By month: March 2009
Higher inflation could be good for that home you buy today—and if you buy today, you will have today’s low interest rate. That’s a pretty good combination. Then add the 2009 tax credit and get the government to pay you $8,000 for taking the chance. Sounds like you hit the trifecta doesn’t it?
The official name of the new stimulus is the American Recovery and Reinvestment Act of 2009 (Public Law 111-5). Like last year’s version, the 2009 stimulus contains three big deals for business: (1) fifty percent bonus depreciation; (2) Section 179 expensing of up to $250,000; and (3) an increase in first-year luxury car depreciation on new (not used) cars.
The tax-favored like-kind rules for personal property such as cars contain a number of twists. For example, trading a car for an SUV, a crossover vehicle, or another car qualifies as a like-kind trade. But the trade of a car for a pickup truck is not like-kind.
The very first thing you need to do once you make the decision to buy the new asset and replace the old asset is to calculate your taxable gain or deductible loss on the old asset (as if you were going to sell it right now). The result—gain or loss—determines the strategy you should follow.
When you claim a Section 179 expensing deduction, you make a deal with the government. You agree to give back your early tax benefits if, during the recapture period, your business use drops to 50 percent or less.
A real estate rental is automatically in the passive bucket if you do not qualify as a real estate professional. In this court case, a real estate agent qualified her real estate agent work time as time spent in a real property trade or business. Thus, she qualified to deduct her real estate rental property losses.
Two tax attorneys told our group that time spent as a real estate agent actually worked against you for the time test (more than 50 percent) to qualify as a real estate professional. The attorneys claimed that in audits the IRS is disallowing the unlimited loss to people who are full-time agents, treating their agent work time as non–real estate time and thus making it just about impossible to meet the 50 percent test.