seasoned commercial landlord with feelings of horror and dread. This is because calculating capital gains tax can be complicated and the rules can change in the United Kingdom from budget to budget. The figures involved can be big and the consequences of getting the calculation wrong can be very costly indeed. As with many aspects of business management today ready access to accurate figures can be the difference between being in control of the business or the business cash flow and tax liabilities being out of control.

Over recent years good software which can calculate capital gains tax liabilities has been introduced onto the market. A good package used wisely and kept updated will put the landlord in control of this vital aspect of the property business. It is a very powerful piece of software kit that will allow complicated tax calculations to be completed in a matter of seconds. All the landlord has to do is enter the data. Before you invest in a product do your research and make sure that you invest in a product that is suitable for your type of property business and which, as well as being up to date, can deal effectively with calculations relating to previous tax years.

A good capital gains tax calculator should have the following features such as;

It should provide ready access to the information that a landlord needs to calculate. It should also have tools to calculate savings or provide some saving guide.

The total amount of capital gain, any tax reliefs and allowances etc should also be mentioned.

Easily comprehensible tool should allow landlord to calculate his tax liabilities.

1031 Exchanges - The Legal Way To Defer Investment Property Capital Gains Tax

With the booming property prices of recent years, more and more people are finding themselves facing a large tax bill when they come to sell their investment properties. However, did you realize that there is a perfectly legal way of deferring payment of such taxes by utilizing the advantageous 1031 tax code that was introduced by the IRS in the early 1990s?

A 1031 exchange is a way of deferring payment of capital gains tax on certain types of real estate. Normally when an investment or business property is sold, capital gains tax has to be paid. However, with 1031 exchanges, by replacing the old property with a like kind property, within set time limits, payment of capital gains tax can be avoided.

Under the 1031 exchange real estate rules, a seller must have held a property for at least one year and a day for it to qualify. Another requirement is that both old (relinquished) and new (replacement) 1031 exchange properties must be of a likekind - either rental properties, vacant land, trade, business or investment properties.

1031 exchanges must be completed within strict time limits. There is a 45 day Identification Period from the transfer of the old property, in which a replacement property must be identified. The 1031 exchange rules stipulate that the exchange must be completed within the 180 day Exchange Period.

The 1031 exchange real estate issues are complex, so it is imperative to seek professional advice from a tax advisor or qualified intermediary who can assess your specific circumstances and explain other issues such as the reverse 1031 exchange or TiC rules. With careful financial planning, you can reinvest your capital gains in future real estate investments, thereby allowing you to leverage your money more efficiently and to reap greater financial benefits.

When Selling Rental Property, How Do You Stretch Your Profits?

Before you get all excited about selling rental property for juicy profits, it's crucial for you to learn how to slash your capital gains tax first so that you can maximise your hard earned profits. Find out how smart property investors cut down or even eliminate their taxes right now.

What are Taxes You Will Have to Pay When Selling Rental Property?

Capital gains tax is a type of tax that is imposed on the profits that you earn from selling investments such as your shares or rental property. As the name suggests, you won't have to pay a single cent if your rental property was actually sold for a loss.

So how much can you expect to pay? Depending on which country you live in, you can expect to pay anything between 10 to 30%. The good news for some is that there are actually no such taxes for them to worry about. This includes rental property owners who are lucky enough to be in Hong Kong, New Zealand or Singapore.

If you are from the U.S. and hold on to your property for at least 1 year before selling it, your tax rate will range from 10% to 25% depending on your income tax bracket.

However if you sell your rental property after holding it for less than 1 year, your profits are considered as short term capital gains and you will be taxed more heavily at the same rate of your ordinary income tax. This will mean you can expect tax rates of 10% to 35% depending again on what is your taxable income.

How to Cut Down or Even Totally Eliminate Your Capital Gains Tax

Before selling rental property take a closer look at your country's tax laws first to see if you can spot any loopholes that you can exploit.

For example do you know that foreign property investors in the U.K. do not have to pay these taxes and in Russia you can avoid it completely by owning the rental property for at least 3 years before selling.

If you live in the U.S., it's vital to know how the legendary 1031 exchange works so that you can milk it to legally avoid paying any money for your capital gains.

What makes the 1031 exchange so popular with rental property owners is that it allows your to defer paying taxes on your capital gains tax as long as you reinvest the money from the property sale to buy another similar type of property.

In some countries such as the U.S., home owners enjoy lower tax rates than property investors when selling off their homes. If you can find a way to qualify as a home owner instead of a rental property investor, you can enjoy these tax savings as well.

For example in the U.S. you can be considered as a home owner if you lived at least 2 of 5 years before selling off the property. You are also allowed to rent out your property for 14 days or less every year without being taxed.

Capital Gains Tax on Levied Property

One of the most key things that have to be done is to hide true accounts of the business. The people who do nine to five jobs are the ones that tax is usually collected from; Things such as these have left certain governments in a sticky situation. Their approach to this problem was by the Federal government which took things into their own hands and told the provincial governments that they should levy their taxes on capital gains from real estate.

Two particular governments which are Punjab and Sindh would support this gesture but the only way that will happen is if the federal government drops the current capital gain tax value on real estate. Certain governments like the one's of WWFP and Baluchistan are very much against the motion to drop the prevailing tax on real estate, that feel that this particular tax should never be withdrawn neither replaced. The Government in control of this tax called a meeting with the various provinces and there was a point raised by Sindh that the power of the tax from levying should not be collected by the tax collectors but instead it should be levied determining the market price for any particular property.

These market prices should be reviewed and updated every year, the representative also raised the issue of making inheritance transfers have none of this tax. The representatives from NWMP whom also spoke stressed on their point that the tax should remain as they don't see anything wrong with it at this present time.

Tax When You Inherit Money, Assets Or Property

Usually, you don't have to pay any sort of inheritance tax when some assets, money or property are left for you by the deceased one. In most cases, you get the inheritance after paying out the inheritance tax over it, but some situations may need to pay some sort of taxes.

You may need to pay three sorts of taxes regarding some inheritance, and these taxes can be in the form of income tax, capital gains tax, and inheritance tax. Let us find out in which conditions, you might have to pay these taxes.

If the items that you are going to inherit can generate taxable income for you, it is possible that you will have to pay on this inheritance. Usually, shares dividends, interest, and rental income are the incomes on which you might have to pay some tax over.

Similarly, when it comes to capital gains tax, this tax might be payable when you give away, sell or exchange some inherited asset. Often it goes up in value from the time of death. 'Dispose of' is what we call it in legal terminology that can be ceased to have an asset. If the inherited asset gains some value between the time of death, and disposing of date, this increase is known as capital gain, and you might have to pay some tax over it.

When it comes to inheritance tax, usually, this type of tax is not paid on property, assets, or money that you inherit, as this tax is taken out from the estate of the dead one. However, you need to pay this tax in certain situations for instance, you might need to pay this tax if the estate of the deceased cannot pay it, or if it is said in the will that the inheritance tax will be paid by you.

If you inherit some property from your spouse, you are considered an exempted beneficiary, and you will not owe inheritance tax, if you have been domiciled in the UK. However, if some property is owned jointly with the dead one who was not your spouse, the personal representative, or executor of the deceased need to pay debts, or inheritance tax before the distribution of the estate in its beneficiaries.

More often, it is paid by making the most of some other funds that come from different parts of some estate. If the debt or outstanding tax cannot be paid from the rest of the estate, you might have to sell the property.

You may need to pay Capital Gains Tax if your inherited asset is a property in which, you live in from its inheriting time to the time of its disposal, you may not need to pay Capital Gains Tax. If a second property is inherited disposed of, it is possible that you have to pay inheritance tax on this second property. Besides these situations, there is no other well known situation in which, you may need to pay any tax on your inherit money, property or asset.

Tax Saving Strategies For Capital Gains on Rental Property

Have you recently sold any of your rental property? Are the taxes on your capital gains are a burden for you? Are you looking for some way out to reduce these taxes and keep most of the profits you made from this transaction?

Then you need to know some intricacies of capital gains tax rules.

If you had purchased rental property at a lower price and now sold it with a respectable margin on it, this difference you could get is the capital gain and the same is taxable.

Remember, IRS gives preference to home owners. An average home owner will be charged leniently as compared to a property investor. So the capital gains tax varies as per different types on property owners.

One good thing about the capital gains tax is that it is lower than the income tax. It is convenient if you buy the property and wait for one year before you sell it. This way you will have to pay taxes at an average rate of 10 to 25 %. But if you plan to sell your rental property before one year, then your earning is considered as short term capital gains and you have to pay heavy taxes on it which may be same as the ordinary income tax.

If you have your rental property overseas, you need to check the capital gains taxes rules over there. As in some countries like United Kingdom to encourage foreign investors, they do not charge any tax from them for their capital gains.

Some useful tips for saving on this tax:

You can avail the benefits on tax savings by becoming a home owner than a property investor.

To qualify to the criteria of home owner, you have to stay in your rental property for a minimum of 2 years. You may have rented it in past  but then you have to stay in it for two years out of five years block before you sell off. Then it will be considered as your own home for tax purposes.

If you are a married couple selling your own home, the profit of first $500,000 is not taxable as against a sole owner who is eligible for tax exemption on the first $ 250,000.

If your sale is just a rollover, you may be charged absolutely nothing towards your capital gains. So you are selling your rental property only to purchase a new property of that type, it will be a rollover.

This rollover refers to section 1031 of the internal revenue code. To satisfy the clauses of this section you have to finalize on a new property within 45 days of the sale and the deal has to be completed within 6 months.

Remember, selling your rental property in cash emergencies is not a good idea. Then it is difficult to reduce the liability on capital gains. And this is the reason why I advise property owners to put aside some of your funds for emergencies such as major repairs.

Avoid the Tax on Capital Gains by Donating the Property to a Charity

A taxpayer can avoid the tax on long-term capital gains by donating the property to a recognized charity. If the sale of the property would result in a long-term capital gain, but the taxpayer donates the property to charity, the taxpayer avoids the tax on the long-term capital gain and also receives a charitable contribution deduction equal to the fair market value of the property at the time of the donation.

A long-term capital gain occurs when the taxpayer sells or exchanges a capital asset that the taxpayer has held for more than one year for an amount that exceeds the asset's adjusted basis (usually cost). Most long-term capital gains are taxed at a maximum rate of 15 percent. This rate is much lower than the maximum 35-percent rate that applies to ordinary income.

However, a taxpayer can avoid even the 15-percent tax rate on a long-term capital gain by contributing the property to a recognized charity. In such a case, the taxpayer does not have to recognize the gain. In addition, the taxpayer may deduct the fair market value of the property as a charitable contribution.

For example, assume that a taxpayer bought land for investment two years ago at a cost of $6,000. The land is now worth $16,000. The taxpayer donates the land to a recognized charity. The taxpayer does not have to recognize the $10,000 ($16,000 - $6,000) long-term capital gain. In addition, the taxpayer may deduct $16,000 as a charitable contribution.

The deduction for charitable contributions of an individual is generally limited to 50 percent of the taxpayer's adjusted gross income (AGI). However, for contributions of long-term capital gain property, the limit is 30 percent of the taxpayer's AGI unless the taxpayer elects to deduct only the adjusted basis of the property rather than its fair market value.

The taxpayer may carry over any charitable contributions that exceed the annual limit to the next five tax years. The current year's contributions are deducted before any contributions carried over from a prior year.

If the property is tangible personal property, such as a work of art the taxpayer had purchased, the charitable contribution deduction is limited to the taxpayer's adjusted basis in the property. The taxpayer may not deduct the fair market value of such property if it exceeds the property's adjusted basis. In addition, the deduction for contributions of property to private nonoperating foundations is limited to the adjusted basis of the property.

If the property is ordinary income property or property the sale of which would result in a short-term capital gain, the deduction is also limited to the adjusted basis in the property. However, the taxpayer would not have to recognize the appreciation as a gain.

Taxpayers should not donate property to charity on which they would realize a loss if they sold the property. The deduction for the charitable contribution would be limited to the fair market value of the property, and the taxpayer would not recognize the loss. The taxpayer would achieve a more favorable tax result by selling the property to realize the loss and contributing the cash proceeds to the charity. Of course, losses on the sale of personal use assets such as clothing are not recognized.

While the deduction of net capital losses of an individual or married couple is limited to $3,000 a year, the taxpayer may carry over any unused net capital losses to future tax years indefinitely.

The ability to contribute long-term capital gain property to a charity to avoid the tax on the long-term capital gain while deducting the fair market value of the property as a charitable contribution is a great tax planning strategy. Taxpayers who want to contribute to charity should seriously consider using this strategy.

However, the tax law has numerous exceptions and limitations. Therefore, a taxpayer should consult a competent tax professional before donating any significant amounts of property to a charity.

Keeping Track Of Gains With Property Management Software

There would always come a time that business people, men and women alike, would have to calculate their capital gains tax liabilities. Most likely, the anxiety of provisioning for tax liabilities would be very hard on even the most tenured landlords. The reason for this is mainly the process of tax calculation, which is, as a matter of fact not only complicated but varies through time, which makes it more confusing. It is very difficult to even create a single mistake on the figures since it would cost the businessmen more to mend it. So it is but proper to have an organized system to control the flow of money and tame the tax liabilities.

Today's alternative to the well-loved and sometimes hated process of placing everything on paper would be to input everything onto computer programs that are patterned after the management of financial, accounting and other business aspects. Examples of these are spreadsheets and word processors, which have become a part of any landlord software.

However, these may not always be the convenient way to process important information and may not often be updated to the latest trends and changes in the business world. It's a good thing that with property management software, everything is somehow rolled into one and turned into an ideal software that is designed to do various tasks.

An effective property management software can help landlords to effectively manage various aspects of their business, such as maintenance, which plays a big role in the financial state of a certain business. If this will be somehow overlooked, it might turn out to be more of a big liability, rather than a way to improve the flow of business.

Another area than needs to be focused on would be the management of rent collection. Well, a good type of landlord software should be able to track or monitor the income or the rent that are given as payment for the lease of the property. This is quite important since the whole business depends on this for financial circulation, which may lead to more investments. Basically, everything can be managed from here including the whole collection and distribution of statements and provision of rental deadlines.

As a final note, it is time to stop being shoved under a big pile of paper works, as well as it is time to think about ignoring the other programs on your computer which make it more cumbersome and complicated for you. Invest in a good property management software and in the end, that would be all you need to succeed in this business, hassle-free.

Need More Income from Your Investment Property?

The goal of every real estate investor is to see their property appreciate in value and to have it generate a positive cash flow. The appreciation normally takes care of itself if the property is of good quality, in a good location, and is held over a long enough period of time. Just like the stock market, real estate has proven to go up way more than it goes down over time.

The positive cash flow component is not always a given though. Ask any seasoned investor, and unless the property is owned free and clear, there have probably been times when he's had to dip into his own pocket to pay for some aspect of his rental. Who hasn't seen a raise in homeowner's fees, property taxes, an outlay of cash for a new roof, plumbing, paint, carpet, appliances, or a length of time supporting it between tenants.

So, what if you're nearing retirement age and see the need for increased and steady income? You may even look forward to taking a permanent break from the "joys" of hands-on property management. We all deserve to reap the rewards of our labors, right?

Basically, to meet these goals, one can do one of two things.

1. Sell the property, pay all the capital gains taxes, recaptured depreciation, etc. and pocket what is left. To receive an income, one would have to either live off whatever interest/gains your proceeds produced, or begin depleting your funds to provide you with the amount of monthly income you deem necessary. Depending on your age and financial needs and whether or not you desire to leave as large a legacy as possible, this approach may or may not work for you.

2. Employ a strategy that will defer the payment of any tax or depreciation. Let all of your gains continue to work for you throughout the course of your retirement and into the next generation. Yet, you will still get a significant and partially tax deductible monthly income.

What strategy is #2? If your property is over a million and you are not a young retiree, you might consider a Private Annuity Trust. You will get monthly income for the rest of your life, but you will be depleting your asset and only spreading out the repayment of capital gains tax over a longer period of time. That is a simplification of a complex agreement, but that is the gist.

A better option may be a 1031 exchange into a tenant in common (TIC), Basically, you exchange your property for a deeded partial interest in a grade A commercial property. You sign a contract with a property management company, and in turn receive a monthly income (typically 6-7% of your total equity). You never have to deplete your asset, and it can pass to your heirs at the stepped up basis.

The 1031/TIC exchange is a fairly new concept, sanctioned by the IRS in 2002. It is projected that the influx of property assets into this type of exchange will be close to 5 Billion dollars in 2005. That's a lot of equity. Why not let your equity continue to work for you instead of parting with a lot of profits that would take you years to replace.

Tax Consequences when Donating a House on Your Property to the Fire Department for Practice?

Well, every once in a while you have a piece of property that is actually worth something, but the old run-down building or house on top of it, makes it impossible to do anything with. Getting permits to demolish stuff can be as aggravating as getting permits to build something sometimes. Of course, if you have the blessings of some of the local municipal higher ups and a little political influence, you can make at least some headway.

Okay, with that in mind let me tell you an interesting story. Donated an old farm type house (very old) to the fire department for training and got a property tax gift, they burnt down the place, at least 15 times in practice. Finally there was nothing left, and "they" tilled under all the ash. Great, got rid of the place, without demolishing permits and didn't have to haul away any junk. Good deal right?

Well, here is the kicker; got the commercial zoning change, property was re-assessed and now there is no junky home on the property it's suddenly worth more. No problem right, next year, higher property taxes, but the new buyer is gonna build on it anyway, but that is only half the issue. What other issues need to be addressed, it's a done deal right?

Ah, but now that the property is worth more creating a capital gain, so that negates the "donation gift" that was taken and deducted last year. Since it was a gain and no longer a gift, which in reality is true, the gift was made in order to gain. It's just unfortunate, would have been nice to have the cake and eaten it too!