Norada Real Estate Investments

Asset Protection for Real Estate Investors

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During the early years of my real estate investing I ran my business as a sole proprietor because I was confused about asset protection. All the books and expensive courses only added to the confusion, and the subject of asset protection only became more frustrating for me.

Luckily, I survived with only minimal damage, but there comes a point when it is time to assess the best legal structure to use for real estate investing. This becomes increasingly important as your net worth grows.

Consider this scenario. You are sued for an accidental injury that occurred on one of your properties where you held title in your name personally. You are sued for $2,000,000.Your insurance only covers $1,000,000. That's a very bad day.

The biggest mistake you can make in real estate is to hold title on your property in your own personal name. Title to property is public record. Anyone can look up what you own, determine its market value, and deduct what you owe to determine what they can attempt to sue you for. It's like painting a bulls-eye on your back for prying eyes such as attorneys, creditors and even your tenants.

So what entity provides you the best asset protection? How do you limit your liability exposure? [Read more…]

How to Maximize Your Tax Deductions on Investment Property

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Every real estate investor knows that investment property provides more tax benefits than almost any other investment.  Therefore, maximizing those tax deductions only makes good business sense.

Let's take a quick look at the most important tax deductions available as an owner of investment property:

1.  Mortgage Interest
Your largest deductible expense is likely to be interest.  There are two types of interest that you can deduct.  The first is mortgage interest from any mortgage loan on the property.  This includes Home Equity Lines of Credit (HELOC) and other loans secured by your property.  The interest deduction applies to any of these loans provided that they were used to acquire and/or improve your investment property.

Additionally, credit card interest can also be deducted for goods and services used in the operation of your rental property.  Closing costs and points paid by you to close on your mortgage loan is also deductible.

2.  Depreciation
Depreciation is simply the loss in value of your income property over time due to physical deterioration, age, and normal wear and tear.  Fortunately, the IRS allows you to depreciate income properties over their “useful” life.  This is defined as 27.5 years for any residential property (1 to 4 unit properties) and 39 years for commercial properties.  Depreciation can provide you a significant and welcomed deduction every tax year!

3.  Insurance
Premiums paid for insurance policies are tax deductible expenses too.  This includes, but is not limited to, fire, theft, flood, and landlord liability insurance.  Also, health and workers' compensation insurance for your employees (if any) can also be deducted. [Read more…]

New IRS Red Flag – Mortgage Interest

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The IRS has begun targeting individuals with larger mortgage interest deductions in an effort to increase their tax revenues. They are currently sending out audit notices to DC residents as part of their test, but will quickly expand to the rest of the country once their audit systems are in place. If you're a real estate investor you need to be aware of this and plan accordingly.

You must meet three criteria in order to legally take the mortgage interest deductions:

  • You can only deduct the mortgage interest on debt up to $1,000,000. This includes your personal and second residence combined.
  • You can claim an additional $100,000 for a second loan or HELOC. (This is completely disallowed for AMT taxpayers.)
  • You can only deduct the original amount of your indebtedness. In other words, once you pay down your loan your deduction does down and stays down. Even if you refinance, you can only claim the original (lower) amount of your loan before refinancing. This is one item that most people forget or don’t know about.

The IRS may strike gold here. They will want to see where you spent the money from your refinances or new HELOC loans. It would be wise to show that the money was used for home improvements or business purposes.

With the economy in disarray and the federal government hungry for additional tax revenues, it’s more important than ever for you to be on top of the real estate tax law changes. Remember that a good tax advisor can help you achieve your real estate investing goals sooner by avoiding the pitfalls along the way.

Tax Considerations for the Real Estate Investor

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There is no human invention more complex than the tax codes, and among the most complicated are the laws surrounding real estate investing.  So, what follows is NOT to be considered legal advice — consult your attorney or tax accountant before making any decisions.

Well, now that the rear is covered, what considerations should the real estate investor keep in mind?  Since laws vary between countries, and between states within the U.S., any general advice would be worthless.  But here are some particulars that apply in many areas. [Read more…]

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Norada Real Estate Investments 30251 Golden Lantern, Suite E-261 Laguna Niguel, CA 92677

(949) 218-6668
(800) 611-3060
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