How To Solve Your Depreciation Dilemma

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Do you own a rental property where you have “used up” most or all of your depreciation? You want to sell the old property and buy a new one so you can start benefiting from the depreciation deduction again. You’re thinking: Can I do that? Answer: Absolutely!

Here are 3 tax strategies that you can use:

 

  1. Take advantage of the suspended rental losses – if your income is more than $150K, the IRS will suspend your current rental losses and will be carried over to future tax years indefinitely (exception applies for RE professional). Any carried-over rental losses not used can be claimed if your income will permit or fully expensed during the year you sell the property to offset potential capital gains.

 

  1. Key Tax rate – if you are in the 10%-15% tax bracket and you held the rental for more than a year, then you can pay “0” capital gains rate. Yes! You heard that right…zero! The key here is proactive planning. Make sure you postpone some income and increase your deductions in order to be in 10%-15% tax rate.

 

 

  1. Installment sale – you can spread and report the capital gains over a number of years in order to spread the tax and create a future revenue stream.

To recap, take advantage of the strategies above so you can minimize or spread your taxes and start getting the tax benefits from depreciation deduction again.

All these tax laws represent summarized concepts and cannot be implemented without fuller understanding of your exact situation. For further information and assistance, please contact:

Noel Dalmacio, CPA, CFP, MS Tax Telephone no: (949) 336-1345  

Email: noel@dalmaciocpa.com

Website: www.dalmaciocpa.com  www.lowermytaxnow.com

 Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

How To Take Advantage of a 1031 Exchange

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Do you have a rental property that appreciated in value that you want to sell? You want to pull the trigger but you are afraid of the tax you will be paying on the gain. What can you do?

Millionaire investors used this strategy to build their real estate portfolio. It’s one of the most powerful tax savings strategies available to you. It’s called: 1031 exchange.

A 1031 exchange allows you to postpone your taxes by exchanging up to another higher-priced rental property. It’s a way to consolidate and build your real estate investments without paying taxes. It’s a two-step process: first step, sell your property, second step, reinvest the cash proceeds in a new property.

Here are 6 additional things you need to know about 1031 exchanges:

Must be investment property – It’s only for rental, investment or business property.

  1. 45-day rule – Replacement property must be identified within 45 days of the sale of the old property. There are no extensions allowed.
  2. 180-day rule – It must also be purchased within 180 days of the sale of the old property.
  3. Qualified intermediary requirement – To qualify for the tax deferral, you must hire a qualified intermediary (commonly called an exchange accommodator or QI).
  4. Cash receipt is taxable – Any cash you received or taken out during the exchange is taxable.
  5. Consider mortgages and other debt – If you don’t receive cash back but your mortgage balance went down, that will be treated as income. For example, you had a mortgage of $500,000 on the old property, but your mortgage for the new property is only $400,000. You have a $100,000 of taxable income.

 

To recap, a 1031 exchange is a very powerful tool, that if you use wisely, can save you thousands of dollars come tax time. However, you have to pay strict attention to the rules of qualification. Otherwise, you could find yourself in some trouble with the IRS.

 Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Tax Strategy When Renting Out Your Home During Summer

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow

 

Are you thinking of signing up with one of those websites that link travelers to property owners with room to spare? If you plan to offer for rent all or part of your main home, here’s one tax strategy that you might want to apply during the summer.

 

What is it called? It’s called “14-days or less” tax strategy. If you rented out your home for 14 days or less during the year, you don’t have to report the income. That’s right, you get tax-free income! That’s my favorite word…tax-free!

 

So just plan accordingly and make sure the total rental period is 14 days or less during the summer.

 

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow

Financial Tips You Need To Know When A Spouse Dies

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

The death of your spouse is emotionally and financially devastating.
Making decisions of any kind is difficult when you are grieving, but having a plan to follow may help. Here are 6 financial tips you need to do:

  • Wait to make major decisions. Put off selling your home, moving in with your grown children, giving everything away, liquidating your investments, or buying new financial products.
  • Get expert help. Ask your attorney to explain the will and implement the estate settlement. Talk to your accountant about financial moves and necessary tax documents. Call on your insurance company to help with filing and collecting death benefits.
  • Assemble paperwork. Documents you’ll need include your spouse’s birth certificate, social security card, insurance policies, loan and lease agreements, investment statements, mortgages and deeds, retirement plan information, credit cards statements, employment and partnership agreements, divorce agreements, funeral directives, safe deposit box information, tax returns, and the death certificate.
  • Determine who must be paid, and when. You’ll need to notify creditors and continue paying mortgages, car loans, credit cards, and insurance premiums. Notify health insurance companies and the Social Security Administration, and cancel your spouse’s memberships and subscriptions.
  • Alert credit reporting agencies. Request the addition of a “deceased notice” and a “do not issue credit” statement to the decedent’s file. Order credit reports, which will provide a complete record of your spouse’s open credit cards.
  • Determine what payments are due to you, such as insurance proceeds, social security or veteran’s benefits, and pension payouts. File claims where needed.

So make sure you plan and implement these 6 financial tips.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

How To Avoid The Inherited IRA Tax Trap

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow

Did you have a parent, relative or sibling that passed away and they transferred their IRA account to you?
If you inherited an Individual Retirement Account, IRA for short, from someone other than your spouse, you may be surprised to learn you have to take annual distributions.

That’s generally the case whether the IRA is a traditional or a Roth account.

The problem sometimes is the brokerage company does not know the tax rules for inherited IRA.

And if you fail to take the distributions as required, you may owe a 50% penalty of the amount you should have taken.

Therefore, to avoid the penalties, make sure you take out timely distributions from the inherited IRAs.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow

How To Minimize Tax Clutter?

Looking to minimize tax clutter?

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Here are 4 recordkeeping guidelines that will help you do just that while retaining what’s important.

● Income tax returns. Keep these at least seven years. Hang on to the back-up documents, such as Forms W-2, mortgage interest statements, year-end brokerage statements, and interest and dividend statements, for the same amount of time.

● Supporting paperwork. Keep cancelled checks, receipts, and expense and travel diaries for a minimum of three years.

● Stock, bond, or mutual fund purchase confirmations. Retain these while you own the investment. You can purge them three years after you sell.

● Real property escrow and title statements. Retain these documents as long as you own the property so you can prove your purchase price when you sell. They can be destroyed three years after the date of the sale.

As you purge your financial clutter, be sure to shred or otherwise destroy the discarded paperwork. These documents often reveal your social security number, bank and brokerage account activity, and other personal information that could lead to the theft of your identity.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com

Tax Magic of a Net Operating Loss

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Did you ever experience having a business or real estate sale that generated a substantial loss?

If that ever happened to you and you reported more business or real estate loss than your income, then, you may have a net operating loss.

That means you have the opportunity to apply your loss to either your past or future tax years to generate a refund or reduce your tax liability.

Unless you elected to carry the entire loss to future years, the general rule is you can use it to offset income in the two prior years, then carry forward the remainder, if any, for the next 20 years.

Here’s how it works. Your 2015 operating loss will first reduce the income you reported on your 2013 and 2014 federal income tax returns, potentially generating refunds for those years.

Any remaining 2015 operating loss can be used to offset income on future tax returns, beginning with the one you’ll file next April for 2016.
One way to claim the carryback is by using Form 1045, Application for Tentative Refund.

You must file Form 1045 within a year of the “loss year” – that is, by December 2016 for an operating loss reported on your calendar year 2015 tax return.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com

Should You Make Estimated Tax Payments?

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

If you’re required to make quarterly estimated tax payments this year, the first one is due as the same date of the tax filing deadline.

Failing to pay estimates, or not paying enough, may lead to penalties. Here are three things you need to consider:

Do you need to make estimates? If you operate your own business, or receive alimony, investment, or other income that’s not subject to withholding, you may have to pay the tax due in installments. Each estimated tax installment is a partial prepayment of the total amount you expect to owe for next year. You make the payment yourself, typically four times a year.

How much do you need to pay? To avoid penalties, your estimated payments must equal 90% of your 2016 tax or 100% of the tax on your 2015 return (110% if your adjusted gross income was over $150,000).

Exceptions. There are exceptions to the general rule. For instance, say you anticipate the balance due on your 2016 tax return will be less than $1,000 after subtracting withholding and credits. In this case, you can skip the estimated payments.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com

Should I donate a vacant land that went down in value?

Here’s a tax question, I got from one of my clients:

Should I donate a vacant land that went down in value?

Here are the facts of the case:
Client bought a vacant land in Florida 10 years ago for $35,000. It’s now worth $5K.

She is feeling charitable and would like to give the vacant land to her favorite charity.

So what do we do?

If she donates her vacant lot, she can deduct the land’s $5k market value as charitable deduction. That is good. However, we can do better.

Here’s the LowerMyTaxNow strategy:

Sell your lot to recognize the $30,000 capital loss ($35K cost less $5K market value). You can deduct $3K of capital loss every year or you can offset these losses with any future capital gains.

Afterwards, you can donate the $5K cash to your favorite charity.
Whoolah! Not only you gave the same $5k value to your favorite charity, but you were able to recognize the loss from the sale of the vacant land.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com

Is It Advisable For My Kid To Fund a Roth IRA?

Here’s a tax question, I got from one of my clients:
If my kid works part-time, do you recommend funding a Roth IRA?
Hey, that is great question! And it deserves a great answer. Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
If you have a kid who works part-time, encourage your kid to fund a Roth IRA.
You might be thinking, what’s the big deal about a Roth IRA?
We’ll, it’s one of the most powerful retirement vehicle that you can take advantage of.
The contribution is not tax deductible, however, it grows tax-free and when you take out the money at age 60, it’s all tax-free!

What is the income requirement to fund it then?
You only need to have a W-2 or NET business income. Age is irrelevant.
So for 2015 and 2016, your kid can contribute the lesser of: (1) W-2/Net business income or (2) $5,500.

By funding this consistently, your kid can potentially accumulate quite a bit of money by retirement age. However, your kid might not be willing to put in the $5,500 even when they have enough earnings to do so. So just be satisfied if you can convince your child to contribute at least a meaningful amount each year. Remember, if you are so inclined, you can make the Roth IRA contribution for your child.

Here’s what can happen if your 15-year-old kid contributes the following amounts:
(Note that it will be worth different values depending on the amounts contributed & annual return)

Annual Contribution Value when child is 60 years old
For 5 Years 3% 5%

$1K $ 28K $84K
$1.5K $ 40K $127K
$2.5K $ 67K $212K

Wow! You get the idea right? With just small annual contributions for five years, Roth IRAs can be worth eye-popping amounts by the time your kid approaches retirement age. That is the power of starting early!

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com