Real Estate Taxation
Real estate taxes are a complex form of tax law, and for every type of real estate transaction there are different regulations. Jo Ann M. Koontz and Marina Parkin possess knowledge and experience with all forms of real estate taxes. Whether you are buying, selling, or renting, Koontz & Parkin, CPAs will help you structure your transaction. The various forms of taxable real estate transactions include:
- Selling your residence – If you sell your primary residence and you profit from the sale, you may be able to exclude up to $500,000 from your taxable income if you meet the ownership and use tests verifying that you have owned and have lived in the home for at least two of the five years immediately preceding the sale. These qualifications also apply to any property you used for rental income or that you used for business.
- Taking a mortgage – If you take a mortgage on your home, the interest you pay on the first $1 million is usually tax deductible. However, if the home is co-owned by someone other than your spouse, the tax deductible interest must be divided; each co-owner cannot deduct $1 million. The interest paid on home equity loans is also tax deductible, up to $100,000.
- Renting your property – Typically, you must report all profits gained from renting your property at the end of the taxable year. You may also deduct any expenses incurred from renting or maintaining your rental property. Some rental situations involve special circumstances, such as expenses paid by the tenant, services paid by the tenant instead of rent, advance rent, and security deposits. These unique circumstances should be overseen by an experienced CPA in order to minimize the rate of taxation and avoid potential trouble with the IRS.
- Renting your vacation property – Taxation issues surrounding vacation property can be very tricky. In general, you must report money earned from such a rental. However, if you only rent your property for 15 days or less a year, you are not required to report the income. You can often deduct the costs of renting vacation property, but if you and your family also use it as a residence, you will be limited in the amount of deductions you can take. If your expenses exceed the amount of rent you receive, a deduction is not permitted.
- Involuntary Conversions – If your property was stolen, destroyed, or condemned, and you received money in exchange, you have gone through an involuntary conversion. The money you receive is generally taxable unless the original property was your primary residence. However, you do not have to report the property received if it is comparable to the destroyed property.
- Like-Kind Exchanges – Occasionally, you may exchange property for property of a like-kind. Normally, the property you receive in exchange is not subject to taxation. Talk to a tax expert prior to entering into a like-kind exchange and when calculating your income tax for the year.
- Installment Sales – If you sell your property and are paid in installments, you must report each installment in the year it is received.
Passive Activity Loss Analysis and Strategy
Passive activity loss rules can be confusing. Passive activity losses and non-passive activity losses are deducted differently. In general, passive activity losses are only deductible from passive income. This means that when you are examining your income from rental activity, you must carefully consider strategy to take advantage of passive activity rules versus material participation rules.
Help for Florida Real Estate Agents with Property and Income Tax Questions
Koontz & Parkin, CPAs can answer questions that Florida real estate agents have related to property and taxes. Because Koontz & Parkin, CPAs work closely with realtors, we are experienced in the forms of business ownership and taxation for brokers and sales associates. In addition, we help realtors understand the rules relating to Real Estate Professional status and how impacts your tax calculation.
Call Koontz & Parkin, CPAs for Real Estate Related Tax Guidance in the Sarasota and Bradenton Area
Jo Ann M. Koontz and Marina Parkin offer a powerful combination of in-depth knowledge of tax regulations, a firm grasp of the business world, and years of experience representing clients. To schedule a consultation, call the Sarasota office of Koontz & Parkin, CPAs at 941.328.3993.