The real estate investor's tax strategy guide : maximize tax benefits and write-offs, implement money-saving strategies, avoid costly mistakes, protect your investment, build your wealth

210 Pages·2009·1.82 MB·English

by  Kraemer

THE
REAL ESTATE
INVESTOR’S
•
MAXIMIZE TAX BENEFITS AND WRITE-OFFS
•
IMPLEMENT MONEY-SAVING STRATEGIES
•
AVOID COSTLY MISTAKES
•
PROTECT YOUR INVESTMENT
•
BUILD YOUR WEALTH
Tax
Strategy
Guide
TYLER D. KRAEMER
and TAMMY H. KRAEMER
Copyright © 2009 by Tyler D. Kraemer and Tammy H. Kraemer
This book, or parts thereof, may not be reproduced in any
form without permission from the publisher; exceptions
are made for brief excerpts used in published reviews.

Published by Adams Business, an imprint of Adams Media, an F+W Media Company
57 Littlefield Street, Avon, MA 02322
www.adamsmedia.com

ISBN 10: 1-59869-760-9
ISBN 13: 978-1-59869-760-5
eISBN: 978-1-44051-574-3

Printed in Canada.

J I H G F E D C B A

Library of Congress Cataloging-in-Publication Data
available from the publisher.

This publication is designed to provide accurate and authoritative information with regard to the subject
matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal,
accounting, or other professional advice. If legal advice or other expert assistance is required, the services
of a competent professional person should be sought.
—From a Declaration of Principles jointly adopted by a Committee of the
American Bar Association and a Committee of Publishers and Associations

Many of the designations used by manufacturers and sellers to distinguish their product are claimed as
trademarks. Where those designations appear in this book and Adams Media was aware of a trademark
claim, the designations have been printed with initial capital letters.
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For information, please call 1-800-289-0963.
Contents

Chapter 1: Real Estate and Taxes: The Groundwork

PART 1—Keep More Income

Chapter 2: Maximize Home and Rental Property Write-Offs

Chapter 3: Depreciation Deductions and Loss Limitations

Chapter 4: Make the Best Use of a Vacation Home

PART 2—Sell Real Estate Without Paying Taxes

Chapter 5: Home Sweet (Tax-Free) Home

Chapter 6: Defer Taxes with Installment Sales

Chapter 7: Build Wealth with Like-Kind Exchanges

Chapter 8: Use TICs to Defer Taxes

PART 3—Identify and Reduce Risk

Chapter 9: Asset Protection Basics

Chapter 10: Ownership Structures: Divide and Conquer

Part Four—Keep It in the Family

Chapter 11: Create a Legacy and Save Taxes
Chapter 12: Start a Family Limited Partnership

Chapter 13: Leave Heirs a Stepped-Up Basis

Part Five—Use Alternative Strategies

Chapter 14: Invest in Real Estate with an IRA

Chapter 15: Explore Foreign Real Estate

Appendix A: Online Real Estate Investment Strategies

Appendix B: Glossary
DISCLAIMER: The intent of this book is to provide competent, useful
information about the subject matter covered. However, this book is purchased
with the understanding that neither the authors nor the publisher are engaged in
rendering specific accounting, financial, insurance, investment, legal, tax, or
other professional advice and services. If the reader requires such advice and/or
services, a competent professional should be consulted. It should also be noted
that the strategies described in this book may not be suitable for every
individual, are not guaranteed or warranted to produce any particular results, and
that relevant laws vary from state to state. No warranty is made with respect to
the accuracy or completeness of the information contained herein. The authors
and the publisher specifically disclaim any responsibility for any liability, loss,
or risk, personal or otherwise, which is incurred as a consequence, directly or
indirectly, of the use and application of any of the contents of this book.
IRS CIRCULAR 230 DISCLOSURE: TO ENSURE COMPLIANCE WITH
REQUIREMENTS IMPOSED BY THE INTERNAL REVENUE SERVICE,
WE INFORM YOU THAT ANY U.S. FEDERAL TAX ADVICE
CONTAINED IN THIS BOOK IS NOT INTENDED OR WRITTEN TO BE
USED, AND CANNOT BE USED, FOR THE PURPOSE OF AVOIDING
PENALTIES UNDER THE INTERNAL REVENUE CODE OR PROMOTING,
MARKETING, OR RECOMMENDING TO ANOTHER PARTY ANY
TRANSACTION OR MATTER ADDRESSED HEREIN.
Dedication and
Acknowledgments

T
hank you to Ed Claflin and Adams Media for believing that two heads are
better than one even when those two heads are married. We would each like to
thank our coauthor for limitless energy and encouragement through another
project together. May we continue to look outward together in the same direction
and keep our sense of humor.
A very special thank-you to the following professionals: Robert A. Crandall,
CPA, for contributing his finely tuned tax and accounting expertise, giving his
time during tax season, and reviewing the chapters for everything from
correcting our accounting vocabulary to making sure we included the most
recent tax rules and decisions.
Michael W. Deen, Esq., contributing author, for sharing his knowledge of
good planning through years of helping clients achieve their personal, estate, and
business planning goals. Michael provided the original draft of Chapter 11 on
estate planning and charitable giving strategies for real estate.
John S. Benson, Esq., for being a thoughtful mentor and sharing strategies
and stories from his extensive experience advising clients on real estate,
business, and estate planning matters.
Thank you also to our two amazing sons, Kai and Cary, for teaching us why
people get so attached to their homes; Gregory Daries for transforming complex
ideas into simple graphics; Nancy Smelser for considerable administrative
assistance; Rachel Reynolds for keeping our two energetic boys busy while we
write; Judy Fogler for teaching that laughter improves all projects; and Sandy
and Dorothy Kraemer for providing never-ending inspiration and love to our
family.
Preface

It won’t be the economy that will do in investors; it will be the investors themselves.

—Warren Buffett

A
s we write this book the United States economy seems headed toward a
recession. Some say it is already here and others think we can fend it off. On the
real estate front, it is clear that the housing market is in a slump. Commercial
real estate is fairing a little better, but office vacancies are starting to rise.
Inquiries about how to avoid foreclosure are more common than those about
how to structure new deals.
So why are we writing a book about tax strategies for real estate investors?
The tax strategies that are the focus of this book are not tied to economic
conditions. When conditions are good they can significantly enhance investment
return, and when economic conditions are bad they may be the only source of
investment return. Real estate market cycles remind us that real estate is a long-
term investment. There are always good deals out there for the patient and
informed investor. In fact, some argue that the best deals come when the market
is down.
Regardless of economic conditions, the Internal Revenue Code can, ironically,
be the key to building wealth with real estate. It contains many provisions that
reward real estate ownership by reducing, deferring, and sometimes even
eliminating taxes for those who invest in and own real estate. Investors who do
their homework and use these tax code strategies can weather economic
conditions and continue to build wealth.
The challenge is that the IRS does not make it easy to defer or eliminate taxes.
Even some of the most popular real estate tax strategies, such as like-kind
exchanges, require understanding complex rules and requirements. The first step
in using tax strategies is knowing about them, and the second is planning for
them. Only then can you take the third step of working with your tax advisor to
implement your strategies.
This book is not meant to provide tax advice for any particular situation but to
reveal tax and legal strategies that can be used by real estate investors. Part One
covers strategies for keeping more income by using expense and loss deductions,