Guidance On Taxes

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Question for all the Tax Pros and wannabe tax pros.

Tax Loopholes, a book in a series produced by Rich Dad, Poor Dad

My buddies wife, is a cpa and a financial analyst for one of the biggest real estate developers in Florida. She pointed out to me in this book that states if an individual spends 75% or more of their annual working business hours working in the real estate industry, they are exempt from paying capital gains taxes.

I'm going to buy the book this afternoon after I watch the Bucs have their way with Atlanta, to use as a reference for continuing my personal education, as well as a tool to help shape my business and the direction I want to approach.

If this is true, every Realtor would, which is 70,000 strong in Fla., is exepmt from Capital Gains. That's a lot of tax dollars good ol' Uncle Sam is missing out on.

I can't imagine this being true. Of those 70,000, I think it's safe to say that at least 30% own multiple properties.

Now add into this full time real estate investors. Tremendous amount of tax dollars annually all across the nation.

If this is true, I would guess this is for primary residences only. I can't imagine a loophole so heaven sent would not have more discussions about the potential value of applying the knowledge.

cool runnings to all,

MT
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Comments(4)

  • DaveT21st September, 2003

    Have not read the book, but I believe you are referring to the tax treatments on passive losses accorded to real estate professionals.

    If a real estate professional (a full time real estate agent qualifies) treats his/her rental property losses as "active" losses instead of passive losses, then s/he can use all of the rental property losses to offset -- dollar for dollar -- other ordinary income without regard to the $25K passive loss deduction cap or to the high income phaseout.

    The flip side is that the profits from the sale of these rental properties is treated as active income -- and taxed at the taxpayer's ordinary income tax rate -- rather than the capital gains tax rate. Since this income is active income, no capital gains tax treatment applies. So yes, a real estate professional might never pay capital gains taxes again!

    Personally, I don't see a great rush by real estate professionals to convert their investment capital gains (taxed at 15% or less) to active income which could be taxed as high as 35%.

  • DaveREI21st September, 2003

    If you find out ....let me know... that sounds too unreal.

  • MikeT101324th September, 2003

    Yeah I think DaveT is right on the money, they're talking about accelerating depreciation for high income families. It's 750 annual hours working the real estate field.

    MT
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  • DaveT25th September, 2003

    MT,

    There's more to it than just spending at least 750 hours in a real estate business or related activity.

    Those 750 hours mustbe hours of material participation, and,
    be at least 50% of all the personal service hours worked in all activities.
    Pretty hard for someone with a full time job to qualify as a real estate professional with only 750 moonlight hours in a real estate activity.

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