A RealTalker writes:

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If you find a way to take it with you, be sure to let us know how.
Meanwhile, is the government entitled to a portion of your income?
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Not from the government's perspective.

The government thinks it is entitled to ALL of your income.

The government believes it is being gracious if it lets you keep some of the government's income...it is not your income. Whatever gave you that idea? It is the government's income. Your deductions are considered expenditures to the tax code creators and writers...expenditures.

The purpose of the tax code is not only to facilitate the collection of
revenue to run the government, the purpose of the tax code is also social and economic engineering. This is not a judgment...it just is.

Estate Tax percentages amount to nothing more than confiscation. You would think that the greater the portion of one's estate allowed to pass to one's heirs, the more encouraged some people would be to work harder and more efficiently for the benefit of their heirs. Confiscatory estate tax rates can be counter productive and a disincentive.

Now, if you want to leave your entire estate to Uncle Sugar, you should have every right to do so and I would support you in having the option to do so.

Having said the above, most of us pretty much agree that the government(s) should be allowed to confiscate some of our hard earned income for the "common good." The question and the disagreement arises over how much, when and for what "common good" should the confiscation be allowed.

The unfairness of taxing income twice has been mentioned...taxed first as income and then as an estate. It may be unfair, but tax law is not fair, and it is not simple, no matter what the politicians try to tell us.

And, it never will be fair and simple. Tweaks and small changes result in huge revenue increases for the government, and usually with little outcry because the tax law is so complex, most people don't want to think about it.

In 1984 most deductions were taken from taxpayers and the marginal rates were reduced to 15% and 28%. A few years later, with our deductions gone, the government began to raise marginal rates again. You try to tax plan and then the next year congress changes the rules.

We say it is a "voluntary system." But the most powerful enforcement agency of the US government is the Internal Revenue Service.

Having read this, you might have the idea that I am against taxes. That, in fact, is not the case. And I see no solution that would not incur a stream of unintended consequences. I do know this...by paying attention to taxes and tax laws, you can make sure you pay no more than that which the law requires you pay. You'd be surprised how many people pay more than they are obligated to pay because they lack understanding of the tax law.

"Anyone may so arrange his affairs so that his taxes shall be as low as possible. He is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes."

Justice Learned Hand

Saul

Saul Klein
President, InternetCrusade

You may qualify to exclude from your income all or part of any gain from the sale of your main home. This means that, if you qualify, you will not have to pay tax on the gain up to the limit described under Maximum Exclusion, next. To qualify, you must meet the ownership and use tests described later.

You can choose not to take the exclusion by including the gain from the sale in your gross income on your tax return for the year of the sale. This choice can be made (or revoked) at any time before the expiration of a 3-year period beginning on the due date of your return (not including extensions) for the year of the sale.

Maximum Exclusion

You can exclude up to $250,000 of the gain on the sale of your main home if all of the following are true.

You meet the ownership test.

You meet the use test.

During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home.

If you and another person owned the home jointly but file separate returns, each of you can exclude up to $250,000 of gain from the sale of your interest in the home if each of you meets the three conditions just listed.

You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true.

• You are married and file a joint return for the year.
• Either you or your spouse meets the ownership test.
• Both you and your spouse meet the use test.

During the 2-year period ending on the date of the sale, neither you nor your spouse excluded gain from the sale of another home.

If either spouse does not satisfy all these requirements, the maximum exclusion that can be claimed by the couple is the total of the maximum exclusions that each spouse would qualify for if not married and the amounts were figured separately. For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property.

Ownership and Use Tests

To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have:

Owned the home for at least 2 years (the ownership test), and

Lived in the home as your main home for at least 2 years (the use test).

Exception. If you owned and lived in the property as your main home for less than 2 years, you can still claim an exclusion in some cases. The maximum amount you can exclude will be reduced. See Reduced Maximum Exclusion, later.

Period of Ownership and Use

The required 2 years of ownership and use during the 5-year period ending on the date of the sale do not have to be continuous.

You meet the tests if you can show that you owned and lived in the property as your main home for either 24 full months or 730 days (365 × 2) during the 5-year period ending on the date of sale.

Example

Susan bought and moved into a house in July 2001. She lived there for 13 months and then moved in with a friend. She moved back into her own house in 2004 and lived there for 12 months until she sold it in July 2005. Susan meets the ownership and use tests because, during the 5-year period ending on the date of sale, she owned the house for 4 years and lived in it for a total of 25 months.

Saul

Your annual business planning should lead you each year, closer to your Vision. What is a simple way to describe your Vision? If, at the end of your real estate career, someone were to describe you, your business, what you achieved, who you helped, how would they describe you and your business?

What would you want them to say about you and your business (twenty years down the road)? That is your Vision. Remember, if you don't know where you are going, any road will take you there. Successful people:

1. Have a Vision

2. Create a plan

3. Take risks

4. Build a Team

5. Take Action

All of us here are part of your team. We are all a resource for one another...that is part of the power of online community.

Sooo...most of you are involved in the real estate business because you feel it will help you attain financial freedom...but just what is financial freedom other than two words...simple, financial freedom is really one word...choice.

Some refer to it as financial independence or financial security. As a real estate professional and independent contractor, no one is looking out to see that you achieve financial freedom except you-not your broker, not the government, but you.

I know I am repeating myself, but repetition is the mother of learning.

Financial freedom is about choice. I have always defined it as being able to do whatever you want to do, whenever you want to do it, including whomever you want to include, and not worrying about how much money it costs. Of course whatever you want to do may not be whatever I want to do. We're all seeking our own bliss. Success means different things to different people.

Defining your success requires an examination of your values. Ask yourself:

How important are the following:

Family

Charity (Money)

Spirituality/Religion

Wealth and Material Possessions

Helping Others (Deeds)

Education

Self-improvement

Security

Happiness

Prioritize what is important to you. Keep what you want to achieve in your consciousness as you work each day toward retirement and financial freedom.

You have the ability to achieve whatever you want in life. It's a matter of commitment and discipline. Are you willing to do what it takes to achieve or accomplish that which has value to you? An interesting phenomenon is that you may not have to do what it takes (sometimes things just happen in your favor), if you are only willing to do what it takes to accomplish that which you set out to accomplish.

Are you seriously or moderately committed to your financial success? Most people are only moderately committed and that's why they never achieve financial independence. That's why when they reach retirement age, they have to reduce their standard of living. That is a sad state of affairs for the richest nation in the world. Most people approach retirement age fully expecting to reduce their standard of living.

I say that if you are seriously committed to your financial independence, if you set goals based on your values, if you plan, learn, monitor and make appropriate corrections along the way, if you start today, you will become financially free. Meaningful financial freedom is obtainable for everyone.

If you fail to plan, you will end up like most people. Here is an old story from the Social Security Administration a number of years ago, but the lesson is a good one.

The Select Few

Begin with 100 people-any 100 people-all entering the work force at the same age. What will happen to them on their way to age 65?

• Thirty-six of the 100 will die before they reach age 65. The other
• 64 will keep going and make it to age 65-but in different ways.
• Fifty-four of them will end up broke, living on the generosity of
• their family, friends, or dependent on charity.
• Six of them will be luckier. At age 65 they will be able to keep on
• working-they won't be financially able to retire.
• Only four of the 100 will make it to retirement age with enough
• money to live comfortably-to have a choice as to how they want to spend the rest of their lives.
• The others didn't plan to fail. They just failed to plan.

Achieving financial freedom requires having a target, a Vision...and then steps 2 through 5 above.

Saul

A number of years ago, my wife Janie and I went through the estate planning process...set up an AB Trust...decided where we wanted our assets to go upon our demise. As a financial planner, I often saw that one of the areas folks have trouble discussing...husbands and wives, children and parents...is estate planning...and if you have assets, one of the worst things you can do is fail to plan (failing to plan usually results in more going to the government instead of to the ones you love). More wealth than ever before will pass from the World War II Generation to the Baby Boom Generation and estate planning is an absolute must, for ourselves and for our real estate clients. Sometimes folks think that the manner of taking title can substitute for good estate planning. Nothing could be further from the truth.

Consider a living trust. Living trusts can avoid probate, remain private, allow for expeditious distribution of trust assets. There may also be tax advantage depending upon the size of the estate of married couples.

Saul

I recently received the following in an e-mail message:

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My husband is a Broker and I am a Realtor. We are very interested in more information about REIT's (Real Estate Investment Trusts). There is a attorney my husband is speaking with in regards to this, but we also wanted to get further education through you if possible. Are there any specific Seminars you hold in regards to this?? If not maybe you can refer me to someone I can network with. Your help is greatly appreciated.

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Here is my reply:

A REIT is a sophisticated "group investment." Group investments can have different legal structures, benefits, and consequences.

There was a time in my real estate career when I was involved with investment groups or what we called "real estate syndications." I participated as a consultant to limited and general partnerships, broker to partnerships, and as both a limited and general partner in a number of real estate partnerships. I current continue to be involved in a general partnership I have been involved in for 27 years (with my real estate brokerage partner and two high school friends). The assets of the partnership are a 5 bay coin operated carwash and two adjacent parcels (single family homes). This general partnership has a formal partnership document created by an attorney specialist, and is successful because the investments are sound and the partners have trust and respect for one another, not to mention a long history as close friends. General partnerships are not suitable for everyone.

There are no seminars that I know of on the subject today that I would recommend. There were years ago, especially as real estate investing benefits were amplified by the Economic Recovery Tax Act (ERTA) in 1981.

There were also books on the "whys and how tos." In the early 1980s I worked with and attended seminars with an attorney, author, seminar promoter and syndicator named Mark Long. Mark wrote "Big Money Brokerage, Volumes I and II." It is out of print but I googled and found the following:

Link

 It will provide a decent "primer" on the subject.

Each investment group provides opportunities to acquire properties which the individuals would not have the ability to purchase on their own. Tax law and the "active participation rule" limit some of the immediate tax benefits which were available to investors of 20 years ago. That being said, getting groups together to invest in real estate can still be a great career path for competent real estate professionals.

There are different investment group structures.

1. Partnerships - Tax consequences are passed through to partners and taxed at the partners tax rates. There are General Partnerships and Limited Partnerships.

A. General partnerships - All the general partners have unlimited liability (Joint and Several Liability) and because all general partners participate in the management of the partnership and its assets, General Partnerships can be difficult to manage.

B. Limited partnerships - Have two classes of partners, General Partners and Limited Partners. All General partners are responsible for the management and control of the partnership and its assets and have unlimited liability.

Limited partners liability is limited to their investment and they have no control over the partnership or its assets. There are two types of limited partnerships, Private Placements and Public Placements.

1) Private Placements are the least regulated of the two and have the lowest legal and compliance requirements and consequently, the lowest legal fees and costs to put together. When creating a limited partnership, the total number of "unqualified investors" is 35 (last time I worked in this area...it may have changed so check first). The marketing of the investment opportunity must be private and to people you know or with whom you have a pre-existing relationship. There are "specified offerings" and "blind pool offerings." With specified offerings, the general partners acquire property or the rights to property and then market the interests in the partnership with the property and its specifics outlined in the prospectus. With Blind pools, the general partners may create a profile of the property type they intend to acquire and investors invest without knowing the ultimate property to be owned.

2) Public Placements require more legal, registration, compliance and disclosure (and expense) but the offering can then be made to the "public,"making it easier to raise more money from more investors (not limited to the number or type of investors).

2. Real Estate Investment Trusts (REITS) - A REIT is a corporation (lots of legal, compliance and disclosure requirements...and expense) which must invest its assets in real estate and has the liability characteristics of a corporation...limited liability of all investors, and tax consequences are "passed through" as they are in partnerships. Partners can offer their shares for sale to other investors and REITS are typically more liquid than partnership investments.

3. Limited Liability Companies - Specific to the laws of your state...similar to a corporation investing, which limits liability of all investors.

4. Joint Ownership (Usually Tennant in Common Ownership - This is where several parties might own a real property asset as Tenants in Common. This is sometimes done informally, with the deed being the only document indicating a "partnership exists." Make sure you have an attorney create some sort of "land holding agreement" which stipulates what happens "if," if a partner wants out, if a partner dies, etc.

When should you use one of the above over the other? One rule of thumb could be the amount of money you plan to raise. I would say REITS are in the 100 Million Dollar range, Public Placements in the multi million dollar range, and Private Placements in the multi hundred thousand dollar range.

When you take other people's money and make investments for which they have no management control, you are more than likely dealing in a "security" and securities laws come into play. Be very careful and engage the services of a good attorney who has knowledge of these things. Investor communication and management is very important, as is managing the expectations of the investors.

Saul

Some practical tips:

If money is important to the conduct of your life and business, commit to making ledger (or software such as Quicken) recordings of your expenses every day.

Most of us spend money on average, 4 to 5 times a day. We either:

1. Pay cash

2. Charge on a credit or debit card

3. Write a check

4 to 5 entries into Quicken (or into a ledger) each day will take no more than 5 minutes...and that 5 minutes a day will lead you to financial freedom.