Whether you are a real estate “newbie” who wants to learn the basic benefits, or an “old pro” who wants to learn advanced investing techniques, “Real Estate Advantages” by CPA Sharon Lechter and attorney Garrett Sutton offers something for every reader.
The book is organized into two sections. The first is about the tax benefits of owning real estate. The second is about the legal strategies, with an especially strong explanation of the best ways to hold title to investment property and why.
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Just about everyone knows it’s a good idea to invest in sound, well-located real estate. This new book explains why realty investing can be so profitable, including the all-important tax benefits, which most investors don’t fully understand.
Lechter and Sutton have a knack for simplifying the complicated, such as tax depreciation. Even savvy investors often don’t fully understand depreciation is a paper loss or tax deduction, which doesn’t require any out-of-pocket cash payment. Then the authors explain how the depreciation deduction saves tax dollars, something investors often forget.
Although I didn’t agree with all the advice in the book, especially Lechter’s suggestion to use the local tax assessor’s land-to-building ratio when arriving at the depreciable value for an investment building, most of the suggestions are sound and profitable. Sutton’s advice on the best ways to hold title to investment realty is especially thorough and eye-opening.
Heavy emphasis is placed on investors qualifying as a real estate professional to enjoy unlimited tax deductions from investment properties. When an investor can prove he or she spends at least 750 hours per year on real estate activity, then unlimited investment property tax losses are allowed against other taxable income. If the investor doesn’t qualify, then annual realty investment tax losses, usually from noncash depreciation is limited to $25,000.
By use of a realistic example, Lechter explains how one spouse can have a high-income full-time job while the other spouse qualifies as a real estate professional spending at least 750 hours annually (about 14 hours per week) on their realty investments. Holding a real estate license is not required to qualify nor must the qualifying spouse operate from a separate office.
The book is filled with profitable tips like that. In addition, the authors don’t hesitate to say what they think about current real estate trends. To illustrate, they warn how frequent “flipping” of properties, meaning selling shortly after acquisition, not only results in high tax rate taxation as ordinary income but it can also jeopardize the passive tax loss benefits of realty investing.
Lechter spends considerable time explaining the benefits and possible pitfalls of Internal Revenue Code 1031 tax-deferred exchanges. Without being unduly technical, she emphasizes why it is so important that all qualifying investment properties in a trade be held in exactly the same names and within the same tax returns.
An interesting extra bonus for readers is referral to the Web site of the authors to learn about their “real estate bloopers.” This free audio download shares their true real estate stories “that could have had happier endings but provided valuable lessons.” That’s a nice way of saying don’t make the same mistakes we made.
Chapter topics include “The Benefits of Leverage”; “Capital Gain vs. Cash Flow”; “Creating Your Real Estate Plan”; “Creating Your Team of Advisors”; “Setting Up Your Books”; “Make Real Estate Your Business”; “Your Principal Residence”; “Vacation Homes”; “Real Estate and Retirement Plans”; “Using Pre-Tax Dollars to Buy Real Estate”; “Three Extra Tax Strategies”; “Homestead Exemptions”; “Landlord Liability”; “Insurance”; “How Not to Hold Real Estate”; “How to Hold Real Estate”; and “Asset Protection Lessons.”
Every serious real estate investor should study the valuable content of this easy-to-read book because it simplifies the complicated to remind investors why real estate can be so profitable. The emphasis on both the tax and legal aspects of ownership make for enjoyable reading. On my scale of one to 10, this excellent new book rates a solid 10.
“Real Estate Advantages,” by Sharon Lechter, CPA, and Garrett Sutton, Esq. (Warner Business Books, New York), 2007, $17.99, 239 pages; Available in stock or by special order at local bookstores, public libraries, and www.Amazon.com.
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