Welcome! A Glance at the Headlines. Disclosure: 11/29/2012. Advanced Year End Tax Strategies. CCWealthBuilders.com

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1 CCWealthBuilders.com Welcome! Tonight's Meeting.. Advanced Year End Tax Strategies! We Meet the 1 st Wednesday of Every Month Remember Come Early for Networking Next Meeting.. Wednesday December 5 th Successful Real Estate Investors of 2012 Learn How you Can be One too! Save the Date: Workshop SATURDAY Feb. 16th Real Estate 101 The Basic of RE Investing With Reggie Lal Disclosure: We are not Tax Advisors, Attorneys, Legal Professionals or Financial Advisors We are Real Estate Investors! Please review all these documents with your legal and or professional advisors. All figures in all charts or forms are estimates or examples only. No return can be guaranteed! A Glance at the Headlines With : Mike Gobbi 1

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3 Our Gov. Hard at Work 3

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5 CA has it s own Program Global 5

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7 SELF DIRECTED IRA/401K WORKSHOP Year End Tax Tips Lorraine D. Evans CPA, MST Thursday January 24 th th (6-9pm) Location TBD Roseville or Sacramento Cost $59 Topics Include: Prohibited transactions UBIT Debt financed property what is it and how much is the tax? Other UBIT issues Signature authority/checkbook control LLC s 7

8 BIG NEWS!!! Roseville office is now open! 3017 Douglas Blvd. Suite 300 Roseville, CA By Appointment Only I am not there all the time!! MORE BIG NEWS! Addition to our team: Ms. Terry Easley, EA Enrolled Agent and a QuickBooks Pro Advisor Over 30 years of accounting experience and works extensively with real estate investors CHANGES ARE COMING Who won?!! Tax law changes are inevitable Currently a political HOTBED We will not know until later this year There is talk of retroactive changes WHAT WE THINK MAY HAPPEN Tax rate changes: 10% bracket eliminated lowest rate will be 15% Marriage penalty reinstated brackets will be at 167% of single brackets instead of 200% (double) NEW RATES % 15% 15% 28% 25% 31% 28% 36% 33% 39.6% 35% The brackets will remain close to the same as they were for 2012 some minor inflation adjustments are expected. CAPITAL GAINS For 2012 the long term capital gain rate is 15% (more than 1 year held) For 2013 it rises to 20% (more than 1 year less than 5 years) Assets held 5 years or longer will be taxed at 18% 8

9 QUALIFIED DIVIDENDS 2012 qualified dividends taxed at 15% (the long term capital gain rate) 2013 they will get no special tax treatment Taxed at your ordinary tax rate Expect year end dividends Change your investment portfolio to growth instead of income for 2013 STUDENT LOAN INTEREST The deduction will phase out at a lower income level 2012 deduct up to $2,500 when income less than $75k for singles and $150k for married 2013 only the first 60 months you can deduct the interest 2013 deduct up to $2,500 when income less than $55k for singles and $75k for married STANDARD DEDUCTION For 2012 Single =$5,950, Married = $11,900 Inflation rate used by IRS estimated to be 2.5% For 2013 we can GUESS Single = $6,100, Married = $10,200 Married will be only 167% of the single instead of double = marriage penalty! REDUCTION OF ITEMIZED DEDUCTIONS For there was no reduction in the Schedule A deductions For there will be a reduction when income is over a certain amount Proposed - single $200k, married $250 begins the loss of the deductions If he doesn t pass the law - it MAY be $174,450 single, $261,650 married REDUCTION OF PERSONAL EXEMPTION For each person gets a deduction of $5,950 with no reduction For this amount is reduced according to the same limits just mentioned Lots of hidden tax increases for higher income taxpayers! DEDUCTIONS FOR YOUR CHILDREN REDUCED Child Care Expenses: 2012 = $3k for one kid, $6k for more than one kid 2012 maximum credit = 35% 2013 = $2,400 for one kid, $4,800 for more than one kid 2013 maximum credit reduced to 30% Child Tax Credit: For 2012 = $1,000 For 2013 = $500 For 2013 also more restrictions and it is no longer refundable INDUCE!!! 9

10 EDUCATION CREDITS WAIT THERE S MORE! American Opportunity Credit Maximum of $2,500 for 2012 and 40% is refundable 2013 the credit is gone! Prepay college expenses! Medical expenses deduct when over 7 ½% of your income deduct when over 10% of your income These are gone after 2011: $250 teacher classroom expense deduction Deductibility of mortgage insurance premiums State and local sales tax deduction Unless they do retroactive changes - and you KNOW they will! PAYROLL CHANGES The temporary reduction of the FICA rate expires For 2012 it was 4.2% For 2013 it is back up to 6.2% The wage base is increased for 2013 from $110,100 to $113,700 GIFTING A little good news: For 2013 the amount you can gift increases from $13,000 to $14,000 RETIREMENT For 2013 the maximum you may contribute is also increased From $17,000 to $17,500 for 2013 The over 50 catch up is still $5,500 The phase-out amounts for IRA and ROTH IRA contributions are also increased due to adjustments for inflation ALTERNATIVE MINIMUM TAX All we can say is UGH! First of all no one understands it!! As of right now, it is scheduled to kick in for Historically there is a FIX in December (or sometimes even later!) 2011 exemptions: $74,450 married, $48,450 single 2012 exemptions: $45,000 married, $33,750 single The flat tax rate is 26% to 28% We DO anticipate they will change this! 10

11 DISCHARGE OF DEBT PRINCIPAL RESIDENCE 2012 is the last year to exclude from income debt forgiveness on the short sale or foreclosure of your principal residence We THINK they MAY extend this ONE more year Look at other alternatives to not taxing the debt forgiveness amounts CANCELLATION OF DEBT Exceptions include: Primary residence exclusion expires after 2012 Bankruptcy Insolvency Other exceptions for Rental Properties DEPRECIATION No more 100% bonus depreciation for % bonus depreciation for 2012 NO additional bonus depreciation for 2013 Do all your upgrades to your properties in 2012 Don t forget charges on your credit card count as deductions! BONUS DEPRECIATION Must be NEW property The useful life must be less than 15 years It applies to cabinets, flooring, appliances, etc. 15 year property is landscaping, driveways, sidewalks, patios,etc. DEPRECIATION The Section 179 depreciation limits are reduced as well Section 179 is NOT for rental property only for property used in your business For 2012 the maximum is $139,000 For 2013 the maximum is $25,000 Can be used or new property REAL ESTATE IN YOUR IRA OR 401K To avoid taxes on your real estate consider using your retirement money The income or gains grow tax deferred until you take the money out Lend money Hold rental property You should NOT be flipping property grey area!!! 11

12 11/29/2012 ROTH OR TRADITIONAL? Self directed 401k may be Roth or Traditional Self directed IRA may be Roth or Traditional Be aware of the rollover rules when moving money into these accounts 401K RULES You can roll IRA or 401K money into a solo 401K You must have a business that is the sponsor for the plan Real estate investing is NOT a business that can sponsor a 401K The debt financing UBIT rules do not apply No custodian needed IRA RULES You need a custodian You can roll IRA or 401k money into a self self--directed IRA You can make t ib ti tto th contributions the IRA subject to the limitations Financed property may pay tax on UBIT Run the numbers to see if it makes sense to use financing Seminar January 24th!! FLIPPING HOUSES Be careful to know when you become a DEALER Casual investing results in short term capital gain Dealer status will result in additional self selfemployment taxes Consider opening a S Corporation YEAR END PLANNING The time to plan for taxes is BEFORE the end of the year Each situation is unique Schedule an appointment to review your personal situation Roseville and Elk Grove locations Lorraine D. Evans CPA, MST Direct: (916) Lorraine@LDEvansCPA.com 12

13 Next Meeting.. Wednesday December 5 th Successful Real Estate Investors of 2012 Learn How you Can be One too! 13