Kraemer Tammy H - The real estate investors tax strategy guide : maximize tax benefits and write-offs, implement money-saving strategies, avoid costly mistakes, protect your investment, build your wealth

THE
REAL ESTATE
INVESTORS

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

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Contents

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 wont 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, including depreciation. Part Two focuses on how to defer or eliminate taxes when selling real estate by using the principal residence exclusion, installment sales, like-kind exchanges, and tenant-in-common investment. Part Three focuses on risk reduction and explains how to protect your assets and use the right ownership structures for holding real estate. Part Four combines real estate and family matters, such as estate planning, family limited partnerships, and stepped-up basis. Finally, Part Five addresses several special topics, like investing in real estate with an IRA and owning foreign real estate.