chris bird 2009 tax talk

Tax Talk with Chris Bird 2009


•Certified Residential Specialist•Licensed Broker Since 1980•Broker/Owner American RE Service•Founder/Director Arkansas

Institute of REInstitute of RE•Senior CRS Instructor since 1989

oCRS 204 Wealth BuildingCRS 205 Financial & Tax SkillsoCRS 205 Financial & Tax Skills

•Multi-State GRI & ABR Instructor•Serves on CRS Board of Directors

Tina B. Daniel


•Senior CRS Instructor

•IRS agent from 1970 to 1986

•Chris Bird Seminars, Inc.

Former adjunct instructor of •Former adjunct instructor of tax law at University of Illinois for more than 28 year

Chris Birdfor more than 28 year


N T LNew Tax Laws


IRA Conversions to ROTH IRA

$100,000 limit removed in 2010Most of you should consider this, if politicians leave this tax law change aloneleave this tax law change aloneIssue is entirely one of timing, and assumptions regarding tax rate increases


h h d f b k

Net Operating Loss Carrybacks

This is huge-----instead of a 2 year carryback, affected taxpayers will be able to carryback losses from their businesses in 2008 and 2009 for 5 years, resulting in large refunds of taxes paid in previous years. Let your builder’s, subdivision developers etc know as these refunds could help developers etc., know as these refunds could help them stay in business


Federal Estate Tax ChangesAs of 1/1/09, the Federal Estate Tax Exemption As of 1/1/09, the Federal Estate Tax Exemption increased from $2M per person to $3.5M per person. On 1/1/10, the Federal Estate Tax is repealed in total for one year only. Then, in 2011, Th F d l E t t T E ti t b t t The Federal Estate Tax Exemption returns, but at a level of $1M. Politics will never allow the repeal of the Estate Tax for even one day, so watch in 2009 as Congress negotiates a permanent $3 5M 2009 as Congress negotiates a permanent $3.5M exemption starting 1/1/10. The 2009 annual gift tax exclusion has increased to $13 000to $13,000


New Energy Tax Credits

Applies to Principal Residence onlyGenerally 30% of the applicable cost, but limited to $1500 tax credit over 2009 and 2010limited to $1500 tax credit over 2009 and 2010For certain improvements (i.e. Wind Energy) no limit on the amount of tax creditSee www.EnergyStar.gov for detailed info


New Tax Law 2009

If you or someone close to you is 70 ½ or older, they are probably having to take withdrawals from their retirement accounts called RMD. (Required minimum distributions)If they do not want to take these distributions in 2009, they can do so, and not be subject to any 2009, they can do so, and not be subject to any penalties (50%)Talk to your parents about this


Don’t Forget… the men and women who make vehicles

If you have the money, the deals on vehicles are out there, and if you purchase BSN, the deductions will knock your socks off However to deductions will knock your socks off. However, to take the big depreciation write-offs, you cannot deduct the standard mileage rate, which was 50.5/58.5 for 2008, and is 55.0 for 2009.What does this mean?


The SUV Write-off

Vehicle must have a GVWR>6 000 lbsVehicle must have a GVWR>6,000 lbs.Cannot ever use standard mileage rate on same vehicle (50.5/58.5 for 2008, 55 for 2009)( / , )Law change effective for vehicles acquired after 10/22/04


The Luxury Car Limit on Depreciation

Total first year deduction in 2008 and 2009 is yapproximately $2,960 if used, $10,960 if BSN


Example of qualifying SUVThe good old days!• Cost $55,000• B/U 90% • Bus Base $49 500• Bus Base $49,500• IRC 179 $49,500

Huge write‐off, if purchased new or used 10/22/04 or beforeg , p / /


And if purchased in 2008 or 2009

Cost $55,000Cost $55,000Business Use 90%Basis $49,500IRC 179 $25 000IRC 179 $25,000Remaining $24,500Bonus Dep. $12,250Reg. Dep. $ 2,450Total $29,900 in 2008 and 2009 if used, and

$39,700 if BSN in 2008 and 2009


Full Size Pick-up Truck Write-off

(with bed length of at least 6 feet)

Cost $55,000Cost $55,000Business Use 90%Basis $49,500Total $49 500Total $49,500


2002 2003-2010

Where are marginal tax rates going?

Top Bracket 38.6% 35%

Fifth Bracket 35% 33%

Fourth Bracket 30% 28%

Third Bracket 27% 25%Third Bracket 27% 25%

Sec. Bracket 15% 15%

Initial Bracket 10% 10%


Where are capital gains and dividend tax rates going?

2002 2003-2010

Capital Gains Rate 20% 15%Capital Gains Rate 20% 15%

Capital Gains Rate for L/I 10% 5% thru 2007, 0% in 2008-2010

Dividends Tax Rate As high as 38.6% 15%

Dividend Tax Rate for L/I As high as 38.6% 5% thru 2007, 0% in 2008 20100% in 2008-2010


Future of Tax Rates

h h h h dThe issue is whether the current administration will let the original tax rate reductions expire at the end of 2010 or accelerate the tax increases that automatically goes into effect in 2011 into an earlier tax year, such as 2009 or 2010. It appears from the budget proposal that changes appears from the budget proposal that changes will not occur until 2011.


Accessing Retirement Funds with

Mi i l T CMinimal Tax Consequence


Tax Free Funds / Minimally Taxed Funds

How do you access funds that are tax free or minimally taxed if you need the money?

“It’s my money and I need it now!!!!!!!!!!!!!!”

Tax Talk with Chris Bird 2009If you need money to pay personal or businessIf you need money to pay personal or businessexpenses, and other sources have dried up….Consider:

Cash in some retirement assets (SEP IRA’s, IRA’s). If your marginal tax rate is low due to the

th t d lt i b economy, the tax and penalty pain may be very low. If you are 59 ½ or older, the 10% penalty does not apply at all, so the marginal tax rate is your only consideration.Roll your IRA’s or SEP IRA’s into a 401(k) for the self employed & BORROW funds from the 401(k) self employed & BORROW funds from the 401(k) instead of taking a distribution.


401(k) Loans

Terms of Loan:Maximum loan amount is the lesser of $50,000 or 50% of the amount in the 401(k)or 50% of the amount in the 401(k)Repayment is required over a period not to exceed 60 monthsCurrent interest rate is in the 5-6% range


id

If you need money to pay personal or businessexpenses, and other sources have dried up…

Consider:Take withdrawals from your ROTH IRA’s up to the amount of your non-deductible contributions amount of your non deductible contributions. These withdrawals are NON-TAXABLE!The 60 day rollover from one IRA to another. This money is not taxed as long as you put the funds back into the IRA by the 60th day.


Financial Planning IIssues


Evaluate Your Financial Assets

Assess current spending habits-watch your spendingDevelop a Business PlanDevelop a Business PlanPrepare a Net Worth StatementPurchase Quicken, Money, or QuickbooksPurchase Quicken, Money, or QuickbooksPurchase a NEAT RECEIPTS SCANNER

-they are slick! (Costco $132.00)


Retirement Plan Contribution Limits

Year IRA Simple 401(k) SEPIRA

% ofP fitIRA Profit

2008 $5,000 $10,500 $15,500 $46,000 20/25

2009 $5,000 $11,500 $16,500 $49,000 20/25


Retirement Plan Catch-Up Provisions 50+ years oldy

Year IRA Simple 401(k) 403(b) p ( ) ( )457

2006and later

$1,000 $2,500 $5,500


The 401(k) Series

Good way to increase retirement plan Good way to increase retirement plan contributions on lower levels of profit (or S Corporation Salaries)Must be started by end of first year, you can’t wait until the following year (like SEP IRA)Onl p oblem i if elf emplo ed pe on i n’t Only problem is if a self-employed person isn’t maximizing contributions to their current retirement plan, they won’t to the 401(k) eitherYOU CAN BORROW FROM YOUR 401(k)!!!!!!!!


The 401(k) SeriesSolo (k) or Safe Harbor 401(k)( ) ( )Profit $50,000 $80,000 $220,000Cont: $16,500 $16,500 $16,500+25% 12,500 20,000 32,500*=401(k) $29,000 $36,500 $49,000If 50+ $34,500 $42,000 $54,500SEP IRA $10-12K $16-20K $49,000

NOT SUBJECT to income limits of Roth IRA

Roth 401(k)

NOT SUBJECT to income limits of Roth IRANot Tax Deductible, distributions mostly tax free401K loans available401K loans availableMaximum deferral per employee $16,500/year OR $22,000/year for age 50+Combined contribution between employer and employee not to exceed $49,000/year (2009)


Think about Converting IRA to ROTH IRA

With the utmost certainty that tax rates will be increasing now is the time to consider converting increasing, now is the time to consider converting some of your IRA’s to ROTH IRA’s


Why Convert an IRA to ROTH IRA?

Why? 3 reasonsWhy?-3 reasonsTax rates are lower now than will be in futureThe value of your IRA’s are down, so the tax

th i ill b lyou owe on the conversion will be lessDue to the economy, your marginal tax rate may be lower than in previous years, meaning th t th t th i ill b lthat the tax on the conversion will be lower.


Real Estate in Your Retirement Plan

If you no longer trust the stock and equity If you no longer trust the stock and equity markets, AND you are a real estate investor, there is no better time than NOW to consider the purchase of real estate investments with your retirement accounts.


Why Consider Real Estate in Your Retirement Account

Choices!Choices!Earn a rate of return based on what you knowTax deferred growth or tax free growthg gTake charge of building your long term equity


The 2009 The 2009 First-Time Homebuyer y

Tax Credit


Home Buyer Seminars

In the next 30 days start advertising in your y g ymarkets about the new tax creditConduct Home Buying Seminars - bring a local accountant into the seminar to explain the local accountant into the seminar to explain the new tax law. Get sponsors, builders, inspectors, lenders, appraisersStart Shaking the Trees newsletters email Start Shaking the Trees - newsletters, email blasts, letters to apartment renters, letters to clients with kids graduating from college


Overview

In 2008 Congress created a $7,500 First-Time gHomebuyer Tax creditIt went into effect for purchases after April 8, 2008 d t t i J l 1 20092008 and was set to expire on July 1, 2009The big problem: The tax credit had to be repaid over 15 years. People viewed it as a repaid over 15 years. People viewed it as a debt and not a benefit.


The 2009 Tax Credit

The repayment requirement has been The repayment requirement has been removed for purchases between January 1-November 30, 2009. However, at this time the

dit i till bl f 2008 hcredit is still repayable for 2008 purchasesThe tax credit has been expanded to $8,000But it is still only for first-time homebuyersBut, it is still only for first-time homebuyers


Credit Details

The new credit is an $8 000 REFUNDABLE Tax The new credit is an $8,000 REFUNDABLE Tax Credit (or up to 10% of the purchase price).

So, if the property is $70,000, the credit is only $7,000. (A t $80 000 f thi bi )(Assume a property over $80,000 for this webinar)

Refundable means that if your total tax liability in Refundable means that if your total tax liability in the given year is less than $8,000, the IRS will send a refund for the balance


Refundability; Why it’s Important

Many taxpayers don’t have tax liability that exceeds Many taxpayers don t have tax liability that exceeds $8,000

For example, according to the 2008 IRS Tax T blTables

A single filer would need $46,600 in taxable income to have $8,000 in tax liabilityA married couple would need $58,600 in taxable income to have $8,000 in tax liabilityThose with less tax liability will in most cases get a y grefund, meaning they get the full value of new tax credit


h k h diWho CANNOT take the tax credit?If any of the following:

Y i d th h t Thi j i t Your income exceeds the phase-out range. This means joint filers with Modified Adjusted Gross Income (MAGI) of $170,000 and above and others with MAGI of $95,000 and above. (You start to lose the tax credit at $150,000 and above. (You start to lose the tax credit at $150,000 and $75,000 respectively)You purchase your home from a close relative. This includes your spouse, parent, grandparent, child, or grandchildYou stop using your home as your main homeYou sell your home before the end of three yearsYou are a non-resident alien


First-Time Homebuyer Definition

Someone who did not own another principal residence at any time during the three years residence at any time during the three years (36 months) prior to the date of purchase.


First-Time Homebuyer Examples

For example, if you purchased a home on March 15, 2009, p y pyou can’t take the credit for that main home if you owned, or had an ownership interest in, another home at any time from March 15, 2006 through March 15, 2009.So, if the last time you owned a home was 2005, you are eligible for the tax credit even though it is really not your “first” home.For married joint filers, both must meet the first-time homebuyer test to take the credit on a joint return. Apparently not if they file as married filing separate, but the

di i h l d d MFS i credit is halved, and MFS can increase taxes


More on Income Limits

Type Income Limit Phase Out Start

Single Filers $ 95,000 $ 75,000M i d Fil $170 000 $150 000Married Filers $170,000 $150,000


More on Income Limits

This means that for singles making over $75 000 This means that for singles making over $75,000 and couples making over $150,000, the credit is proportionately reduced as incomes approach $95,000 and $170,000 respectively. So if a couple makes $165,000, the excess amount is used to create a fraction 15,000/20,000 (.75) used to create a fraction 15,000/20,000 (.75) times the credit amount. 75% or $6,000 of the tax credit would be disallowed. They would still get a $2 000 tax creditget a $2,000 tax credit


M t b th “ i h ” ( i i l id ) hi h

The Home

Must be the “main home” (principle residence) which generally is considered to be the home where you spend 50% or more of your time. It can be a condo, single family detached, co-op, townhouse, or something similary , p, , gThe home must be located in the United StatesVacation homes and rental properties are not eligibleFor new construction, the “purchase date” is the date you For new construction, the purchase date is the date you occupy the home. So the move in date must be before December 1, 2009


Recapture-3 Year ResidencyIf the home is sold prior to three years of ownership, the tax credit must be repaid.

This is an improvement from the prior credit. That credit needed to be repaid in total over 15 years or the balance p yhad to be repaid on sale

This provision is designed to prevent flipping homes in order to get the credithomes in order to get the credit

It will be interesting to see if congress initiates any changes on recapture within 3 years if home is sold due to job transferto job transfer


Other Provisions

h d l bl d fThe new credit is available to residents of DCPurchasers who utilize state/local revenue bond financing can now use the creditfinancing can now use the creditPurchasers who bought (closed) before January 1, 2009 are still subject to the terms of the repayable credit


When Can You Claim the Credit?

It can be claimed on your 2008 Tax Return (to It can be claimed on your 2008 Tax Return (to be filed by April 15, 2009), an amended 2008 Tax Return, or your 2009 Tax Return. IRS form 5405 i d t l i th dit5405 is used to claim the creditCongress considered making the tax credit available at the closing table, but dropped the available at the closing table, but dropped the idea


Conclusion

The new credit is greatly improved compared to The new credit is greatly improved compared to the old creditIt is a true credit and does not need to be repaid as long as you occupy the home for 3 yearsNAR estimates that hundreds of thousands of NAR estimates that hundreds of thousands of potential buyers will take advantage of the credit


This information is accurate based on the

CAVEAT

This information is accurate based on the changes to the tax laws as of March 18, 2009. As with any tax law change, check with a tax advisor if there are any questions regarding the advisor if there are any questions regarding the use of this tax credit.


Question and Answer

chris bird 2009 tax talk

Documents

tax rate increasestax

federal estate tax changes

financial tax skillsocrs

chris bird seminars

adjunct instructor of

tax law change aloneleave

n t lnew tax lawstax

new energy tax creditsapplies