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Tax Talk with Chris Bird 2009


Tax Talk with Chris Bird 2009

•Certified Residential Specialist •Licensed Broker Since 1980 •Broker/Owner American RE Service •Founder/Director Arkansas Institute of RE •Senior CRS Instructor since 1989 oCRS 204 Wealth Building oCRS CRS 205 Financial & Tax Skills •Multi-State GRI & ABR Instructor •Serves on CRS Board of Directors Tina B. Daniel


Tax Talk with Chris Bird 2009

•Senior CRS Instructor •IRS agent from 1970 to 1986 •Chris Bird Seminars, Inc. •Former Former adjunct instructor of tax law at University of Illinois for more than 28 year

Chris Bird


Tax Talk with Chris Bird 2009

N New Tax T Laws L


Tax Talk with Chris Bird 2009

IRA Conversions to ROTH IRA ƒ ƒ ƒ

$100,000 limit removed in 2010 Most of you should consider this, if politicians leave this tax law change alone Issue is entirely one of timing, and assumptions regarding tax rate increases


Tax Talk with Chris Bird 2009

Net Operating Loss Carrybacks ƒ

This h is huge-----instead h d off a 2 year carryback, b k affected taxpayers will be able to carryback losses from their businesses in 2008 and 2009 for 5 years, resulting in large refunds of taxes paid in previous years. Let your builder’s, subdivision developers etc., etc know as these refunds could help them stay in business


Tax Talk with Chris Bird 2009

Federal Estate Tax Changes ƒ

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As of 1/1/09, the Federal Estate Tax Exemption increased from $2M per person to $3.5M per person. On 1/1/10, the Federal Estate Tax is repealed in total for one year only. Then, in 2011, Th Federal The F d l Estate E t t Tax T Exemption E ti returns, t but b t att a level of $1M. Politics will never allow the repeal of the Estate Tax for even one day, so watch in 2009 as Congress negotiates a permanent $3.5M $3 5M exemption starting 1/1/10. The 2009 annual gift tax exclusion has increased to $13 $13,000 000


Tax Talk with Chris Bird 2009

New Energy Tax Credits Applies to Principal Residence only ƒ Generally 30% of the applicable cost, but limited to $1500 tax credit over 2009 and 2010 ƒ For certain improvements (i.e. Wind Energy) no limit on the amount of tax credit ƒ See www.EnergyStar.gov for detailed info


Tax Talk with Chris Bird 2009

New Tax Law 2009 ƒ

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If you or someone close to you is 70 ½ or older, they are probably having to take withdrawals from their retirement accounts called RMD. (Required minimum distributions) If they do not want to take these distributions in 2009, they can do so, and not be subject to any penalties (50%) Talk to your parents about this


Tax Talk with Chris Bird 2009

Don’t Forget… the men and women who make vehicles ƒ

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If you have the money, the deals on vehicles are out there, and if you purchase BSN, the deductions will knock your socks off off. However However, to take the big depreciation write-offs, you cannot deduct the standard mileage rate, which was 50.5/58.5 for 2008, and is 55.0 for 2009. What does this mean?


Tax Talk with Chris Bird 2009

The SUV Write-off ƒ ƒ ƒ

Vehicle must have a GVWR>6,000 GVWR>6 000 lbs. lbs Cannot ever use standard mileage rate on same vehicle ((50.5/58.5 / for 2008,, 55 for 2009)) Law change effective for vehicles acquired after 10/22/04


Tax Talk with Chris Bird 2009

The Luxury Car Limit on Depreciation

Total first y year deduction in 2008 and 2009 is approximately $2,960 if used, $10,960 if BSN


Tax Talk with Chris Bird 2009

Example of qualifying SUV The good old days! • • • •

Cost B/U Bus Base Bus Base IRC 179   

$55,000 90%       $49 500 $49,500 $49,500

Huge write‐off, if purchased new or used 10/22/04 or before g , p / /


Tax Talk with Chris Bird 2009

And if purchased in 2008 or 2009 Cost Business Use Basis IRC 179 Remaining Bonus Dep. Reg. Dep. Total

$55,000 90% $49,500 $25 000 $25,000 $24,500 $12,250 $ 2,450 $29,900 in 2008 and 2009 if used, and $39,700 if BSN in 2008 and 2009


Tax Talk with Chris Bird 2009

Full Size Pick-up Truck Write-off (with bed length of at least 6 feet) Cost Business Use Basis Total

$55,000 90% $49,500 $49 500 $49,500


Tax Talk with Chris Bird 2009

Where are marginal tax rates going? 2002

2003-2010

Top Bracket

38.6%

35%

Fifth Bracket

35%

33%

Fourth Bracket

30%

28%

Third Bracket

27%

25%

Sec. Bracket

15%

15%

Initial Bracket

10%

10%


Tax Talk with Chris Bird 2009

Where are capital gains and dividend tax rates going? 2002

2003-2010

Capital Gains Rate

20%

15%

Capital Gains Rate for L/I

10%

5% thru 2007, 0% in 2008-2010

Dividends Tax Rate

As high as 38.6%

15%

Dividend Tax Rate for L/I

As high as 38.6%

5% thru 2007, 0% in 2008 2008-2010 2010


Tax Talk with Chris Bird 2009

Future of Tax Rates ƒ

The h issue is whether h h the h current administration d will let the original tax rate reductions expire at the end of 2010 or accelerate the tax increases that automatically goes into effect in 2011 into an earlier tax year, such as 2009 or 2010. It appears from the budget proposal that changes will not occur until 2011.


Tax Talk with Chris Bird 2009

Accessing Retirement Funds with Mi i Minimal l Tax T Consequence C


Tax Talk with Chris Bird 2009

Tax Free Funds / Minimally Taxed Funds ƒ

How do you access funds that are tax free or minimally taxed if you need the money?

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“It’s my money and I need it now!!!!!!!!!!!!!!”


Tax Talk with Chris Bird 2009

If you need money to pay personal or business expenses, and other sources have dried up…. Consider: ƒ Cash in some retirement assets (SEP IRA’s, IRA’s). If your marginal tax rate is low due to the economy, th the tax t and d penalty lt pain i may be b very low. If you are 59 ½ or older, the 10% penalty does not apply at all, so the marginal tax rate is your only consideration. ƒ Roll your IRA’s or SEP IRA’s into a 401(k) for the self employed & BORROW funds from the 401(k) instead of taking a distribution.


Tax Talk with Chris Bird 2009

401(k) Loans Terms of Loan: ƒ Maximum loan amount is the lesser of $50,000 or 50% of the amount in the 401(k) ƒ Repayment is required over a period not to exceed 60 months ƒ Current interest rate is in the 5-6% range


Tax Talk with Chris Bird 2009

If you need money to pay personal or business expenses, and other sources have dried up… Consider: id ƒ Take withdrawals from your ROTH IRA’s up to the amount of your non non-deductible deductible contributions. contributions These withdrawals are NON-TAXABLE! ƒ The 60 day rollover from one IRA to another. This money is not taxed as long as you put the funds back into the IRA by the 60th day.


Tax Talk with Chris Bird 2009

Financial Planning Issues


Tax Talk with Chris Bird 2009

Evaluate Your Financial Assets ƒ ƒ ƒ ƒ ƒ

Assess current spending habits-watch your spending Develop a Business Plan Prepare a Net Worth Statement Purchase Quicken, Money, or Quickbooks Purchase a NEAT RECEIPTS SCANNER -they are slick! (Costco $132.00)


Tax Talk with Chris Bird 2009

Retirement Plan Contribution Limits Year

IRA

Simple

401(k)

SEP IRA

% of P fit Profit

2008

$5,000

$10,500

$15,500

$46,000

20/25

2009

$5,000

$11,500

$16,500

$49,000

20/25


Tax Talk with Chris Bird 2009

Retirement Plan Catch-Up Provisions 50+ y years old Year

IRA

Simple p

401(k) ( ) 403(b) ( ) 457

2006 and later

$1,000

$2,500

$5,500


Tax Talk with Chris Bird 2009

The 401(k) Series ƒ ƒ ƒ ƒ

Good way to increase retirement plan contributions on lower levels of profit (or S Corporation Salaries) Must be started by end of first year, you can’t wait until the following year (like SEP IRA) Onl problem Only p oblem is i if a self-employed elf emplo ed pe person on isn’t i n’t maximizing contributions to their current retirement plan, they won’t to the 401(k) either YOU CAN BORROW FROM YOUR 401(k)!!!!!!!!


Tax Talk with Chris Bird 2009

The ƒ ƒ ƒ ƒ ƒ ƒ ƒ

401(k) Series Solo ((k)) or Safe Harbor Profit $50,000 Cont: $16,500 +25% 12,500 =401(k) $29,000 If 50+ $34,500 SEP IRA $10-12K

401(k) ( ) $80,000 $16,500 20,000 $36,500 $42,000 $16-20K

$220,000 $16,500 32,500* $49,000 $54,500 $49,000


Roth 401(k) ƒ ƒ ƒ ƒ ƒ

NOT SUBJECT to income limits of Roth IRA Not Tax Deductible, distributions mostly tax free 401K loans available Maximum deferral per employee $16,500/year OR $22,000/year for age 50+ Combined contribution between employer and employee not to exceed $49,000/year (2009)


Tax Talk with Chris Bird 2009

Think about Converting IRA to ROTH IRA ƒ

With the utmost certainty that tax rates will be increasing now is the time to consider converting increasing, some of your IRA’s to ROTH IRA’s


Tax Talk with Chris Bird 2009

Why Convert an IRA to ROTH IRA? ƒ

Why?-3 Why? 3 reasons ƒ Tax rates are lower now than will be in future ƒ The value of your IRA’s are down, so the tax you owe on the th conversion i will ill be b less l ƒ Due to the economy, your marginal tax rate may be lower than in previous years, meaning th t the that th tax t on the th conversion i will ill be b lower. l


Tax Talk with Chris Bird 2009

Real Estate in Your Retirement Plan If you no longer trust the stock and equity markets, AND you are a real estate investor, there is no better time than NOW to consider the purchase of real estate investments with your retirement accounts.


Tax Talk with Chris Bird 2009

Why Consider Real Estate in Your Retirement Account

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Choices! Earn a rate of return based on what you know Tax deferred g growth or tax free g growth Take charge of building your long term equity


Tax Talk with Chris Bird 2009

The 2009 First-Time Homebuyer y Tax Credit


Tax Talk with Chris Bird 2009

Home Buyer Seminars ƒ ƒ

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In the next 30 days y start advertising g in your y markets about the new tax credit Conduct Home Buying Seminars - bring a local accountant into the seminar to explain the new tax law. Get sponsors, builders, inspectors, lenders, appraisers Start Shaking the Trees - newsletters, newsletters email blasts, letters to apartment renters, letters to clients with kids graduating from college


Tax Talk with Chris Bird 2009

Overview ƒ ƒ ƒ

In 2008 Congress g created a $7,500 First-Time Homebuyer Tax credit It went into effect for purchases after April 8, 2008 and d was sett to t expire i on July J l 1, 1 2009 The big problem: The tax credit had to be repaid over 15 years. People viewed it as a debt and not a benefit.


Tax Talk with Chris Bird 2009

The 2009 Tax Credit ƒ

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The repayment requirement has been removed for purchases between January 1November 30, 2009. However, at this time the credit dit iis still till repayable bl ffor 2008 purchases h The tax credit has been expanded to $8,000 But it is still only for first-time homebuyers But,


Tax Talk with Chris Bird 2009

Credit Details ƒ

The new credit is an $8,000 $8 000 REFUNDABLE Tax Credit (or up to 10% of the purchase price). ƒ

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So, if the property is $70,000, the credit is only $7,000. (A (Assume a property t over $80,000 $80 000 for f this thi webinar) bi )

Refundable means that if your total tax liability in the given year is less than $8,000, the IRS will send a refund for the balance


Tax Talk with Chris Bird 2009

Refundability; Why it’s Important Many taxpayers don don’tt have tax liability that exceeds $8,000 ƒ For example, according to the 2008 IRS Tax T bl Tables ƒ A single filer would need $46,600 in taxable income to ƒ ƒ

have $8,000 in tax liability A married couple would need $58,600 in taxable income to have $8,000 in tax liability Those with less tax liability y will in most cases get g a refund, meaning they get the full value of new tax credit


Tax Talk with Chris Bird 2009

Who h CANNOT take k the h tax credit? di If any of the following:

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Your iincome exceeds Y d the th phase-out h t range. This Thi means jjoint i t filers with Modified Adjusted Gross Income (MAGI) of $170,000 and above and others with MAGI of $95,000 and above. (You start to lose the tax credit at $150,000 and $75,000 respectively) You purchase your home from a close relative. This includes your spouse, parent, grandparent, child, or grandchild You stop using your home as your main home You sell your home before the end of three years You are a non-resident alien


Tax Talk with Chris Bird 2009

First-Time Homebuyer Definition

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Someone who did not own another principal residence at any time during the three years (36 months) prior to the date of purchase.


Tax Talk with Chris Bird 2009

First-Time Homebuyer Examples ƒ

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For example, p if y you purchased p a home on March 15, 2009, you can’t take the credit for that main home if you owned, or had an ownership interest in, another home at any time from March 15, 2006 through March 15, 2009. So, if the last time you owned a home was 2005, you are eligible for the tax credit even though it is really not your “first” home. For married joint filers, both must meet the first-time homebuyer test to take the credit on a joint return. Apparently not if they file as married filing separate, but the credit di is i halved, h l d and d MFS can increase i taxes


Tax Talk with Chris Bird 2009

More on Income Limits Type

Income Limit

Phase Out Start

Single Filers

$ 95,000

$ 75,000

M i d Fil Married Filers

$170 000 $170,000

$150 000 $150,000


Tax Talk with Chris Bird 2009

More on Income Limits ƒ

This means that for singles making over $75,000 $75 000 and couples making over $150,000, the credit is proportionately reduced as incomes approach $95,000 and $170,000 respectively. So if a couple makes $165,000, the excess amount is used to create a fraction 15,000/20,000 (.75) times the credit amount. 75% or $6,000 of the tax credit would be disallowed. They would still get a $2,000 $2 000 tax credit


Tax Talk with Chris Bird 2009

The Home ƒ

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Mustt be M b the th “main “ i h home”” (principle ( i i l residence) id ) which hi h generally is considered to be the home where you spend 50% or more of your time. It can be a condo, single y detached,, co-op, p, townhouse,, or something g similar family The home must be located in the United States Vacation homes and rental properties are not eligible For new construction, the “purchase purchase date” date is the date you occupy the home. So the move in date must be before December 1, 2009


Tax Talk with Chris Bird 2009

Recapture-3 Year Residency If the home is sold prior to three years of ownership, the tax credit must be repaid.

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This is an improvement from the prior credit. That credit needed to be repaid p in total over 15 y years or the balance had to be repaid on sale

This provision is designed to prevent flipping homes in order to get the credit

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It will be interesting to see if congress initiates any changes on recapture within 3 years if home is sold due to job transfer


Tax Talk with Chris Bird 2009

Other Provisions ƒ ƒ ƒ

The h new credit d is available l bl to residents d off DC Purchasers who utilize state/local revenue bond financing can now use the credit Purchasers who bought (closed) before January 1, 2009 are still subject to the terms of the repayable credit


Tax Talk with Chris Bird 2009

When Can You Claim the Credit? ƒ

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It can be claimed on your 2008 Tax Return (to be filed by April 15, 2009), an amended 2008 Tax Return, or your 2009 Tax Return. IRS form 5405 is i used d to t claim l i the th credit dit Congress considered making the tax credit available at the closing table, but dropped the idea


Tax Talk with Chris Bird 2009

Conclusion ƒ ƒ ƒ

The new credit is greatly improved compared to the old credit It is a true credit and does not need to be repaid as long as you occupy the home for 3 years NAR estimates that hundreds of thousands of potential buyers will take advantage of the credit


Tax Talk with Chris Bird 2009

CAVEAT ƒ

This information is accurate based on the changes to the tax laws as of March 18, 2009. As with any tax law change, check with a tax advisor if there are any questions regarding the use of this tax credit.


Tax Talk with Chris Bird 2009

Question and Answer


Chris Bird 2009 Tax Talk