RISMEDIA, February 2, 2010—As real estate owners and investors do business throughout 2010, they will more than likely face many complex tax issues that could strain their resources and drain profits. They should keep in mind these tax tips that could help them save money in the long run:
1. Determine if your partnership qualifies for an income deferral for debt reacquisition transactions. Has your business had debt forgiven? There is a tax election available that will allow you to defer cancellation of debt (COD) income until 2014, when it will then be recognized ratably over five years. Carefully consider the options before making this irrevocable election as your COD income could be fully excluded under other provisions.
2. Color your building green. Take advantage of special deductions and credits for green, or environmentally friendly, buildings.
3. Determine if you are a dealer or an investor. Do you know if you are a real estate dealer or an investor with regard to taxes? Proper planning will ensure the desired treatment upon disposition of the property.
4. Allocate land costs to your benefit. To defer income upon the sale of parcels from a tract of purchased land, it is necessary to properly allocate the cost among the various parcels. The IRS requires that the cost be equitably apportioned, but how? Consider several methods when allocating costs.
5. Take advantage of lower property valuations. Have you considered gifting real estate property or partnership interest for estate planning purposes? You may want to consider converting a corporation into an LLC since built-in gains may be low due to depressed real estate values.
6. Properly account for your lease income. You may be accounting for your lease income based on the cash received or the terms of the lease agreement. However, an Internal Revenue Code section specifically addressing leases may require the income to be accounted for in a different manner.
“To learn how these tax tips may apply to your real estate business or investment, please contact your tax advisor,” said Jerry Williford, a Grant Thornton Real Estate Tax executive director.
For more information, visit www.GrantThornton.com.