While the only things guaranteed in life are death and taxes, that doesn’t mean tax laws are unchanging. For 2014, many tax laws that people have counted on for good tax breaks are expiring — and not all of them are certain to be renewed. Not only that, but both representatives of the White House and Congress are calling for major tax reform that could have some other major changes in store.
Right now, if you are a real estate investor, you absolutely need to interviewing high-quality CPA's that have an understanding of real estate law and taxes. A CPA I spoke with last week recently spent two weeks in training classes learning about the new regulations this year. It is vitally important to you as a tax payer and real estate investor to hire a qualified CPA. The only thing certain for 2014 is that there will be taxes, but which should you pay attention to?
Tangible Property Regulations
We’ll give you a bit of good news first — in September of 2013, the IRS issued final repair regulations (final tangible property regulations). These govern whether expenses gained through the repair, acquisition or maintenance of tangible properties may be deducted immediately or if they must be capitalized and recovered later. While these final regulations are still very similar to the 2011 temporary regulations, they do offer some great opportunities that work in favor of taxpayers. Read up and don’t miss out on the advantages these revisions offer.
Now for the not-so-good news. There are several expiring tax laws pertinent to real estate that may affect real estate investors.
Expiring Provisions that Provided Tax Breaks for Real Estate Investors
Mortgage Insurance Premiums Deduction
Since 2007, qualified property owners have been able to deduct premiums for mortgage insurance. If this provision isn’t renewed this year, no deductions will be allowed for payments after 2013.Tax Credit For Qualified Energy Efficiency Improvements
Besides the environmental and energy-saving benefits of energy efficient appliances, the government was giving a $500 tax credit to taxpayers if they made energy-efficient appliance installations. Of course, this only applied to one’s primary residence, but if it isn’t renewed, it won’t apply to any property at all.
Discharge of Indebtedness on Principal Residence Exclusion
This particular expiration can affect real estate investors in different ways, depending on their state. Essentially, the ability to receive any sort of mortgage debt relief on a primary residence (up to $2 million) without having to include forgiven debt as taxable income is going to be gone without renewal in 2014.
This depreciation has been helping out businesses by permitting them to deduct half of the cost of qualifying business property in one year. This provision was posed in 2010 to boost economic recovery and as of December 31, 2013 it had not been extended.
Section 179 Expensing Deduction
This small business deduction is going to drop the annual write-off limit for certain small business properties from $500,000 to $25,000.
Congress can still vote to extend some or all of these deductions for this tax year. They have a history of renewing expired tax breaks and making them retro-active to the previous year. Many observers expect some, if not all of the tax breaks, including those specifically related to real estate investors, will get passed by the Congress.
What’s your take on the changing tax laws?