One of the biggest tax advantages of owning a rental property is the depreciation you can take on the amount you paid for the property. Of course, the IRS understands that land does not wear out. So, only the portion of the purchase price related to the building and the contents is subject to the allowance for depreciation. This makes determining the building/land split a very important decision. Take for instance a $200,000 home. If you can justify 10% of the value is for land and 90% is for building, you can take a depreciation deduction of at least $6,545 per year. Compare that to the same $200,000 home with a land value of 30% and a building value of 70%. In this case, the depreciation deduction is only going to be $4,580 per year. The result is almost a $2,000 difference in tax deduction per year.
But how do you determine the value of the land and the building? There are a few options available. The first option is to check the county real estate tax bill for the property. Frequently, county assessors print the estimated land value and improvements value on the actual tax bill. These assessed values may be lower than the price of the property at the time of purchase. So, if you use this method, you should take the relative values of the land and the improvements to arrive at the ratio of land value to total value. Then, you can apply that ratio to your purchase price to determine the land value for your tax return.
A second option you can use is comparable sales values based on appraisals for similar properties in the area. You can speak to a real estate agent to find out what appraisers are using for land values in the area.
A third option to determine the split between building and land is to use an industry standard for the area. This standard could be anywhere from 80% building and 20% land in some areas, to 30% building and 70% land in other areas where land is at a premium - many areas in California and Hawaii come to mind. Although it is rare for the IRS to challenge an industry-standard split, in the event of an IRS challenge, you may be forced to go back to one of the first two methods.
We find industry standard splits to be the most common method of allocating the purchase price between land and building simply because they are so easy to apply. With recent escalations in the prices of real estate throughout the country, however, this may be an area the IRS chooses to examine. We recommend that the industry standard be viewed as a last resort and encourage everyone to at least explore the other options simply because they provide good support for the IRS and they may even provide you with a more advantageous allocation.
Be sure to review these options with your tax preparer before they begin preparing your tax return.
Monday, September 1, 2008
4 Real Estate and Mortgage Fraud Tips
In recent years with the advent of technology and the internet there has been increased focus of privacy and identity theft but this is nothing new. Theft and fraud has always been a constant threat but especially in our society where your credit is everything and everything can be bought on some form of credit. And the largest form of credit most people have is their home mortgage. But what if the mortgage you have is not even yours and on a property you did not know even existed. This is mortgage fraud and it can happen to anyone.
There are many different types of real estate and mortgage fraud. Basically you can identify them as either a fraud to make a profit, or a fraud to get the property. Regardless of which it is a fraud is committed when falsifying of records occur in some way. In this article we will take a look at a few of the different types of real estate and mortgage frauds.
One of the most common types of fraud committed in the real estate and mortgage industry is on the loan application itself. It is not unusual for the applicant to increase their income or lie about their job.
They might even lie about where they got the down payment. It is not unusual for the down payment to actually come from the person selling the home themselves. These are all examples of loan application fraud.
One area where fraud can be committed and is hard to prove is on the appraisal itself. You could have two different appraisals just from the appraiser themselves.
There are so many things that are subject to interpretation on an appraisal. The problem can come because the appraiser themselves feels pressure from the buyer, seller, and the real estate agent trying to come up with a number that satisfies everyone can create a fraud situation.
Today there are so many different levels of credit that it can become imperative to a buyer that they obtain a fake credit report. Trying to clean up their credit report can be the difference in qualifying for mortgage loan or not.
On the loan it self there could be various things that are not true. Another area that can really affect the approval loan is the income level of the applicants. It's not uncommon to list false income and even come up with documents to back that up when in fact, they really are not true. This is creating fraud against the mortgage company.
One thing that is used to document income is tax returns and today these are very easy to forge as well. The Internet makes it simple to go in and doctor your tax returns to come up with a different copy than what was actually sent to the IRS.
There are many other different types of real estate mortgage fraud. Some of these have been flipping situations, equity skimming, and the pretend homeowner loan. Regardless of how it's done real estate and mortgage fraud is illegal, and can be punishable by large fines and prison time.
There are many different types of real estate and mortgage fraud. Basically you can identify them as either a fraud to make a profit, or a fraud to get the property. Regardless of which it is a fraud is committed when falsifying of records occur in some way. In this article we will take a look at a few of the different types of real estate and mortgage frauds.
One of the most common types of fraud committed in the real estate and mortgage industry is on the loan application itself. It is not unusual for the applicant to increase their income or lie about their job.
They might even lie about where they got the down payment. It is not unusual for the down payment to actually come from the person selling the home themselves. These are all examples of loan application fraud.
One area where fraud can be committed and is hard to prove is on the appraisal itself. You could have two different appraisals just from the appraiser themselves.
There are so many things that are subject to interpretation on an appraisal. The problem can come because the appraiser themselves feels pressure from the buyer, seller, and the real estate agent trying to come up with a number that satisfies everyone can create a fraud situation.
Today there are so many different levels of credit that it can become imperative to a buyer that they obtain a fake credit report. Trying to clean up their credit report can be the difference in qualifying for mortgage loan or not.
On the loan it self there could be various things that are not true. Another area that can really affect the approval loan is the income level of the applicants. It's not uncommon to list false income and even come up with documents to back that up when in fact, they really are not true. This is creating fraud against the mortgage company.
One thing that is used to document income is tax returns and today these are very easy to forge as well. The Internet makes it simple to go in and doctor your tax returns to come up with a different copy than what was actually sent to the IRS.
There are many other different types of real estate mortgage fraud. Some of these have been flipping situations, equity skimming, and the pretend homeowner loan. Regardless of how it's done real estate and mortgage fraud is illegal, and can be punishable by large fines and prison time.
Real Estate and Motivation vs. Inspiration
My life is thriving in balance with purpose… Is yours? Do you find yourself fighting to stay motivated… putting things off… wasting time… lost without a purpose? If you said yes to any of these, there is still hope.
How would you like to be that person that is always motivated… always getting things done… always enjoying life… always fulfilled? If so, here are some time tested principals that, if you apply them, will take you to that next level…
Motivation vs. Inspiration
Many people believe that motivation is the "engine" that drives you to success. Most seeking motivation attend seminars to hear others as they share success stories and strategies. These events cause us to feel good and challenge us to get moving. However, when you face the real world, it seems to just burn out on the extra mile… Have you ever felt that way too? That is because "motivation" as Napoleon Hill says "is like fuel to a vehicle." So what exactly is the "engine" that drives you to success? If motivation is just an external portion that helps build momentum, where does the power lie? Now inspiration, on the other hand, is internal and comes from realizing your purpose… The problem with most people is that their purpose is unclear and much smaller than was intended.
The reason why many lose motivation and quit before ever reaching the next level is because their purpose is smaller than themselves. However, what would happen if your purpose was bigger than you? I'm glad you asked…
Imagine you want to build a home, and just the thought of all the work makes you lose your motivation, but as you begin to think of the fact that in this "home" you will live with your spouse, raise your children, and have your grandchildren visit. You are now inspired and compelled to fulfill the vision of building your "home" no matter what the cost… Don't you deserve a life of inspiration?
Define your purpose
"Why?" is the first question you must ask yourself personally and in business. If your "home" wanted to discover why it was built who would it ask, the neighbor, the mail man, or its builder? I think you get the picture. So visualize your purpose by writing it down. Once your "Why" is bigger than your "How" you will get inspired and the "How's" will automatically aligning themselves.
Break through
You can't fight what you don't know exists. Answer this question, "What is holding me back from fulfilling my purpose?" The most popular answer is fear. Whatever your answer may be realize that you must conquer your obstacles or they will conquer you. If while building your "home" you find there are problems with the foundation you must do what it takes to strengthen what holds it all together. When you get weary, don't worry its normal. Remember the foundation is the reason "why" you are paying the price. Break free!
Assemble your Power Team
As you press toward the next level you will find that you can't do it on your own. Take the time to pick the right people that will empower you to keep moving forward in your journey. For example, a few things you might need to build your "home" are a developer, an architect and a construction crew. What kind of team do you need to build your vision? A team that balances out all your weaknesses… So when you run across problems that seem impossible seek answers from those who have them.
Grow in balance
True success can be measured by how balanced your life is. Balance can be like the fence that protects your "home." It is vital to grow in every area of your life to experience the type of fulfillment that comes to those who grow in discipline… So decide to live balanced today and reap the benefits.
Enjoy the journey
When you are taking action, every day takes you one step closer to fulfilling your purpose. Just like you would get exited about your "home" taking shape with each new day, so too should you enjoy traveling your path to success. So get exited!!! Every day you are one step closer to fulfilling your vision.
REMEMBER…Though your "home" that took so much work is very valuable, nothing compares to the lives shaped by it. So empower others to do the same by passing on these tools that enabled you to build your own.
How would you like to be that person that is always motivated… always getting things done… always enjoying life… always fulfilled? If so, here are some time tested principals that, if you apply them, will take you to that next level…
Motivation vs. Inspiration
Many people believe that motivation is the "engine" that drives you to success. Most seeking motivation attend seminars to hear others as they share success stories and strategies. These events cause us to feel good and challenge us to get moving. However, when you face the real world, it seems to just burn out on the extra mile… Have you ever felt that way too? That is because "motivation" as Napoleon Hill says "is like fuel to a vehicle." So what exactly is the "engine" that drives you to success? If motivation is just an external portion that helps build momentum, where does the power lie? Now inspiration, on the other hand, is internal and comes from realizing your purpose… The problem with most people is that their purpose is unclear and much smaller than was intended.
The reason why many lose motivation and quit before ever reaching the next level is because their purpose is smaller than themselves. However, what would happen if your purpose was bigger than you? I'm glad you asked…
Imagine you want to build a home, and just the thought of all the work makes you lose your motivation, but as you begin to think of the fact that in this "home" you will live with your spouse, raise your children, and have your grandchildren visit. You are now inspired and compelled to fulfill the vision of building your "home" no matter what the cost… Don't you deserve a life of inspiration?
Define your purpose
"Why?" is the first question you must ask yourself personally and in business. If your "home" wanted to discover why it was built who would it ask, the neighbor, the mail man, or its builder? I think you get the picture. So visualize your purpose by writing it down. Once your "Why" is bigger than your "How" you will get inspired and the "How's" will automatically aligning themselves.
Break through
You can't fight what you don't know exists. Answer this question, "What is holding me back from fulfilling my purpose?" The most popular answer is fear. Whatever your answer may be realize that you must conquer your obstacles or they will conquer you. If while building your "home" you find there are problems with the foundation you must do what it takes to strengthen what holds it all together. When you get weary, don't worry its normal. Remember the foundation is the reason "why" you are paying the price. Break free!
Assemble your Power Team
As you press toward the next level you will find that you can't do it on your own. Take the time to pick the right people that will empower you to keep moving forward in your journey. For example, a few things you might need to build your "home" are a developer, an architect and a construction crew. What kind of team do you need to build your vision? A team that balances out all your weaknesses… So when you run across problems that seem impossible seek answers from those who have them.
Grow in balance
True success can be measured by how balanced your life is. Balance can be like the fence that protects your "home." It is vital to grow in every area of your life to experience the type of fulfillment that comes to those who grow in discipline… So decide to live balanced today and reap the benefits.
Enjoy the journey
When you are taking action, every day takes you one step closer to fulfilling your purpose. Just like you would get exited about your "home" taking shape with each new day, so too should you enjoy traveling your path to success. So get exited!!! Every day you are one step closer to fulfilling your vision.
REMEMBER…Though your "home" that took so much work is very valuable, nothing compares to the lives shaped by it. So empower others to do the same by passing on these tools that enabled you to build your own.
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