Few investors are aware they can receive significant tax incentives in the form of bonus depreciation if they acquire new homes in GO Zone (Gulf Opportunity Zone Act of 2005, extended in 2010) designated areas. The deadline for investors to take advantage of the GO Zone tax incentives has been extended to December 31, 2011 and is widely expected to be extended for another year beyond that.
The majority of companies that were developing real estate in the GO Zone pulled out knowing that they tax incentives were scheduled to expire on December 31, 2010. The few who remained are well positioned to help investors take advantage of the bonus depreciation throughout 2011 and possibly 2012.
Exeter 1031 Exchange Services, LLC has scheduled a monthly webinar discussing the benefits of investing in real estate within the GO Zone. This month's guest presenter is The Hanover Companies.
Thursday, January 20, 2011
Step-Up In Cost Basis Reinstated for 2010
Congress passed and President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Tax Act”) late in December.
There was been quite a bit of focus on the extension of the "Bush tax cuts", but the Tax Act also provides some much needed relief to taxpayers from the estate tax, gift tax, and generation skipping transfer tax, including a profound impact upon taxpayers that have used and continue to use 1031 Exchanges in the sale and reinvestment of real estate assets.
The Tax Act also effectively reinstates the ability to transfer property at death to a taxpayers' heirs with a step-up in cost basis. This essentially means that the capital gain tax and the depreciation recapture taxes go away at death. Taxpayers can still continue to structure 1031 Exchanges through out their lifetime in order to continually defer the payment of their capital gain taxes and then pass the property on to their heirs with out passing on the capital gain taxes.
There was been quite a bit of focus on the extension of the "Bush tax cuts", but the Tax Act also provides some much needed relief to taxpayers from the estate tax, gift tax, and generation skipping transfer tax, including a profound impact upon taxpayers that have used and continue to use 1031 Exchanges in the sale and reinvestment of real estate assets.
The Tax Act also effectively reinstates the ability to transfer property at death to a taxpayers' heirs with a step-up in cost basis. This essentially means that the capital gain tax and the depreciation recapture taxes go away at death. Taxpayers can still continue to structure 1031 Exchanges through out their lifetime in order to continually defer the payment of their capital gain taxes and then pass the property on to their heirs with out passing on the capital gain taxes.
Saturday, January 01, 2011
Happy New Year
Happy New Year from your friends at The Exeter Learning Institute. We look forward to a better year in 2011.
Monday, December 27, 2010
1031 Exchange Planning After the 2011 Tax Relief Act
President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2011 (the "Act") into law. This new act has some very favorable income tax planning provisions that benefit owners of real estate assets, and especially for those taxpayers who have always taken advantage of 1031 Exchanges.
The Act extends many areas of former President George W. Bush's tax cuts, including lower capital gain tax rates, tax free exemptions for estate and gift taxes, as well as preserving the step-up in cost basis received by heirs at the date of death.
Capital Gain Tax Rates Extended
The current low capital gain tax rates were extended for two (2) more calendar tax years. This means that most of us will be paying capital gain taxes at the maximum capital gain tax rate of just fifteen percent (15%) through December 31, 2012, unless of course you are deferring your capital gain taxes by structuring a 1031 Tax Deferred Exchange (see Section 1031 of the Internal Revenue Code). The ability to defer capital gain taxes into the future through a tax-deferred exchange such as the 1031 Exchange is often the best strategy because it keeps your money working for you.
Depreciation Recapture and State Taxes
Don't forget to include depreciation recapture taxes and any state income or capital gain taxes in the tax planning computation or estimate. The combined Federal and state taxes are still high on a combined basis for many states, so tax planning is still extremely important.
Estate and Gift Tax Exclusion
The estate and gift tax exclusion will be set at $5 million per taxpayer with any amount in excess of $5 million taxed at 35%. This is certainly more favorable for taxpayers than what many advisors and experts had expected to see out of this lame duck session of Congress.
Step-Up In Cost Basis
Taxpayers often ask what is the best way to plan for the transfer of their wealth at death. The most appropriate and suitable answer is generally to continue to defer their taxes throughout their life time by using tax deferred and tax exclusion strategies such as the 1031 Exchange. This allows the taxpayer's money to keep working, building and growing for him or her.
However, by far, the biggest benefit here is the ability to leave assets to heirs at a step-up in cost basis. This means that essentially the capital gain taxes go away when property is inherited by others. The person that inherits the property gets their new cost basis stepped up to equal the value of the fair market value of the property at the date of death.
Taxpayers can continue to defer capital gain taxes over the years, including depreciation recapture taxes, by structuring 1031 Tax Deferred Exchanges, and then leave the real estate or personal property to their heirs without incurring any capital gain taxes or depreciation recapture taxes. The heirs are only responsible for any capital gain tax or depreciation recapture tax that occurs or is generated after the date of death while they own the asset.
Beyond 2012
Planning for tax years beginning on or after January 1, 2013 is more problematic since these extensions end as of December 31, 2012, but at least we have some certainty for a couple of years.
The Act extends many areas of former President George W. Bush's tax cuts, including lower capital gain tax rates, tax free exemptions for estate and gift taxes, as well as preserving the step-up in cost basis received by heirs at the date of death.
Capital Gain Tax Rates Extended
The current low capital gain tax rates were extended for two (2) more calendar tax years. This means that most of us will be paying capital gain taxes at the maximum capital gain tax rate of just fifteen percent (15%) through December 31, 2012, unless of course you are deferring your capital gain taxes by structuring a 1031 Tax Deferred Exchange (see Section 1031 of the Internal Revenue Code). The ability to defer capital gain taxes into the future through a tax-deferred exchange such as the 1031 Exchange is often the best strategy because it keeps your money working for you.
Depreciation Recapture and State Taxes
Don't forget to include depreciation recapture taxes and any state income or capital gain taxes in the tax planning computation or estimate. The combined Federal and state taxes are still high on a combined basis for many states, so tax planning is still extremely important.
Estate and Gift Tax Exclusion
The estate and gift tax exclusion will be set at $5 million per taxpayer with any amount in excess of $5 million taxed at 35%. This is certainly more favorable for taxpayers than what many advisors and experts had expected to see out of this lame duck session of Congress.
Step-Up In Cost Basis
Taxpayers often ask what is the best way to plan for the transfer of their wealth at death. The most appropriate and suitable answer is generally to continue to defer their taxes throughout their life time by using tax deferred and tax exclusion strategies such as the 1031 Exchange. This allows the taxpayer's money to keep working, building and growing for him or her.
However, by far, the biggest benefit here is the ability to leave assets to heirs at a step-up in cost basis. This means that essentially the capital gain taxes go away when property is inherited by others. The person that inherits the property gets their new cost basis stepped up to equal the value of the fair market value of the property at the date of death.
Taxpayers can continue to defer capital gain taxes over the years, including depreciation recapture taxes, by structuring 1031 Tax Deferred Exchanges, and then leave the real estate or personal property to their heirs without incurring any capital gain taxes or depreciation recapture taxes. The heirs are only responsible for any capital gain tax or depreciation recapture tax that occurs or is generated after the date of death while they own the asset.
Beyond 2012
Planning for tax years beginning on or after January 1, 2013 is more problematic since these extensions end as of December 31, 2012, but at least we have some certainty for a couple of years.
Monday, December 20, 2010
Capital Gain Tax to Remain at 15%
The U.S. House of Representatives and the U.S. Senate have approved the package of extensions of tax rates and unemployment benefits, sending the legislation to the President for his signature (H.R. 4583, 277-148).
The bill as passed sets the estate tax exemption at $5 million and the rate at 35%, and extends all of the Bush era tax cuts for two years and reduces the Social Security payroll tax from 6.2% to 4.2% for 2011.
The bill as passed sets the estate tax exemption at $5 million and the rate at 35%, and extends all of the Bush era tax cuts for two years and reduces the Social Security payroll tax from 6.2% to 4.2% for 2011.
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