Year-End Tax Strategies

Today’s e-mail brought a message from our 1031 industry organization, The Federation Of Exchange Accommodators. Mind Numbing “On November 21 the Senate Finance Committee (SFC) dropped their tax reform bombshell. Within in their report,  Staff Discussion Draft: Cost Recovery and Accounting, the like-kind exchange rules are repealed. Since this is a staff discussion draft, we still have a long way to go —   —- “Also included in the draft discussion paper is the extension of real property depreciation to 43 years and depreciation recapture at the owner’s ordinary tax rate.”

If this process continues, 1031 tax-free exchanges will end January 1, 2014. Some compromises may be made to personal property exchanges and different rules for real estate exchanges. Watch this space for developing news.

IRA Contributions. Don’t forget to make your contributions, $5500 for 2013 and an additional $1000 if you were born in 1963 or earlier. They can make a huge difference in your retirement years, especially if you are using the Check Book Control Trust. Investors should be doubling their IRA each year.

Gifts. Gifts by check must be deposited in 2013. Gifting beneficial interest of land trusts or personal property trusts should be acknowledged by the trustee by the end of the year. It takes a simple assignment of beneficial interest for a percentage that represents $14,000, or whatever other limits exist.

Tax Rates. Some tax rates will go up as result of temporary cuts expiring at the end of 2013, like Social Security and Medicare. The top rate on capital gains rises to 20% for high income earners, $400,000 for singles and $450,000 for couples. The AMT is up for 2013, $80,800 for couples and $51,900 for singles.

Breaks for Business. Up to $500,000 of business assets can be expensed. There are good prices on computers, monitors, backup memory, printers, and other tech items. You can stock up on supplies and printer cartridges. The 50% bonus depreciation is also available for items placed in use in 2013.

Investment Real Estate. Real estate still has a favored treatment. Depreciation is a benefit that may be paid for much later. The 27 1/2 year schedule for residential real estate provides about $3600 per year on a $100,000 depreciable basis. That protects $300 of income per month coming tax-free. This may be recaptured many years late. Many investors exchange real estate tax-free for their lifetime. When they die, their heirs receive the property at a stepped-up basis and the tax never gets paid.

Holding real estate, personal property, and IRAs in trusts provides privacy, safety, speed and flexibility in transactions. Buying, selling, financing, partnering and management is all done as personal property. All transactions can be done privately without witnesses and notaries and courthouse recording. There is a 2 1/2 day seminar in Jackson Mississippi, January 23-25, 2014 covering trusts, options, IRAs and exchanges. Details at:

Happy New Year!

Jack Shea

Author, Mentor

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