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Tax Talk with Chris Bird 2009
Tax Talk with Chris Bird 2009
•Certified Residential Specialist•Licensed Broker Since 1980•Broker/Owner American RE Service•Founder/Director Arkansas
Institute of REInstitute of RE•Senior CRS Instructor since 1989
oCRS 204 Wealth BuildingCRS 205 Financial & Tax SkillsoCRS 205 Financial & Tax Skills
•Multi-State GRI & ABR Instructor•Serves on CRS Board of Directors
Tina B. Daniel
Tax Talk with Chris Bird 2009
•Senior CRS Instructor
•IRS agent from 1970 to 1986
•Chris Bird Seminars, Inc.
Former adjunct instructor of •Former adjunct instructor of tax law at University of Illinois for more than 28 year
Chris Birdfor more than 28 year
Tax Talk with Chris Bird 2009
N T LNew Tax Laws
Tax Talk with Chris Bird 2009
IRA Conversions to ROTH IRA
$100,000 limit removed in 2010Most of you should consider this, if politicians leave this tax law change aloneleave this tax law change aloneIssue is entirely one of timing, and assumptions regarding tax rate increases
Tax Talk with Chris Bird 2009
h h d f b k
Net Operating Loss Carrybacks
This is huge-----instead of a 2 year carryback, affected taxpayers will be able to carryback losses from their businesses in 2008 and 2009 for 5 years, resulting in large refunds of taxes paid in previous years. Let your builder’s, subdivision developers etc know as these refunds could help developers etc., know as these refunds could help them stay in business
Tax Talk with Chris Bird 2009
Federal Estate Tax ChangesAs of 1/1/09, the Federal Estate Tax Exemption As of 1/1/09, the Federal Estate Tax Exemption increased from $2M per person to $3.5M per person. On 1/1/10, the Federal Estate Tax is repealed in total for one year only. Then, in 2011, Th F d l E t t T E ti t b t t The Federal Estate Tax Exemption returns, but at a level of $1M. Politics will never allow the repeal of the Estate Tax for even one day, so watch in 2009 as Congress negotiates a permanent $3 5M 2009 as Congress negotiates a permanent $3.5M exemption starting 1/1/10. The 2009 annual gift tax exclusion has increased to $13 000to $13,000
Tax Talk with Chris Bird 2009
New Energy Tax Credits
Applies to Principal Residence onlyGenerally 30% of the applicable cost, but limited to $1500 tax credit over 2009 and 2010limited to $1500 tax credit over 2009 and 2010For certain improvements (i.e. Wind Energy) no limit on the amount of tax creditSee www.EnergyStar.gov for detailed info
Tax Talk with Chris Bird 2009
New Tax Law 2009
If you or someone close to you is 70 ½ or older, they are probably having to take withdrawals from their retirement accounts called RMD. (Required minimum distributions)If they do not want to take these distributions in 2009, they can do so, and not be subject to any 2009, they can do so, and not be subject to any penalties (50%)Talk to your parents about this
Tax Talk with Chris Bird 2009
Don’t Forget… the men and women who make vehicles
If you have the money, the deals on vehicles are out there, and if you purchase BSN, the deductions will knock your socks off However to deductions will knock your socks off. However, to take the big depreciation write-offs, you cannot deduct the standard mileage rate, which was 50.5/58.5 for 2008, and is 55.0 for 2009.What does this mean?
Tax Talk with Chris Bird 2009
The SUV Write-off
Vehicle must have a GVWR>6 000 lbsVehicle must have a GVWR>6,000 lbs.Cannot ever use standard mileage rate on same vehicle (50.5/58.5 for 2008, 55 for 2009)( / , )Law change effective for vehicles acquired after 10/22/04
Tax Talk with Chris Bird 2009
The Luxury Car Limit on Depreciation
Total first year deduction in 2008 and 2009 is yapproximately $2,960 if used, $10,960 if BSN
Tax Talk with Chris Bird 2009
Example of qualifying SUVThe good old days!• Cost $55,000• B/U 90% • Bus Base $49 500• Bus Base $49,500• IRC 179 $49,500
Huge write‐off, if purchased new or used 10/22/04 or beforeg , p / /
Tax Talk with Chris Bird 2009
And if purchased in 2008 or 2009
Cost $55,000Cost $55,000Business Use 90%Basis $49,500IRC 179 $25 000IRC 179 $25,000Remaining $24,500Bonus Dep. $12,250Reg. Dep. $ 2,450Total $29,900 in 2008 and 2009 if used, and
$39,700 if BSN in 2008 and 2009
Tax Talk with Chris Bird 2009
Full Size Pick-up Truck Write-off
(with bed length of at least 6 feet)
Cost $55,000Cost $55,000Business Use 90%Basis $49,500Total $49 500Total $49,500
Tax Talk with Chris Bird 2009
2002 2003-2010
Where are marginal tax rates going?
Top Bracket 38.6% 35%
Fifth Bracket 35% 33%
Fourth Bracket 30% 28%
Third Bracket 27% 25%Third Bracket 27% 25%
Sec. Bracket 15% 15%
Initial Bracket 10% 10%
Tax Talk with Chris Bird 2009
Where are capital gains and dividend tax rates going?
2002 2003-2010
Capital Gains Rate 20% 15%Capital Gains Rate 20% 15%
Capital Gains Rate for L/I 10% 5% thru 2007, 0% in 2008-2010
Dividends Tax Rate As high as 38.6% 15%
Dividend Tax Rate for L/I As high as 38.6% 5% thru 2007, 0% in 2008 20100% in 2008-2010
Tax Talk with Chris Bird 2009
Future of Tax Rates
h h h h dThe issue is whether the current administration will let the original tax rate reductions expire at the end of 2010 or accelerate the tax increases that automatically goes into effect in 2011 into an earlier tax year, such as 2009 or 2010. It appears from the budget proposal that changes appears from the budget proposal that changes will not occur until 2011.
Tax Talk with Chris Bird 2009
Accessing Retirement Funds with
Mi i l T CMinimal Tax Consequence
Tax Talk with Chris Bird 2009
Tax Free Funds / Minimally Taxed Funds
How do you access funds that are tax free or minimally taxed if you need the money?
“It’s my money and I need it now!!!!!!!!!!!!!!”
Tax Talk with Chris Bird 2009If you need money to pay personal or businessIf you need money to pay personal or businessexpenses, and other sources have dried up….Consider:
Cash in some retirement assets (SEP IRA’s, IRA’s). If your marginal tax rate is low due to the
th t d lt i b economy, the tax and penalty pain may be very low. If you are 59 ½ or older, the 10% penalty does not apply at all, so the marginal tax rate is your only consideration.Roll your IRA’s or SEP IRA’s into a 401(k) for the self employed & BORROW funds from the 401(k) self employed & BORROW funds from the 401(k) instead of taking a distribution.
Tax Talk with Chris Bird 2009
401(k) Loans
Terms of Loan:Maximum loan amount is the lesser of $50,000 or 50% of the amount in the 401(k)or 50% of the amount in the 401(k)Repayment is required over a period not to exceed 60 monthsCurrent interest rate is in the 5-6% range
Tax Talk with Chris Bird 2009
id
If you need money to pay personal or businessexpenses, and other sources have dried up…
Consider:Take withdrawals from your ROTH IRA’s up to the amount of your non-deductible contributions amount of your non deductible contributions. These withdrawals are NON-TAXABLE!The 60 day rollover from one IRA to another. This money is not taxed as long as you put the funds back into the IRA by the 60th day.
Tax Talk with Chris Bird 2009
Financial Planning IIssues
Tax Talk with Chris Bird 2009
Evaluate Your Financial Assets
Assess current spending habits-watch your spendingDevelop a Business PlanDevelop a Business PlanPrepare a Net Worth StatementPurchase Quicken, Money, or QuickbooksPurchase Quicken, Money, or QuickbooksPurchase a NEAT RECEIPTS SCANNER
-they are slick! (Costco $132.00)
Tax Talk with Chris Bird 2009
Retirement Plan Contribution Limits
Year IRA Simple 401(k) SEPIRA
% ofP fitIRA Profit
2008 $5,000 $10,500 $15,500 $46,000 20/25
2009 $5,000 $11,500 $16,500 $49,000 20/25
Tax Talk with Chris Bird 2009
Retirement Plan Catch-Up Provisions 50+ years oldy
Year IRA Simple 401(k) 403(b) p ( ) ( )457
2006and later
$1,000 $2,500 $5,500
Tax Talk with Chris Bird 2009
The 401(k) Series
Good way to increase retirement plan Good way to increase retirement plan contributions on lower levels of profit (or S Corporation Salaries)Must be started by end of first year, you can’t wait until the following year (like SEP IRA)Onl p oblem i if elf emplo ed pe on i n’t Only problem is if a self-employed person isn’t maximizing contributions to their current retirement plan, they won’t to the 401(k) eitherYOU CAN BORROW FROM YOUR 401(k)!!!!!!!!
Tax Talk with Chris Bird 2009
The 401(k) SeriesSolo (k) or Safe Harbor 401(k)( ) ( )Profit $50,000 $80,000 $220,000Cont: $16,500 $16,500 $16,500+25% 12,500 20,000 32,500*=401(k) $29,000 $36,500 $49,000If 50+ $34,500 $42,000 $54,500SEP IRA $10-12K $16-20K $49,000
NOT SUBJECT to income limits of Roth IRA
Roth 401(k)
NOT SUBJECT to income limits of Roth IRANot Tax Deductible, distributions mostly tax free401K loans available401K loans availableMaximum deferral per employee $16,500/year OR $22,000/year for age 50+Combined contribution between employer and employee not to exceed $49,000/year (2009)
Tax Talk with Chris Bird 2009
Think about Converting IRA to ROTH IRA
With the utmost certainty that tax rates will be increasing now is the time to consider converting increasing, now is the time to consider converting some of your IRA’s to ROTH IRA’s
Tax Talk with Chris Bird 2009
Why Convert an IRA to ROTH IRA?
Why? 3 reasonsWhy?-3 reasonsTax rates are lower now than will be in futureThe value of your IRA’s are down, so the tax
th i ill b lyou owe on the conversion will be lessDue to the economy, your marginal tax rate may be lower than in previous years, meaning th t th t th i ill b lthat the tax on the conversion will be lower.
Tax Talk with Chris Bird 2009
Real Estate in Your Retirement Plan
If you no longer trust the stock and equity If you no longer trust the stock and equity markets, AND you are a real estate investor, there is no better time than NOW to consider the purchase of real estate investments with your retirement accounts.
Tax Talk with Chris Bird 2009
Why Consider Real Estate in Your Retirement Account
Choices!Choices!Earn a rate of return based on what you knowTax deferred growth or tax free growthg gTake charge of building your long term equity
Tax Talk with Chris Bird 2009
The 2009 The 2009 First-Time Homebuyer y
Tax Credit
Tax Talk with Chris Bird 2009
Home Buyer Seminars
In the next 30 days start advertising in your y g ymarkets about the new tax creditConduct Home Buying Seminars - bring a local accountant into the seminar to explain the local accountant into the seminar to explain the new tax law. Get sponsors, builders, inspectors, lenders, appraisersStart Shaking the Trees newsletters email Start Shaking the Trees - newsletters, email blasts, letters to apartment renters, letters to clients with kids graduating from college
Tax Talk with Chris Bird 2009
Overview
In 2008 Congress created a $7,500 First-Time gHomebuyer Tax creditIt went into effect for purchases after April 8, 2008 d t t i J l 1 20092008 and was set to expire on July 1, 2009The big problem: The tax credit had to be repaid over 15 years. People viewed it as a repaid over 15 years. People viewed it as a debt and not a benefit.
Tax Talk with Chris Bird 2009
The 2009 Tax Credit
The repayment requirement has been The repayment requirement has been removed for purchases between January 1-November 30, 2009. However, at this time the
dit i till bl f 2008 hcredit is still repayable for 2008 purchasesThe tax credit has been expanded to $8,000But it is still only for first-time homebuyersBut, it is still only for first-time homebuyers
Tax Talk with Chris Bird 2009
Credit Details
The new credit is an $8 000 REFUNDABLE Tax The new credit is an $8,000 REFUNDABLE Tax Credit (or up to 10% of the purchase price).
So, if the property is $70,000, the credit is only $7,000. (A t $80 000 f thi bi )(Assume a property over $80,000 for this webinar)
Refundable means that if your total tax liability in Refundable means that if your total tax liability in the given year is less than $8,000, the IRS will send a refund for the balance
Tax Talk with Chris Bird 2009
Refundability; Why it’s Important
Many taxpayers don’t have tax liability that exceeds Many taxpayers don t have tax liability that exceeds $8,000
For example, according to the 2008 IRS Tax T blTables
A single filer would need $46,600 in taxable income to have $8,000 in tax liabilityA married couple would need $58,600 in taxable income to have $8,000 in tax liabilityThose with less tax liability will in most cases get a y grefund, meaning they get the full value of new tax credit
Tax Talk with Chris Bird 2009
h k h diWho CANNOT take the tax credit?If any of the following:
Y i d th h t Thi j i t Your income exceeds the phase-out range. This means joint filers with Modified Adjusted Gross Income (MAGI) of $170,000 and above and others with MAGI of $95,000 and above. (You start to lose the tax credit at $150,000 and above. (You start to lose the tax credit at $150,000 and $75,000 respectively)You purchase your home from a close relative. This includes your spouse, parent, grandparent, child, or grandchildYou stop using your home as your main homeYou sell your home before the end of three yearsYou are a non-resident alien
Tax Talk with Chris Bird 2009
First-Time Homebuyer Definition
Someone who did not own another principal residence at any time during the three years residence at any time during the three years (36 months) prior to the date of purchase.
Tax Talk with Chris Bird 2009
First-Time Homebuyer Examples
For example, if you purchased a home on March 15, 2009, p y pyou can’t take the credit for that main home if you owned, or had an ownership interest in, another home at any time from March 15, 2006 through March 15, 2009.So, if the last time you owned a home was 2005, you are eligible for the tax credit even though it is really not your “first” home.For married joint filers, both must meet the first-time homebuyer test to take the credit on a joint return. Apparently not if they file as married filing separate, but the
di i h l d d MFS i credit is halved, and MFS can increase taxes
Tax Talk with Chris Bird 2009
More on Income Limits
Type Income Limit Phase Out Start
Single Filers $ 95,000 $ 75,000M i d Fil $170 000 $150 000Married Filers $170,000 $150,000
Tax Talk with Chris Bird 2009
More on Income Limits
This means that for singles making over $75 000 This means that for singles making over $75,000 and couples making over $150,000, the credit is proportionately reduced as incomes approach $95,000 and $170,000 respectively. So if a couple makes $165,000, the excess amount is used to create a fraction 15,000/20,000 (.75) used to create a fraction 15,000/20,000 (.75) times the credit amount. 75% or $6,000 of the tax credit would be disallowed. They would still get a $2 000 tax creditget a $2,000 tax credit
Tax Talk with Chris Bird 2009
M t b th “ i h ” ( i i l id ) hi h
The Home
Must be the “main home” (principle residence) which generally is considered to be the home where you spend 50% or more of your time. It can be a condo, single family detached, co-op, townhouse, or something similary , p, , gThe home must be located in the United StatesVacation homes and rental properties are not eligibleFor new construction, the “purchase date” is the date you For new construction, the purchase date is the date you occupy the home. So the move in date must be before December 1, 2009
Tax Talk with Chris Bird 2009
Recapture-3 Year ResidencyIf the home is sold prior to three years of ownership, the tax credit must be repaid.
This is an improvement from the prior credit. That credit needed to be repaid in total over 15 years or the balance p yhad to be repaid on sale
This provision is designed to prevent flipping homes in order to get the credithomes in order to get the credit
It will be interesting to see if congress initiates any changes on recapture within 3 years if home is sold due to job transferto job transfer
Tax Talk with Chris Bird 2009
Other Provisions
h d l bl d fThe new credit is available to residents of DCPurchasers who utilize state/local revenue bond financing can now use the creditfinancing can now use the creditPurchasers who bought (closed) before January 1, 2009 are still subject to the terms of the repayable credit
Tax Talk with Chris Bird 2009
When Can You Claim the Credit?
It can be claimed on your 2008 Tax Return (to It can be claimed on your 2008 Tax Return (to be filed by April 15, 2009), an amended 2008 Tax Return, or your 2009 Tax Return. IRS form 5405 i d t l i th dit5405 is used to claim the creditCongress considered making the tax credit available at the closing table, but dropped the available at the closing table, but dropped the idea
Tax Talk with Chris Bird 2009
Conclusion
The new credit is greatly improved compared to The new credit is greatly improved compared to the old creditIt is a true credit and does not need to be repaid as long as you occupy the home for 3 yearsNAR estimates that hundreds of thousands of NAR estimates that hundreds of thousands of potential buyers will take advantage of the credit
Tax Talk with Chris Bird 2009
This information is accurate based on the
CAVEAT
This information is accurate based on the changes to the tax laws as of March 18, 2009. As with any tax law change, check with a tax advisor if there are any questions regarding the advisor if there are any questions regarding the use of this tax credit.
Tax Talk with Chris Bird 2009
Question and Answer