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The below topics are discussed in much more depth on our members' Taxes on Income page.

Government collects nearly $10,000 for each man, woman and child in America.

Tax Return Software

      There are now several excellent low-price software programs available for preparing federal and state returns.    

File Electronically

      In 1998, 900,000 taxpayers did their own returns on a personal computer and sent them directly to the IRS electronically. That might seem like a lot, but it amounts to less than one percent of the 100 million-plus individual returns the feds received. The number of taxpayers who file electronically continues to increase each year. 

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The Alternative Minimum Tax :

      ATMT was adopted in the 1980s as a part of tax reform. It has since had a depressing effect on overall investment in depreciable real estate by not allowing many property owners to take adequate deductions for depreciation on their tax returns. This, of course, leads to lower values for existing investment property and less incentive to invest in new construction of affordable rental housing.
      Many real estate and investment associations are lobbying heavily for modification or repeal of the onerous provisions of the Alternative Minimum Tax that would lead to removal of the depressing aspects of the tax and encourage more new investment in the US economy.

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      Whether or not  losses on real estate investments can be deducted against other income depends upon several factors including active vs. passive and at-risk rules.

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Capital Gains :

      One of the benefits of long-term investments is that they are taxed at lower rates than ordinary income (e.g., salaries and profit from a business).  However, investors in depreciable property must consider the recapture rules.

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Tax Relief Act of 97:

      The tax Act provided some relief on real estate investments by reducing capital gains from 28% to 20% if assets have been held for 18 months or longer. (28% tax-bracket.) However the rate would be 25% on any recapture of deprecation when there is a gain on a sale.
      Homeowners, (spell that v o t e r s) had taxes eliminated on capital gains of up to $500,000 for the principal residence of a married couple filling jointly. Single taxpayers enjoy a $250,000 exemption.

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Like-Kind Exchanges :

      Present tax law allows for a liberal interpretation of like-kind exchanges so that property of one kind can be exchanged for property of another kind without creating a taxable event.

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Low-Income Housing Tax Credit :

      (LIHTC) The 1986 tax reform act took away most incentives for investing in low-income rental housing by changing depreciation from fifteen to twenty seven and a half years. Many investment analysis professionals concluded that the act reduced the value of new investments in rental housing by about eighteen percent.

The feds responded by creating temporary Low-Income Housing Tax Credits to soften the effects on new or rehabilitated low-income housing. Essentially the act allows investors in properly set-up and registered low-income projects to take nine percent a year of their adjusted basis as a tax credit.
      In 1993 the Omnibus Budget Reconciliation act made the Low-Income Housing Tax Credit program a permanent part of the Federal Tax Code. This permanency led to more active involvement by both individual and corporate investors. That increased the market demand for the credits which are now often sold to raise equity capital for housing projects.

The above topics are discussed in much more depth on our members' Taxes on Income page.

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