2. Don’t assume that an investment strategy that is tax advantageous to someone else is advantageous to you.
I wasn’t suggesting an investment strategy or a lifestyle change. I just stated that there is a way to significantly lower your taxes using certain tax rules.
Also, you wrote that “When you sell your property, you will be required to recapture the depreciation at ordinary income tax rates.” The law is now such that depreciation recapture is a special 25% rate. This went into effect in 1997. Your reference is stale and incorrect.
I do not have the book with me right now, but I believe it did cover the 25% rate. I don’t remember specifically what it said, I believe it stated that the 25% rate is for depreciation taken above the depreciation tables. I’ll look it up when I get home. But my point was that this tax can be avoided by a judicious use of a 1031 exchange.
Also, one of the things I read in the book is that when you do sell, whether or not you took the depreciation, the IRS will assume you did. So you should at least document the depreciation. Even if you make too much, the loss is not eliminated, it is deferred until the next year (and so on).
But hey, playing around with your taxes is not something you should just go off by some guy in a website. You have to research it and talk to knowledgeable tax experts.
But neither of us is a full-time RE professional. If one of us changed our profession we would take a large pay cut and get the depreciation, but that would be a losing proposition.
Read the book and take a look at what the IRS qualifies as a real estate professional. It does not require that you become a full-time real estate professional. It just requires that you spend more time on that job (real estate professional) than you do any other job. It also requires a minimum of 750 hours a year spent on that work. That’s 14 hours a week.
I bet powayseller spends at least that much time reading this website… Under the book, that might be considered one of the activities that a real estate professional would do…
Anyways, my point is that if you take the time, you can find a way to make the tax code work for you, instead of working for the tax code. Maybe they will change the taxes to make it more fair, or increase taxes or whatever. You have the power to take action now and make full use of your money instead of giving it to the U.S. gov’t.
