The SUV tax break is back!
Congress has recently approved a tax patch which contains the 2009 tax break for purchasing a new heavy SUV. As an example, if a business purchases a new $50,000 SUV and puts this vehicle into service by December 31, 2010, it can expense $25,000, the maximum for these vehicles. Then the business owner can claim $12,500 in bonus depreciation and also $2,500 in normal depreciation. This brings the total first year write off to $40,000. The SUV must have a loaded weight over 6000 pounds and must be a new vehicle.
Let’s talk tax laws that may affect Real Estate Sales:
The new healthcare legislation applied a 3.8% surtax to high incomers starting after 2012. Many news outlets are reporting this additional surtax will be applicable to the gains on all home sales. This statement is false. As we have enjoyed for years, the gain on the sale of a primary residence has an exclusion of $250,000 for singles or $500,000 for married individuals. Only the portion of the profit which exceeds this exclusion will be applicable to this additional surtax, and only if the individuals have adjusted gross income over $200,000 for joint filers or $250,000 for married taxpayers. However, profits on the sale of rental properties will be hit assuming the adjusted gross income limitations are met. For years, real estate professionals have been able to beat passive-loss rules and deduct rental losses by meeting two qualifications. Spend over 50% of their working hours (at least 750 per year) materially involved as a real estate developer, broker, or landlord. Secondly, the time spent must be documented and it must be actual time spent in this profession. In addition, if adjusted gross income is less than $100,000, a $25,000 loss is allowed. This deduction phases out when adjusted gross income reaches $150,000.
Let’s take an example of how this could work for you. A married couple purchases a rental condo for $300,000. Let’s say rental income covers the interest expense, property taxes, and all other associated expenses regarding the condo. Depreciation for this condo will be approximately $10,910 a year creating a book loss. In this example the married couple’s adjusted gross income is $100,000. The book loss created could fully go against their earned income to reduce tax liability while continuing to earn equity in the property. Let’s go one step further – after several years of renting, the couple decides they would like to sell the condo and it has gained in value. One way to exclude the gain from your income is to move into the condo for two years making it your primary residence. After two years, the gain is excluded up to the limits discussed above.
Bobby Palmer, CPA