Advantage Software LLC          Real Estate Investment Analysis Software
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    What is my federal marginal tax rate for 2008?
 
 
  Your federal marginal tax rate is used to estimate the amount of additional taxes you will pay if your income increases.

Example:  If you are single and your Taxable Income is $87,000, you are in a 28% federal tax bracket (check tax table below). 

Federal Tax Rates (Brackets) for 2008:

 
 
 
  Single Married - Joint Head of Household Married - Separate
10% 0 - 8,025 0 - 16,050 0 - 11,450 0 - 8,025
15% 8,025 - 32,550 16,050 - 65,100 11,450 - 43,650 8,025 - 32,550
25% 32,550 - 78,850 65,100 - 131,450 43,650 - 112,650 32,550 - 65,725
28% 78,850 - 164,550 131,450 - 200,300 112,650 - 182,400 65,725 - 100,150
33% 164,550 - 357,700 200,300 - 357,700 182,400 - 357,700 100,150 - 178,850
35% 357,700 and Up 357,700 and Up 357,700 and Up 178,850 and Up

 

 
   What value should I use for my Federal Capital gains rate and
   Unrecapture Depreciation tax rate?
 
 
  For those of you in a 25% tax bracket or higher, your long term capital gains rate is 15% for real estate investments held more than one year.  A flat rate of 25% is applied to gains attributable to depreciation.  For example, if you bought a 4 unit residential income property for $250,000 and over the years you claimed depreciation deductions of $100,000 and you now sell the property for $400,000, your adjusted basis becomes $150,000 ($250,000 - $100,000 of depreciation).  You are left with a profit of $250,000 ($400,000 - $150,000).  Under the new tax rules, $100,000 would be taxed at 25% and $150,000 would be taxed at 15%.

However, if you are in a 15% or lower marginal tax rate, the capital gains that you realize from the sale of an income property is added to your income to determine the capital gains rate that will be applied to your gain.  That portion of your gain which is in a 15% tax bracket ( after adding the capital gains amount ) will be taxed at the lower capital gains rate and that portion of your capital gains that is in a 25 % tax bracket ( after adding the capital gains amount ) will be taxed at the 15% capital gains rate.  Approximately 75% of the tax filing population are in a 15% tax bracket.  This tax change will therefore impact many real estate investors when they sell income property.  If you are in a 15% tax bracket and are considering selling an income property, be sure to go over how your gains will be taxed with your tax adviser.

 
 
 
    How is the Initial Investment Amount Calculated?
 
 
  The On Target program calculates the Initial Investment amount based on the Sales Price, the Loan Amounts, the Points paid on each mortgage, Personal Property transferred at the time of sale and the Closing Costs.  The calculated Initial Investment amount is on the Summary of Inputs report.  You can adjust your mortgage amount if you want these items included in the mortgage at closing.   
 
               Initial Investment Amount = Sales Price + Total Mortgage Points  + Misc. Closing Costs 
                                                      + Personal Property - Loan Amounts.
 
 
   Can I deduct rental losses?
 
 
  If you are an active participant in an income property investment, the following rules apply. For Adjusted Gross Incomes (your income before subtracting itemized deductions, exemptions and rental losses) under $100,000, a maximum of $25,000 in losses can be deducted.  If your AGI is between $100,000 and $150,000, the loss allowance is reduced by 50% of your AGI over $100,000.  For example, if your AGI is $110,000, you can deduct $20,000 in losses ($150,000 - $110,000) / 2.  If your AGI is $125,000, you can deduct $12,500 in losses ($150,000 - $125,000) / 2.

The "On Target" default is active participant.  If you will be actively involved in the management of the property you are analyzing, set real estate professional to "N" and passive participant to "N" ( the default ).  

Real Estate Professionals who meet IRS guidelines can deduct all rental losses.  Check IRS guidelines or talk to your tax consultant if you will be claiming real estate professional.  Passive participants in a real estate investment are not allowed to deduct any rental losses.

The only time you need to be concerned about the "On Target" tax settings is when you have a loss or negative income on the Income statement.  If you have a positive income, it doesn't matter if you are a real estate professional, active participant or passive participant, you will  be taxed the same. 

 
               
 
   What recovery period should I use to depreciate commercial and
   residential income property?
 
 
  When analyzing property with the real estate investment model, use 27.5 years for residential  properties and 39 years for commercial properties.  
               
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