Thursday, October 11, 2012

The 2013 Tax Hike. How Real Estate Ownership Can Lessen The Blow.


By Troy Corman, www.t2realestate.com

We hear a lot these days about the fiscal cliff facing American taxpayers in 2013 if the Bush tax cuts expire. According to the Tax Policy Center, 88% of tax payers will see their taxes rise. The only folks who will escape the increasingly desperate hand of our federal government will be the elderly. If we don't reduce the ratio of our entitlement debt to GDP, financial experts like Bill Gross, expect the US government to continue to print money which will ultimately lead to inflation and a declining dollar. Believe it or not, the "Bond King" just recommended that investors buy "hard assets" and gold.

Hard assets include real estate. Raw land has long been considered a hedge against inflation. In fact, signs of inflation are here now as some agricultural land parcels in the midwest have recently sold at record prices. Those that own income-producing real estate may benefit doubly from inflation. Inflation means higher prices on rental rates, too. While rents rise, monthly mortgage payment amounts remain fixed. The result? Rental income increases. Net operating income increases. Property value increases.

Of course, you don't have to own multifamily properties to benefit. A single family rental home with 20% equity will net you roughly $10,000 worth of tax deductions. If you're in the 25% tax bracket, that's an extra $2,500 in your pocket after taxes, instead of Uncle Sam's. Notable deductions would include property depreciation, mortgage interest, property taxes and any repairs.

You can also benefit just by owning your own home. Let's say you put 10% down on a $150,000 home. A mortgage at 3.5% on a $135,000 loan amount would result in a monthly payment of roughly $1,075 with insurance, property taxes, pmi and the monthly mortgage, all included. If the property taxes are at 2.5%, you could deduct $4,000 plus the mortgage interest of $5,069, or $9,069 in total deductions. That's an after-tax savings - money in your pocket - of $2,267 (25% tax bracket). Plus, you'll chip away $2,500 of what you owe on the home - instead of giving it to the landlord. Finally, if inflation sets in, a declining dollar should send your property value higher. Higher, baby!

The writing is on the wall. The Federal government will be forced at some point in the VERY NEAR future to either drastically raise taxes, continue to print money to pay on the debt, or a combination of both. Printing money is obviously the easier route for politicians. Inflation will likely be the result - it's the stealth tax most damaging to those with lower incomes and the middle class. The time to prepare, is now.


Troy Corman is the founder of t2 Real Estate LLC, a Dallas real estate firm providing specialized knowledge with a hands-on approach. Specialties include residential real estate brokerage, land and acreage, and commercial real estate services. Contact us today at 214.827.1200 if you need to sell, buy or get your DFW property leased.

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