For example, if you have a rental property that is generating losses, you could consider taking out a mortgage on your primary residence and shifting the deduction there, or purchasing one of the many investments that generate passive income and allow your suspended losses to shield that income from taxation.
Remember that you are limited in the amount of home equity interest you can deduct. Just don’t pass away with suspended passive losses, or the benefit may be lost forever.
Tax idea 4 — tax credits
A few years ago, one of my friends told me about a free electric car that you could get through tax credits. I quickly told him this follows the old axiom, “if it sounds too good to be true, it most likely is.” However, in this case my friend was right!
Many tax credits are frequently missed, including the small-business health insurance credit, education credits, and other general business credits. Some education credits are roughly equivalent to a full-ride scholarship, and some entire industries or businesses are built on tax credits. Make sure you investigate options in this area.
Tax idea 5 — tax deferred exchange
If you have rental properties or other highly appreciated assets, you may know that when you sell one of these assets you do not have to pay the tax now if you exchange the property into a “like-kind asset.” We have helped clients exchange millions of dollars of highly appreciated real estate into income-producing replacement property with no tax bill.
In addition, many replacement properties give the owner the benefit of additional depreciation deductions that reduce the amount of tax paid on that replacement property income.
So, you may ask, what happens to the gain? The gain is deferred into the replacement asset, which can be donated to charity, gifted to children or grandchildren, or simply held on to for the rest of the owner’s life. Each of these strategies may result in little or no tax. I like to think of this as harvesting fruit from the orchard rather than chopping down the tree for the temporary benefit of firewood.
Caveat — As you are improving your situation, don’t forget about Congress’ sneaky trick — the alternative minimum tax! When you see a nice “tax reduction” gift from Congress, if it is not married to a similar change in the alternative minimum tax, the new deduction may be worthless.
As you look at different scenarios, make sure you take the AMT into consideration, otherwise all your planning may be for naught. Make sure that you run your tax computation for both regular and alternative minimum tax to give greater assurance that your planning efforts will pay off.
Read next week’s column for five more tax saving ideas.
Do not rely on any information stated or calculations made herein as tax or legal advice. Consult your independent tax adviser or attorney for tax or legal advice on which you rely.
Rich Wagner, CPA, MAcc, is a tax reduction and investment expert. If you’d like more ideas on protecting , saving and growing your money, call him at 801-657-4459, or email at email@example.com.
- 50 highest paying jobs in Utah
- 7 ways to help your loved one when they've...
- How not to buy a rental property
- Balancing act: Different kinds of guilt...
- Low unemployment rates contribute to dropping...
- Is preschool worth the money?
- Why we don't need to worry that Utah cities...
- Consumer confidence continues to climb in Utah
- Marijuana could deliver more than $800... 13
- 7 reasons why millennials are... 13
- Low unemployment rates contribute to... 7
- 4 things you don't want your boss to know 6
- Is preschool worth the money? 6
- Overdraft and ATM fees higher than ever 4
- Microsoft skips Windows 9 to emphasize... 4
- How to be a billionaire 4