
Thursday, September 15, 2011
The Home Office Trap



The Home Office Trap
The Home Office Trap The previous section pointed out that any depreciation taken on investment property would not be shielded by the primary residence exemption.
The examples used so far have all been about rental or investment property converted to a primary residence.
Depreciation, however, is taken not just on rental pr
Thursday, September 15, 2011
What is Recapture of Depreciation



What is Recapture of Depreciation
The What is Recapture of Depreciation As we saw in the previous example, it is possible to convert investment property to a primary residence. That example was, however,
uncharacteristically perfect because the facts left no doubt that the taxpayers could increase the fair market value while at the same time dec
Thursday, September 15, 2011
Investment Property Converted to a Primary Residence



Investment Property Converted to a Primary Residence
The Investment Property Converted to a Primary Residence One question that always comes up is whether a taxpayer can “convert” or “recharacterize” an investment property to a primary residence and thereby qualify for the primary residence exemption.
The answer is clearly yes. But the owner an
Thursday, September 15, 2011
Fractional Exemption Use For Investment Property



Fractional Exemption Use For Investment Property
Fractional Exemption Use For Investment Property Although the primary residence exclusion is normally associated with single family homes, it does apply to other types of living arrangements. Resident-owners of apartment buildings can qualify on a percentage basis.
If the resident-owners meet bot
Thursday, September 15, 2011
Exceptions to the Two-Year Requirements



Exceptions to the Two-Year Requirements
The Exceptions to the Two-Year Requirements Because the general rule requiring a taxpayer to have owned and lived in a home for two of the last five years is firm but not set in stone, exceptions to the rule do exist. Likewise, there are exceptions to the rule that you not take the primary residence exempt
Thursday, September 15, 2011
How The Required Two-Year Period is Calculated



How The Required Two-Year Period is Calculated
How The Required Two-Year Period is Calculated One of the commonly misunderstood areas of the primary home exemption is how the periods are calculated to meet the ownership and use tests. For the average person who has owned and lived in his or her home for the past two or more consecutive years, th
Thursday, September 15, 2011
Property that Qualifies as a Primary Residence



Property that Qualifies as a Primary Residence
The Property that Qualifies as a Primary Residence There are two tests to determine whether a property qualifies for the $250,000/$500,000 primary residence exemption. To be entitled to the exclusion you must have:
1. Owned the home for at least two years of the last five years.
2. Lived in the hom
Thursday, September 15, 2011
What is the Primary Residence Exclusion?



What is the Primary Residence Exclusion?
What is the Primary Residence Exclusion? There is a significant difference between the tax liability on the sale of investment property and the tax liability on the sale of a primary residence. The main reason for this difference is a capital gain exclusion/ exemption created by the Taxpayer Relief Act of
Thursday, September 15, 2011
Get it Done



Get it Done
The Get it Done is A step-up in basis does not happen automatically, so you have to file the appropriate paperwork with the IRS. As mentioned earlier, if you inherited a property or a portion of a property some time ago, you can still file for the stepped-up basis.
You need to establish the value of the property at the time you inhe
Thursday, September 15, 2011
Problems with Exaggerating the Value



Problems with Exaggerating the Value
The Problems with Exaggerating the Value Generally speaking, it is usually to your advantage to establish the highest possible value for stepped-up basis purposes, but there are times when a high date-of-death valuation is not to your advantage. Case in point: an optimistic or exaggerated value will hurt you
Thursday, September 15, 2011
Obtaining the Highest Step-Up Possible



Obtaining the Highest Step-Up Possible
The Obtaining the Highest Step-Up Possible Even if the above IRS valuation requirements sound extensive and burdensome, they really are not. Almost all of the requirements are traditionally included in a standard professional property appraisal, and in most cases that is all you need to support your request
Thursday, September 15, 2011
Using Fair Market Value to Your Advantage



Using Fair Market Value to Your Advantage
The Using Fair Market Value to Your Advantage As you can see, obtaining a stepped-up basis on a property can have a significant effect on your taxes when the property is eventually sold. Just as important as obtaining a stepped-up basis is making sure you get the most favorable stepped-up basis.
From th
Thursday, September 15, 2011
Filing For a Step-Up in Basis



Filing For a Step-Up in Basis
The Filing For a Step-Up in Basis A step-up in basis does not have to happen immediately. If you inherited property in the past as a joint owner, you may still file for a stepup.
You will have to establish the value of the property at the time you inherited it, but the effort and expense are usually well worthwhile
Thursday, September 15, 2011
Community Property



Community Property
The Community Property If you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin) and are married, you have the ability to hold property with your spouse as community property. Certain distinct tax advantages adhere in doing this. Unlike the other form
Thursday, September 15, 2011
Joint Tenancy



Joint Tenancy
The concept of joint tenancy is a little hard for some to understand. Joint tenancy is commonly defined as a vesting in which each joint tenant owns an equal and undivided interest in the whole property. Joint tenancy is most commonly used in family situations, usually between husband and wife or parents and children.
The step-up
Thursday, September 15, 2011
What is a Stepped-up Basis?



What is a Stepped-up Basis?
What is a Stepped-up Basis? The term stepped-up basis refers to an adjustment or reallocation made to the basis of an inherited property. The concept of a steppedup
basis is fairly important because it directly impacts the amount of taxes you will face on the sale of inherited property and indirectly impacts the taxes
Thursday, September 15, 2011
Estimating Your Tax Liability



Estimating Your Tax Liability
The Estimating Your Tax Liability It doesn’t take a CPA to estimate the potential tax liability on the sale of real estate. The math is fairly straightforward, but you have to know the three key factors previously described: the adjusted basis, the total depreciation taken, and the expected net sales price. From the
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