Real Estate Owners Should Plan Now Before Tax Breaks Expire
Below is a MRR and PLR article in category Finance -> subcategory Real Estate.
Real Estate Owners: Plan Now Before Tax Breaks Expire
Owners of real estate must strategically plan to benefit from recently enacted tax breaks scheduled to expire between now and December 31, 2010.
Key Tax Opportunities Ending Soon
Navigating the U.S. income tax code is challenging. To capitalize on expiring tax breaks, taxpayers should act promptly. Here's a breakdown of opportunities set to end soon:
Expiring in 2007
1. Energy Efficient Improvements: Incentives are available for energy-efficient upgrades to homes and commercial buildings. Manufacturers also receive credits for energy-efficient appliances, often passing savings to consumers. These benefits end on December 31, 2007.
2. $2,000 Credit for Contractors: Homeowners who buy newly constructed energy-efficient homes or substantially rehab existing ones should know that contractors are eligible for a $2,000 tax credit. This is available for 2006 and 2007.
3. Increased Section 179 Deduction: Until the end of 2007, taxpayers can write off the first $108,000 of equipment purchases instead of depreciating the costs over time. This deduction reduces to $25,000 starting in 2008. Businesses planning equipment purchases should act before December 31, 2007, for a significant tax benefit.
Expiring in 2008
1. Capital Gains Tax Rate Reduction: The tax rate on long-term capital gains is currently 15%. It's set to increase to 20% on January 1, 2009. Those intending to sell real estate or investments should consider doing so by December 31, 2008, to capitalize on the lower rate. Congress is working to extend this benefit through 2010.
2. Zero Percent Capital Gains for Low-Income Individuals: In 2008, individuals in the lowest tax bracket benefit from a zero percent capital gains tax rate. Gifting appreciated assets to children or grandchildren, aged 14 or older, may allow them to sell without paying taxes on gains up to approximately $30,000, assuming no other income. Families should consider potential impacts on financial aid.
Looking Beyond 2010
The major challenge is planning post-2010. The 2001 Tax Act is set to sunset on December 31, 2010, reverting most tax rules to their pre-2001 states, including marriage penalty and reduced savings limits. Future changes depend on Congress and the next President.
Plan Ahead
Tax planning is now a multi-year endeavor. With significant breaks expiring in the next few years, it's prudent to start strategizing now, keeping these expiration dates in mind.
Good luck!
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