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Paying Back Depreciation on a Rental Property by Solomon Poretsky, Demand Media

While you can claim many expenses as write-offs in the year you make them, the IRS treats buying a rental property not as an expense but as a conversion — In other words, you’re turning cash into an asset with value, meaning that no net change to your personal wealth has occurred. However, since buildings gradually wear out, the IRS lets you depreciate it by taking a small portion of value as an expense every year, writing down its value and reducing your taxes. With something like a computer or a car that usually ends up being worthless at the end of its “useful life,” this is not a problem. Real estate, though, usually goes up in value. So what do you do when you depreciate a rental property?

When You Have to Pay Back Depreciation

Since you get to write off an expense without actually spending money, depreciation should be a benefit to you for as long as you own the property and it still has value to depreciate. You don’t need to worry about paying it back until you sell the property. That’s when you actually experience a taxable event and can incur a gain.

When You Have to Pay Back Depreciation

Because depreciation is an accounting tool that lets you adjust value for “using up” the value of your asset, the IRS expects that you will sell it for less than the depreciated value. If you sell your asset for more that its depreciated value, the IRS requires you to pay it tax on that gain. This tax is called “Depreciation Recapture Tax” and is also referred to as Section 1250 recapture.

How Depreciation Recapture Tax Works

The tax rate on recaptured deprecation is 25 percent. The best way to understand how it works is through an example. Consider a rental property that you bought 15 years ago for $250,000 and just sold for $350,000. Your analysis showed that $180,000 of the value was in the depreciable buillding and $70,000 was in non-depreciable land. You would have a $100,000 capital gain on the difference between the original purchase price and the selling price, taxable at 15 percent in the 2012 tax year. In addition, the $6,545 per year depreciation that you claimed based on the asset’s 27.5 year life, which adds up to $98,175, is taxable at 25 percent as recapture. This leads to a total tax bill on the sale of $39,544, based on $15,000 in gains tax and $24,544 in recapture tax.

Avoiding Depreciation Recapture Tax

You can’t avoid the recapture tax by not claiming depreciation. The IRS calculates recapture on the depreciation that you were legally allowed to claim whether or not you actually claimed it. The best way to get out of paying recapture is to use the proceeds from the sale of your rental property to buy another piece of investment property that is the same size or larger. Structuring your transaction as a 1031 exchange and following the IRS’s rules for that process lets you carry your proceeds, and your tax basis, forward into a new property without paying depreciation recapture or capital gains taxes.

ref.link: http://homeguides.sfgate.com/paying-back-depreciation-rental-property-42080.html

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Allocating Costs for Land Vs. Building by Kevin Johnston, Demand Media

When you buy property that has buildings on it, you must indicate how much you paid for land and how much you paid for buildings. You need these figures for two reasons: to figure your depreciation and to calculate your profits when you sell the property. You can calculate these figures, either at the time you buy the property or when you file taxes indicating depreciation. You can also calculate profits on land and buildings when you sell the property by determining your cost basis for each.

 

Real Estate Tax Bills

Some states separate the value of your land and buildings on your tax bill. You can use this bill as the basis for your costs and expenses on the property. For example, if you paid $100,000 for a property, and the county assessor shows that the land is worth $30,000 and the building is worth $70,000, you can accept those figures if they seem reasonable to you.

Other Ways to Allocate

If you think the state or county assessor has valued your buildings disproportionately to your land, you can make your own calculations. However, those calculations must have a basis. You can hire an appraiser who will use comparable properties in the area near yours. Even if this valuation differs significantly from the state or county assessment, you can use it if you think it will stand up to Internal Revenue Service scrutiny.

Depreciation

You cannot depreciate land. You can depreciate buildings. This means you write off a portion of the value of your buildings each year until you have written off the full value of the buildings. For residential property, you write off the value of buildings over a 27.5-year period. Write off commercial buildings over a 39-year period. The more your buildings are worth as a percentage of the total property, the more you can depreciate for tax purposes. This is why it is important to get an accurate valuation of your buildings vs. land.

Profits

When you sell your property, you pay taxes on the profits. Figure profits by using this formula: sale price minus cost basis. However, any major improvement to you buildings you made while you owned it add to the cost basis. For example, if you put on a new roof, you would add the cost of that roof to your cost basis. A house you bought for $100,000 with a new roof that cost $10,000 has a cost basis of $110,000. If you sell that house for $150,000, you only pay taxes on $40,000 profit (150,000 minus 110,000). Your land, on the other hand, would retain its original cost basis in this scenario. However, if you pay for grading and adding drainage ditches, you could add these costs to the cost basis of the land. Minor repairs on buildings and landscaping for land do not add to the cost basis for buildings or land.

 

ref.link: http://homeguides.sfgate.com/allocating-costs-land-vs-building-46540.html

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How to Determine Depreciation of Land vs. House by Solomon Poretsky, Demand Media

Many real estate investors know that they can depreciate their investment homes over 27.5 years. With a $300,000 house, this generates around $10,000 a year in additional tax write-offs, saving thousands of dollars of tax liability. While the IRS lets you write off your house, they don’t let you write off land since they treat land like precious metal holdings. Since land doesn’t get “used up” the way that buildings do, you can’t depreciate it. This means that you need to allocate the value of your investment homes between the depreciable building and the non-depreciable home.

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1. Determine your cost basis in the property. This is typically the net price that you paid for it after adding in the closing costs that you pay.

 

2. Look up the land value in the appraisal that you ordered as a part of buying the property and getting a mortgage. If you did not receive an appraisal, look to the property’s assessed value to obtain the value of the land, but ordering an appraisal may be a better choice. To be safe, consult with your CPA on how to properly allocate the value, since the IRS does not have a hard-and-fast rule.

 

3. Subtract the land value from your cost basis. The remainder is the building’s basis, which is usually fully depreciable over 27.5 years.

 

4. Calculate your annual depreciation by dividing the building’s depreciable basis by 27.5 and claim it on line 19.h of your Form 4562 and on line 18 of your Schedule E, as of 2011.

 

ref.link: http://homeguides.sfgate.com/determine-depreciation-land-vs-house-42248.html

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Land Value Vs. Home Value

There is another version on knowledge sharing from http://homeguides.sfgate.com/. The discussion by by Kevin Johnston, Demand Media shows that “Buildings and land are treated differently for tax purposes”. Below is the details on the discussion by Kevin.

When you own a home that is on land, you must value the home separately from the land. This valuation affects your property taxes and depreciation on the home if it is rental property. Local records do not always reflect a fair valuation of the home vs. the land, so you have to know how to find the separate values yourself.

Depreciation Rules

According to the Internal Revenue Service, you cannot depreciate land. However, if you own a house that you rent out or that you bought as an investor, you can depreciate the building. The reasoning is that the building loses value with wear and tear, whereas land does not.

Property Tax Assessment

You can go to your county assessor’s office and find out the assessment of the land and the home separately. If this figure seems reasonable, you can use it as a basis for depreciating the building. For example, if the assessor determines that your land is worth $80,000 and the home is worth $150,000, only depreciate the $150,000 figure.

Your Own Valuation

Sometimes assessor’s valuations are so far off that the home may not be valued properly. For example, if the land is valued at $150,000 and the house is valued at $20,000, a mistake may have been made. You can set a value for the land vs. the home if you have a basis to do so. According to Two Wise Acres, a good rule of thumb is 20 percent land value and 80 percent building value. However, you should check comparable assessments in your area to determine values that have been placed on vacant lots, land and homes together, and homes separately. If you have a basis for your valuation, you can make a reasonable case on your taxes for depreciating the home.

Capital Improvements

If you make substantial improvements to the home, such as remodeling, you can depreciate that cost along with the home value. Add the cost of the improvements to the value of the home. For example, a house purchased for $150,000 that you remodel for $50,000 would have a $200,000 cost basis you would use for depreciation purposes. Minor repairs do not get depreciated.

 

link: http://homeguides.sfgate.com/land-value-vs-home-value-46832.html

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Real Estate Dissertation Topics

This idea was based on the website provided by www.ukessays.com

>>>>>Click Here: http://goo.gl/sAJeAY

Some other ideas;

  1. Appraisal, Market Analysis and Public Policy in Real Estate
  2. Indigenous Peoples and Real Estate Valuation
  3. Megatrends in Retail Real Estate
  4. Real Estate Education Throughout the World: Past, Present and Future

 

Housing Markets & Finance
The dynamics of supply and demand that create the U.S. housing markets. Demographic trends, housing construction and costs, mortgage finance process, and secondary mortgage market.
Real Estate Finance/Securitization
Financial products used to finance real property. Strategies and structures of financial products.
Real Estate Development/Land Use Policy
Real estate development process and practical applications of design, construction, and finance in developing real estate.
Real Estate Investment Strategy
The variety of forms of value creation in global real estate; development, investment management, and strategy. Economic, financial, institutional dynamics that constrain actors and organizations in the real estate business.
REITs
Public and private real estate investment trusts.
Real Estate Public Development Finance & Urban Development Politics
The role of local actors in real estate development. The economics and role of government in financing real estate development.
Real Estate Markets and Regulation
Integration of real estate finance and the global capital markets, including regulation of such markets.
Demographics
Exploring demographic trends and the impact of such trends on real estate markets.  Issues such as demand for workforce housing and the expansion of midsized communities.
Social Enterprise and Policy
The economics of education.  Determinants of property taxation and expenditure in local public school districts, the impact of teachers on student achievement, and measuring the effectiveness of educational policies such as charter schools and school accountability systems.
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“Would you rather. . .?”

This will be a great question for ice breaking among students for the first class with them. Instead of sharing the class planning, why dont you try to change the environment? Just give them the question, and see their answer…

….“Would you rather. . .?”

>>> See the future or change the past?

>>> Wrestle a lion or fight a shark?

>>> Always be cold or always be?

>>> Be stranded on a deserted island alone or with someone you don’t like?

>>> Be handsome/beautiful and dumb or be ugly and really smart?

 

Better to just be real. Show up and do your job and be a nice person.

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Conceive Design Implement Operate: C-D-I-O

UTM started implementing Conceive Design Implement Operate framework when Temasek  sponsored Singapore Polytechnique(SP) to expand their expertise in CDIO throughout Asia. SP has conducted a series of train the trainer courses for UTM lecturers. Since the training, we have started implementing CDIO throughout UTM. There are a total of  15 CDIO Master trainer in UTM.

Implementation of the New Academia framework in Universiti Teknologi Malaysia is focusing on teaching and learning innovation that can bring big change, high impact and move from conventional thinking to entrepreneurial thinking among the academician as well as graduates. CDIO is part of the New Academia Learning Innovation Model.

MODEL

http://www.utm.my/cdio

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Disabled-friendly Malaysia: More needs to be done to address PWD’s welfare

Disabled-friendly Malaysia: More needs to be done to address PWD’s welfare
13 MARCH 2015 @ 2:04 PM
www.nst.com.my/

 
MALAYSIA has a population of nearly 28 million, including persons with disabilities (PWD) who are described as those having long term physical, mental, intellectual or sensory impairments. According to the World Health Organisation, there are around one billion people living with disabilities worldwide. In 2012, Malaysia had around 445,006 persons with disabilities registered. This number could be bigger because registration is voluntary. The process of registering as a PWD, more commonly known as Orang Kurang Upaya or OKU in Malaysia, does not take long. The government has taken many initiatives to protect their interests.

Malaysia enacted the Persons with Disabilities Act 2008 and became a signatory of the Convention on the Rights of Persons with Disabilities in 2008. It was ratified in 2010, as a move to address the group’s welfare. In 2007, Malaysia established the National Policy for Persons with Disabilities aimed at increasing their involvement and contribution in the nation’s growth. One of the areas of concern is the housing industry. This shows that the government pays attention to the issue of PWD housing to ensure they are given equal treatment and have the same opportunities as the others. As stated in the National Housing Policy, there is still not enough housing for PWDs. Even if we excluded disabledfriendly houses, there are insufficient homes even for the able bodied. The aged, single mothers and squatters are also affected. Hence, recognising the need for houses for PWDs, the government has decided to provide more units and have included it in Principle Element 1 in the National Housing Policy. Previous studies have shown that houses for wheelchair-users have various benefits, such as reducing the need for care service and the cost of modifying the house.

These special homes enable young PWDs to leave their family home and lead an independent life; reduce home care and lessen the risk o f falls for older wheelchair-users. Wheelchair-bound children could eventually establish their confidence by having control of the home environment. A wheelchair-friendly house also helps the users to have an independent life and reduces their dependence on assistance in carrying out their daily activities. Houses for wheelchair-users are really an ideal place for PWDs. While there are several types of disabilities, physical disability is the second highest group after learning disabilities in Malaysia.

People with learning disabilities might face difficulty in learning, but not difficulty in everyday life, such as taking care of themselves. Wheelchair-users face the most barriers in life and many studies have also found that even houses for them are still wrongly designed. Living in Malaysia, we can barely see facilities for wheel chair users in accessing commercial buildings, government buildings or public transportation, even though we want to achieve a barrier-free living environment. Aren’t wheelchair-friendly houses a basic need for people who are wheelchair-bound? Have we ever considered how their life might be? Do they fall down everyday in the bathroom? Do we need to experience their plight before we consider their needs? Malaysia has various policies, laws and standards for the benefit of PWDs. However, they are still facing difficulty in accessing houses or buildings. Something must be done to help them and make Malaysia a civilised country.

 

Sr Dr Eng Noorsidi Aizuddin Mat Noor and Leow Chee Kuan , Department of Real Estate, Faculty of Geoinformation & Real Estate, Universiti Teknologi Malaysia, Johor (This is part of a research project by the abovenamed)

Read More : http://dev.nst.com.my/node/76346