|
Fall 2007 Building
Your Assets The e-Newsletter dedicated to helping you build your assets with a focus on real estate and other beneficial ideas A joint publication of www.odonnellhomes.com and www.GaREinvesting.com In this
issue you will find:
Pay no tax on a $500,000
gain by simply living in your home One of the
greatest benefits to homeownership can be that the profit made on the sale of
your principle residence is excluded from taxes. Plus, you can also include the sale of adjacent
land tax free or use this tax break over and over for additional tax free
gains. How? As long as
you have owned the property for two years and have lived in the property two
of the last five years, the IRS allows capital gain exclusion of up to $250,000
if you are single or up to $500,000 for a married couple filing jointly. In addition, this exclusion can also be
applied to up to 29 acres of vacant land next to your home. As long as the land has been used as part
of your principle residence and is adjacent to the parcel that contains your
house, the exclusion can still apply, even if the land is sold in a separate
transaction from the sale of the home as long as those transactions are
within two years of each other. So, you
can take advantage of this tax-free gain and use it to buy your next real
estate purchase.
For
example, let’s say you invest $3,000 on behalf of your newborn in a Roth IRA
the year he or she is born, and that $3,000 grows at only 10% per year. By age 70, without adding another penny in
contributions, that $3,000 will have grown to a staggering $2,369,240, and
since the Roth IRA was funded with after tax dollars, the entire gain would
be tax free when withdrawn after retirement age. Again, the
individual must have legitimate earned income, so it may be difficult to find
ways to pay newborns, but it has been done.
Plus, the Roth IRA can also be great for teenagers with earned
income. Assuming they invest $4,000 at
age 15, by age 70, at a 10% annual return, that will have grown to $756,236. There are
rules with Roth IRA’s. A single person
with an adjusted gross income below $114,000 is eligible as are married
people filing jointly with adjusted gross incomes below $166,000. Plus, as mentioned, the taxpayer must have
earned income at least equal to the amount contributed to the Roth IRA. You can search for one of the many online
compound interest calculators to see the power it can have for you. …and what
does all this have to do with real estate?
You can own real estate in your IRA! So, you’ve
had success in your real estate investing.
You know how to take opportunities and turn them into large gains, or
you are making gains through making loans.
How would you like for all of these gains to be tax free or deferred
when you pull the funds out for your retirement? While many
traditional brokerage firms do not allow real estate in IRAs, the truly
self-directed IRA allows you to make non-traditional investments such as real
estate, loans and much more. You can
invest in real estate or loan money to others for real estate ventures with
your retirement account. Of course,
there are specific rules and be sure to always keep your retirement account
as a separate entity. Also, the
transaction cannot benefit you or involve any “disqualified persons”
(primarily parents and children). Feel free
to contact us with any questions you may have about investing in real estate
for your retirement and we will be able to recommend a custodian for your
account or assist you in acquiring the real estate for your portfolio. Defer gains from real
estate (possibly forever) or buy your retirement home through a 1031 exchange Do you own
a property that has increased in value and you would like to sell, but you do
not want to pay the capital gains tax?
Even with low capital gains rates, on a $1,000,000 gain, you would
still pay over $200,000 on 15% federal and 6% state taxes. Instead, you can roll this gain into
another like-kind investment that could even be your retirement home. How? A 1031
Exchange comes from Section 1031 of the IRS code and allows a sale to be
structured so the gain on certain kinds of property that are being sold are
not currently taxed. Instead, the
property can be “exchanged” for a “like kind” investment, so the seller’s
gain is deferred to a future date. “Like
kind” does not mean an apartment for an apartment or an office for an office,
but rather can be different types of properties as long as they are being
used for investment purposes, so “like kind” can mean any type of investment
property. In addition, there are ways
to buy a property as an investment property that could later be rolled into a
permanent residence so the taxes on the gains could be avoided forever. Let us know if you have additional
questions or would like to discuss a 1031 exchange. Earn more money now on
your real estate through Cost Segregation If you own
a commercial building with a value greater than $1,000,000 that was purchased
since 1986, have you considered depreciating your asset using cost
segregation? It often leads to tax
savings of over $100,000. Cost
Segregation allows you to deduct portions of your property on a 5, 7 or 15
year depreciation schedule, rather than traditional 27.5 years for apartments
or 39 years for commercial buildings. This
faster schedule often leads to well over $100,000 in tax savings over the
first five years of ownership, so you can receive deductions now and put your
money to work for you. Taking into
account the time value of money, cost segregation can be yet another tool
that helps you build your assets through real estate. Save taxes while helping
others: Start a foundation – even if you don’t have millions Are you
interested in making a positive difference in the lives of others while
receiving a tax break? Maybe you have
considered starting your own foundation, but you thought it took millions to
start a foundation. There are other
options. We did it and so can you.
How? We feel it
is vitally important to reach out to those in need and to be the change we
wish to see in the world. Therefore,
we decided to start a foundation.
While it takes significant time and money to start a traditional
foundation, there are numerous options out there to start your own charitable
fund for as little as $5,000 to $25,000.
Donor Advised Funds through mutual fund companies, a community
foundation or other foundations that support smaller foundations offer
options. Some include: The
Fidelity Charitable Gift Fund: http://www.charitablegift.org The
Vanguard Charitable Endowment Program: http://www.vanguardcharitable.org/ Community
Foundations, such as The Community Foundation of Greater Atlanta: http://www.atlcf.org The
American Foundation for Charitable Giving: www.americanfoundation.org We love
our set-up as it allows tax deductible contributions to be made and the funds
are invested earning more than 10% a year.
1% goes toward management and we are required to distribute 5%, so
each year we are able to give funds away and still watch the endowment grow
for future giving. We don’t
solicit donations to our foundation, but rather fund the endowment with
proceeds from our business operations.
Feel free to start your own charitable fund, or if you don’t want to
choose charities for the annual disbursements, feel free to donate to another
that will distribute the funds for you.
If you’d like to see more about our foundation, visit www.LightTheFuture.org Wellness tip to help you
take care of your most important asset – You: Healthy Fall Tailgating While real estate is certainly an
important asset, you only have one you, and taking care of your mind, body
and soul is essential to a complete life.
This section highlights a tip to help you do just that. The
crisp, cool air of fall is on its way and the football season has started, so
‘tis the season for one our favorite traditions… Tailgating before football games. The issue is that “traditional tailgating
fare tends to penalize your health.”
This article highlights a healthy pre-game eating plan. http://www.brentwoodpress.com/article.cfm?articleID=17126 Using your assets to
give back to others: The Sunshine Kids We have a firm belief that we have
been blessed in this life and feel it very important to use our assets and abilities
to serve those who need it most. This
section highlights an organization, cause or initiative that is doing just
that.
Our Dunwoody
office of Prudential Georgia Realty is hosting an auction to benefit the
Sunshine Kids on Friday October 12, and we are inviting you to join us. We are currently seeking auction prizes,
sponsorships and donations. Should you
be interested in donating items, purchasing tickets or making a contribution,
please contact us.
Wise Words – A quote to
inspire Since this
issue deals with a lot of ideas that require a change in mindset and then action
to bring about the ideal results, this installment of “Wise Words” brings
together two quotes … “Change [doesn’t] come at once. It’s a wave… building before it breaks.” ~
Eddie Vedder, from the Pearl Jam song Undone “Be the change you wish to see in the world.” ~
Mahatma Ghandi … and
together they show that while change might not be immediate by being that
change you wish to see and making it happen, it will build over time and lead
to your ideal future.
Disclaimer:
With any investment, risk is involved, and it is always advisable to check
with your legal and tax professional before making investment decisions. This
communication, including any attachments, is not intended or written to be
used for the purpose of providing tax or legal advice. Prudential Real Estate brokerage
services are offered through the independently owned and operated network of
broker member franchisees of Prudential Real Estate Affiliates, Inc., a
Prudential Financial company. Prudential is a registered service mark of The
Prudential Insurance Company of |
||||||||||||||
