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Crucial Tax Tips for Landlords #9

Sell Property To Yourself
submitted by Brian L.

RealTaxTips.com

TReXGlobal.com

Selling property to an S-Corporation may be beneficial in some specific situations, like if you are trying to meet requirements for the two year rule ($250/500k exclusion), or if you are trying to take advantage of depreciation on appreciated property.

For example, say you lived in a property for three years, and rented it out for the next seven years – since you haven’t lived there for two out of the last five years, you cannot sell the property as a primary residence to avoid the capital gain.

However, after moving out of the property, you sell it to your own S-Corporation, which allows you to exclude capital gain (up to $250k, $500k if married filing jointly) because requirements for the two-year rule have been met. The other advantage is you can have a new basis for depreciation on your appreciated property.

Say you purchased a home for $50k many years ago, and it is worth $500k now. If you decided to rent it out, the basis for depreciation would be the original basis of $50k. But after selling it to your S-Corporation, you can depreciate the new basis of $500k. Clearly this will bring you substantial tax savings.

Selling to your S-Corp isn’t for everyone though. You should avoid using this strategy if you cannot take advantage of the exclusion amount. For example, you sell your primary residence with a gain of $240k to your S-Corp, and pay no tax due to the exclusion. However, if you did not meet the exclusion, the $240k gain would be taxed at ordinary income tax rates, and it would have been more beneficial to just sell the property and pay capital gains tax of 15% instead.

For more Tax Tips and FREE Property Management Software for real estate investors, check out TReXGlobal.com.

Did you miss these tax tips:

Home Office Deduction

Use Depreciation to Lower Income

Spread Out Repairs

Utilities That Landlord Pays

Auto Expenses You Can Actually Deduct

Look For Properties While On Vacation

Calculating Gain on Sale of Rental Property

New Property Management Software Makes Tax Prep a Breeze

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Posted on Thursday, January 8th, 2009 at 12:06 pm and is filed under AAOA Forum. You can follow any responses to this entry through the RSS 2.0 feed.

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2 Responses to “Crucial Tax Tips for Landlords #9”

AAOA - American Apartment Owners Association » Federal Tax Credits Extended says:

January 15, 2009 at 5:57 pm

[...] For more, visit EnergyStar or talk to your tax adviser. See Crucial Tax Tips for Landlords. Just in time for tax season, see New Property Management Software Makes Tax Prep a Breeze. [...]
ANGELO DI LUZIO--DI LUZIO REALTY says:

January 20, 2009 at 4:52 pm

I AM SURE THAT MANY PEOPLE IN THE RENTAL BUSINESS ARE SHARING MANY VACANCIES. I THINK THAT WE SHOULD MEET WITH OTHER LANDLORDS IN OUR RESPECTIVE AREAS, AND FORM A CO-OP {OF LANDLORDS} FOR PURCHASING POWER TO THE VARIOUS SUPPLIERS SUCH AS; LOWES, HOME DEPOT, 84 LUMBER, AND EVEN INSURANCE COMPANIES. NOT THAT WE ARE BUYING ALL AT ONCE, BUT AT VARIOUS TIMES INDIVIDUALLY TO SERVE THE MASS OF THE LANDLORD {CO-OP}.
THIS WOULD POWER DISCOUNTS AND COMPETITION AMOUNG SUPPLIERS, WHICH WOULD OFF SET THE VACANCY MONEY FACTOR. ALL LANDLORDS WITH MULTIPLE RENTALS ARE UPGRADING THEIR RENTALS AT SOME POINT MAINLY DURING THE SUMMER MONTHS.
THIS CONCEPT IS NOT THAT FAR FETCHED FOR THOSE OF US THAT ARE SERIOUSLY INVESTED IN THE RENTAL BUSINESS. IF THIS IS OF ANY IMPORTANCE TO OUR MEMBERSHIP I DO HAVE AN IDEA THAT WOULD WORK {WOULD WORK}, IN THIS SOFT MARKET.
BEFORE ANY MATERIAL IS BOUGHT OR ANY MATERIAL LIST IS GIVEN TO A SUPPLIER FOR A QUOTE THE GROUP MEETS WITH THE MAIN MANAGER OF THE SUPPLIER IN A PARTICULAR AREA. IT IS AFTER THIS MEETING THAT SERIOUS DISCOUNTS WILL BE GIVEN. THIS WAS DONE IN THE LAS VAGAS AREA DURING THE BOOM ERA AND IT WORKED THEN. WHY NOT NOW???
DILUZIOAK@COMCAST.NET