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I thought a real estate sale was taxed as a capital gain?

Derek Peterson

Well that is true in most cases.  However, depending on your intentions and actions, real estate sales can be taxed as ordinary income - often at much higher rates than capital gains.  Sometimes investors go into a real estate transaction with the intention of holding it as an investment.  Like all good pundits tell you, for true success, invest for the long term.  Nevertheless, every so often, another investor comes along and makes an offer you cannot refuse - especially when they are in a 'hot' market.  One thing leads to another and next thing you know, you, are walking away with a pocket full of cash and a big smile.  You have just executed everyone's get rich quick plan - buy low, sell high - now let's do it again and again.  Whoa!  Better stop and think about who else may be getting rich here - in this case its Uncle Sam!  Believe it or not, I have seen this played out more than once.

Remember, intentions and actions are what matter when determining how a real estate transaction will be taxed.  While both are very important, if they are not in alignment, you may not experience the results that you hoped for.  To learn more detail about planning for your real estate investments, please read this article by Allison DeLuca, CPA.

To Roth or Not to Roth... Retirement Planning Options

Derek Peterson

Using the various forms of the Roth IRA for retirement planning can be a powerful way to build wealth and achieve financial security in retirement.  But like any investment/planning decision, it takes consideration of several factors such as:

  • Your personal circumstances
  • Your outlook on the future - economically and politically
  • Financial goals
  • Resources available to you

There are many ways to fund Roth IRAs

  • Conversions from traditional IRA accounts
  • Rollovers from employer sponsored plans
  • Self-employment plans
  • And of course... Direct Contributions

The following article by Amanda Lott, CFP, MST, CRC states that contributions can be a good idea for:

  • Young individuals
  • Individuals who expect their future tax brackets to be higher than now
  • Individuals who already have ample retirement funds

Read the article Roth IRA Planning for more details and to gain additional insight into the benefits and risks of Roth IRAs.  You have until April 18, 2016 to make contributions for the year 2015.

While beyond the scope of this article, Roth IRAs can also be used to invest in alternative assets in what is commonly referred to as Self-Directed IRAs.   This vehicle is popular with real estate investors for the benefits it can provide.  However, you must be careful to adhere to the rules and know the limitations.  The use of a third party trustee is essential for investing in this way.  If you would like to know more, please do not hesitate to contact us! 

Peterson CPA Group

512-717-4290

To Win the Game, You Have to Know the Rules!

Derek Peterson

In Timothy Ferriss' book The 4-Hour Workweek, Mr. Ferriss describes how he won the Chinese Kickboxing National Championship.  He was not a trained fighter and he only even entered the competition on a dare four weeks prior.  How did he do it?  He read and understood the rules of the competition.  I'll let you read the story for yourself in his book, but the long and short of it is that he legitimately was able to compete with opponents three weight classes below his weight and won EVERY match with a TKO (technical knock out) by pushing his opponents off of the fighting platform three times in a single round.  To the dismay of the judges, Timothy Ferriss won the Chinese Kickboxing National Championship in 'his weight class'.  Gotta love them rules...

How does that apply to you as an investor and taxpayer?  You need to know the basic 'rules' of taxation and make them work for you.  While there is a lot more surrounding these topics, the article 'What Investors Need to Know About Passive Activities' by Luis Plascencia, CPA gives you a good foundation for your tax, investment, estate, and wealth planning.

ACA/Obamacare - What It Means For You

Derek Peterson

Like it or not, the Affordable Care Act, aka Obamacare is here and the provisions of this act are in full effect for the 2015 tax year. With all the complexity and confusion surrounding the legislation, this is an article that breaks down what you as an individual, need to know.   Understanding the implications are important for every taxpayer.  Read the article HERE.