How Can I Be Like Romney and Reduce My Effective Tax Rate to 15%?

Although I cannot promise you that we can reduce your tax rate to 15%, we can implement strategies that can dramatically reduce your effective tax rate.

The beauty/travesty of the U.S. Tax Code is that it is so complex and filled with so many provisions that allow us to reduce our tax liability.  One such provision is the Home Mortgage Interest Rate deduction.  Believe it or not, this provision was created to encourage more people to buy homes in the U.S., which arguably creates a multitude of positive results in our economy, our schools and our neighborhoods.

If you're single or married and making too much to pay only payroll taxes but not enough money to buy that Bentley or the palace in Malibu with the ocean view, then let's talk about how you can reduce your tax liability through investing in real estate.  (I'm also a fan of encouraging people to set up small businesses because the tax code favors small business owners with tax credits and write-offs. Yes, true to my roots, I encourage folks to have more than one revenue stream.  But that's another blog entry to itself.)

The Home Mortgage Interest Rate deduction allows you to write off a significant portion of the amount that you would otherwise pay as rent and you also benefit from the appreciation in value of your home over time.    If you want to buy something other than a single family home, you can still benefit from this provision.  We can also talk about the cool ways you can use low down payment programs (like FHA, etc.) to buy a duplex/triplex/4-plex unit building (wherein you live in one unit and rent out the others) and then later on down the line do a 1031 exchange on the units that you don't live in so that you can legally defer paying taxes on your real estate gains and buy in a more expensive neighborhood or buy other investment property.

According to our current tax code, when you sell your primary residence after living in it for 2 years, the first $250K of profit for individuals and the first $500K of profit for married couples is tax exempt. The key is to buy the right property at the right time.  Many real estate advisers will encourage you to buy when interest rates are low and when home prices are affordable--also known as "Our Current Market".  :-)

That's a lot of information.  If you want to set up a time to discuss the details of your real estate investment strategy, please do not hesitate to call or email me.  My office number is 310.482.2414 and my email address is marcelanderson@kw.com      

Did You Know that Tax Relief on Short Sales and Loan Modifications Will Expire This Year?

It is important to understand that the U.S. tax code treats cancelled and forgiven debts as a form of income, and thus taxpayers become liable for the additional income "received" and must pay taxes on such income.

The Mortgage Forgiveness Debt Relief Act has been a saving grace for many American homeowners who lost their shirt in the recent real estate crisis.   Before this Act was enacted in 2007, homeowners would have to pay tax on the amount of debt that was cancelled or forgiven by their lender (unless such debt was discharged pursuant to a bankruptcy proceeding).  Without having to file bankruptcy, the current legislation allows homeowners to sell their homes for less than the mortgage amount (which is called a "Short Sale") and not be liable for any federal taxes on the amount of the mortgage that is cancelled or forgiven by their lender.  The legislation was drafted in a way that even high income Americans could qualify because it allows up to $2 Million of forgiven debt to be excluded from the homeowner's income.

The good news is that since 2007 and through the end of this year, many homeowners in the U.S. have been able to save thousands of dollars.  The bad news is that this legislation is set to expire on December 31, 2012.

If you or someone you know is planning to do a short sale or modify a home loan, I would encourage you to read the link below and to contact a real estate broker to help you figure out a strategy that could save you thousands of dollars.  
     

http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation-