How Real Estate Investing Keeps Your Taxes Low
Posted on June 9, 2007 by Max
Filed Under Real Estate | Leave a Comment
An attractive element of real estate investment is that it creates a paper loss when in actuality you have gains. To understand how this can lower your taxes while increasing your income, here’s a quick example.
| Rental Condo | |
| Rent Collected | $15,200 |
| Mortgage Pmts | (9,000) |
| Assessments | (2,000) |
| Taxes | (2,000) |
| Insurance | (200) |
| Total Cashflow | $2,000 |
| ——————– | |
| Depreciation | (7,000) |
| Total Income | ($5,000) |
The rental condo produced $2,000 in income - $2,000 of real money in your pocket. When depreciation expense is included, the condo shows a loss of $5,000. However, the loss is a result of depreciation, a non-cash expense. What this means is that depreciation is expensed on the income statement, but does not represent a real cash outflow, so it creates a loss on paper despite the positive cashflow in reality.
Now if you had 5 condos just like this one, you have reduced your taxable income by $25,000 (the passive rental loss limit you can deduct by law), when you have actually earned $10,000 from your properties.
Case in point. Last year, my salary was in the six figures. But my taxable income, due passive rental losses and other deductions, was a mere $36K. I paid only $5K in taxes.
Why are we addicted to reading blogs?
Posted on June 7, 2007 by Max
Filed Under General | 3 Comments
During the early days of the internet, I found myself passing work time through a slow AOL connection and reading discussion groups and usenets. Why did I read these? Because the content on these were submitted by readers and were updated daily.
Fast forward to the introduction of the web in 1994. Most webpages were static, once you read them that was it. They were updated maybe once a month. As the web evolved the news sites like Yahoo & MSN had daily updates. But reading the news gets old and it’s not really that captivating.
Blogs can be like ongoing TV shows. They can be the source of many hours of reading. With the advent of blogs, we became exposed to literally millions of on-going real life stories posted by the everyday person. When reading these blogs, one gets caught in a life story. We get to read about what other people are doing as they do it. Best of all, we can comment and make suggestions and actually make a difference. It’s like reality TV that interacts with you.
It’s no wonder that people are addicted to blogs. They have great un-edited content. They have new posts daily. You can interact directly with the author. And there is a blog for every subject in the world.
Should bloggers use their real names?
Posted on June 6, 2007 by Max
Filed Under General | 6 Comments
From the second my bumper caved in the door of another vehicle, I knew I’d be sued. My first thought was relief that my auto insurance and a personal umbrella insurance would cover the damages. My second thought of was the realization that personal details of my life could be found on social websites such as myspace by anyone searching for my real name. Details such as where I went to school, where I hung out, and where I went on my last vacation were all exposed for public viewing. I’d never cared about my openness on the web until I realized there were some people out there, like this accident victim and his attorney, that I did not want to share my life with.
I have since changed the name on my profiles so that I won’t show up on name searches. I’ve also stopped using the same screen name for my frequently visited discussion boards (real estate, trading, personal finance, travel), so that someone searching on the screen name won’t be able to figure out my actions in these various arenas. I can’t afford to be an open book – literally.
I see plenty of blogs where the author uses his/her real name, photos, and offers a lot of personal financial information. My accident has taught me to keep some things under wraps. Maybe you should too.
Lowering your AGI and keeping the real estate $25,000 passive income loss deduction
Posted on June 4, 2007 by Max
Filed Under Real Estate | 2 Comments
I made some good trades in the options market this year. In five months, I turned $15k into $65k. So what could possibly be the problem? Taxes. The man. Trying to get into my pockets again. Under tax law, if one’s Modified Adjusted Gross Income (MAGI) is over $150k, that person can no longer any deduct passive rental losses. So by realizing my $50k gain in options trades, I would lose my $25k deduction in my real estate paper losses (not to be confused with the actual gains).
So what I did was transfer those open positions as a “gift” to other trusted individuals –who earn less than $100k per year. Then, these individuals would close the positions and pay taxes on the gains. The last step – you have to figure it out for yourself. By giving away these options, I preserved my passive rental loss deductions.
Finally, tax law states that if one spends the majority of his/her time in the real estate business as a real estate professional, rental losses are fully deductible, regardless of the MAGI . So to avoid ever having to run into this problem again in the future, guess who’s going to become a “licensed real estate professional” next year?
Do you ever give “pay per click” love?
Posted on June 4, 2007 by Neo
Filed Under General | 5 Comments
When I like a post or feel that I’ve learned something from a blogger’s post, I usually leave a comment telling the author. However, sometimes I also like to give an ad a click. I figure why not give the author a few cents in addition to the comment. I was wondering if any of you other bloggers do this?
Getting audited by the IRS
Posted on June 1, 2007 by Max
Filed Under Real Estate | Leave a Comment
I always get anxious when walking through a security checkpoint, expecting the metal detector to beep even though I’ve emptied my pockets and removed every possible metallic object from my body. I get that same anxiousness whenever I see a letter from the IRS. In 2005, my feeling was justified. My tax return was being examined.
According to the IRS, my real estate holdings, which consisted entirely of condos, were not properly depreciated. Under tax law, residential property can be depreciated over 27.5 years using straight line deprecation. However, because land does not deteriorate with time, land value must be excluded from depreciation expense. In what I believed was consistent with the law, I depreciated the full cost of the condo because I did not own any land. But the IRS maintained that I did own a share of the land the building sat on, and that 10% was the standard number they used when determining land value.
We discussed this back and forth. I showed them documents that reflected my percentage of ownership in common elements (used to calculate monthly assessments) which showed that I owned less than 1% of the common elements, which includes land. An attorney advised me that 0% for land was appropriate. Finally, the IRS and I agreed that we would use 5% for land value.
By lowering my depreciation expense, my income, and therefore tax burden, increased. I could have contested the issue in court. But in the end, I paid the additional amount in taxes rather than pay attorney’s fees. By fighting the power, I had already saved on my taxes by using a lower land value percentage (5%) than the standard (10%). Not to mention that I only paid additional taxes for one year, while I depreciated in the same manner (using 0% land value) in the previous three years. From here on out, I’ll use 5%, while the rest of America probably uses 10%.
You can’t buy what you don’t know about
Posted on May 31, 2007 by Max
Filed Under Finance | 1 Comment
The biggest problem that most Americans in terms of their finances is that they cannot control their spending. They say that it’s not what you earn, it’s what you spend, and to a degree, that is true. There are countless stories out there of folks with low-paying occupations that ended up with a huge stash through diligent spending.
Nearly everyone has a spending weakness. Guys love fancy cars. Chicks love purses. Guys need big screen TVs. Chicks need shoes. I have an affinity for timepieces, which is the word used for an expensive watch. There was a time that I had four timepieces. Which is silly, considering I only have two wrists.
There are simple ways to regain power over your spending weakness. Step one - Don’t Go Shopping. Duh. Don’t look into the windows. Don’t accompany a friend with the thought that you are “just looking.” Once you are in the environment, you are bombarded with literally thousands of messages strategically designed to separate you from your money. So don’t put yourself at that disadvantage by being in their home field.
If you do end up shopping, go to Step two – Buy it Later. If your thought process is that you can always return it, you will end up buying it now and most likely, keeping it. That’s because it’s more inconvenient for you to bring it back than to live with it. So, change your mental perspective. If you really want it, you will buy it later. (Stores cleverly create a sense of urgency by having a sale for “today only.” Be strong.) This will stop you from impulse buying and it will instead make it inconvenient for you to go back and get it. If 24 hours later, you aren’t dying to make that purchase, you’ve just saved your money.
Lastly – Don’t Keep Catalogs. I used to receive all kinds of catalogs and brochures from watch manufacturers and jewelry stores because they pegged me as a good customer. Don’t let these marketers invade your home field! Every minute that catalog sits on your coffee table is another minute that advertisement message is working against you. Don’t flip through it. Don’t even look at the cover. Throw them out and cancel them.
I’ve had the same timepiece now for four years, with no desire to replace it.
Payperpost can equal simple serious money
Posted on May 30, 2007 by Neo
Filed Under Internet Biz | 3 Comments
I ran some numbers on Payperpost to see what an average blogger could make using this service.
Here is a quick rundown:
- 3 opportunities a day X $10 per opportunity X 365 days = $10,950/yr
- 20 minutes per post X 3 posts per day X $10 per post = $30/hr/day
$10,000 of additional income on 1 hour a day is not chump change. Many homebased businesses require alot more work than this and don’t bring in that much money. Couple this with low or nil overhead and the ability to work anywhere on a laptop and you’ve got a great second business! Think about what an extra $900/mo could do for you!
Submitting your blog to free directories does it work?
Posted on May 28, 2007 by Neo
Filed Under Internet Biz | 5 Comments
Over the weekend while watching the NBA playoffs, I decided to make my time worthwhile. I pulled up a list of free directories that I found over at Making Money Online. I began to systematically submit this blog to each one on the list.
I submitted to every listing that I felt had some small chance of helping this blog’s inbound links. Some of the directories on the list no longer allow free submissions. I did not submit to any directories from foreign countries or directories that had specific content requirements. I also did not pay for any of the “upgraded” listings.
It took a while, but I did five at a time during TV timeouts and commercials. Now all we have to do is sit back and see if the links show up on Google or Technorati.
Does PayperPost care more about the link than a post’s content?
Posted on May 27, 2007 by Neo
Filed Under Internet Biz | Leave a Comment
I have only made a few sponsored posts using Payperpost on other blogs so far. However, in just making a few posts, I get the impression that Payperpost emphasizes the inbound link to their site over the content of the post. I’d like to find how if others agree with my thoughts. In my experience with Payperpost, their opportunity instructions are not very clear and often contradict each other. I have heard from many bloggers that getting a post approved on its first submittal is difficult even if you follow the directions clearly.
For example, the advertiser’s text description often has specific instructions or optional instructions which contradict Payperpost’s directions elsewhere in the opportunity. Here is an example of text from one advertiser. “We would appreciate you also adding an optional link to the main page listed below in the required link area. The more variation we get for the link text, the better.” According to Payperpost, you must use the advertising’s companies coded link without any modifications, but this advertiser wants more variations and says the link is optional. It’s obvious that this advertiser would like a variation of different inbound links rather than one single repeated text link. So who do you try to satisfy? I’ve found that you will get your post approved 100% if you follow PPP’s directions, however is that what you really want? Don’t you want to give the advertiser, your end customer, what they wanted?
In addition, giving your advertisers more than they asked for is also rejected. I try to provide a good, in-depth post about the opportunity. It’s only natural that an in-depth post can contain additional pertinent links just through normal writing. In a post I made, I used the required text link in my post but I also included several other links to pertinent deeper pages of the advertiser that completely flowed with my discussion. These additional links were considered incorrectly formatted and the post was rejected. Therefore, in I removed them all.
I think that these are just growing pains that Payperpost is experiencing. I think that their reviewers should read their advertisers description and understand what the advertiser wants instead of flying through the approval process by going through a checklist.
As a blogger, you have to decide which directions to follow and hope that you were right. This can be very frustrating as most bloggers are making these posts strictly for cash. Having posts rejected repeatly just wastes our time. Sometimes it is not worth the $5 to $15 to write a single post and to revise it many times due to poor direction on Payperpost’s part.
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