What taxes are due when you sell an investment property?
If you buy a property for $200,000 and sell it for $300,000 five years later, then you may be required to pay capital gains taxes on the $100,000 windfall. The idea is that you have made money from an investment, and that investment gain is subject to federal taxation. This is the same sort of tax you might pay if you happen to buy stock in a company and sell it for a profit a few years later.

The current tax avoidance rules respect how investors actually deal with property
It would make little sense to require investors to constantly pay taxes on their profits when they are just going to be re-investing the money in the first place. With this in mind, the existing body of laws takes into account the way investors actually spend their money. Lawmakers understand that when you sell a property for a profit, you are probably not putting that money under your mattress. You’ll be looking to eye another property that can bring in additional gains. The rules have been written to allow you to re-invest your money to avoid the tax hit. The key, though, is doing so within the appropriate timeframe.

Avoiding tax liability through a 1031 exchange
The law allows what is known as a 1031 exchange, which allows you to buy new property with the proceeds of your sale. In order to do this, you have to close on a new property within 180 days after you close the sale on your old property. As long as you do this, you can avoid the tax hit. Keep in mind that these dates deal with closing dates. This means that you will need to initiate the purchase process on your new property well before the 180-day limit. Closing can take a month or more in some cases, so you should give yourself enough lag time. If you’re making that next purchase in cash, then your closing may be accelerated, but it is not wise to take a risk.

The smartest property investors know that tax minimization is an important part of their process. You should be intentional not only with what you buy and sell, but also when you buy and sell. This will save you a tremendous amount of money on the back end.

Jim Treebold

Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!

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Usable Square Feet

Usable square feet is that part of your commercial rental space that only you will be using. It would include your office space, conference room, break room, rest rooms and any other part of a building that only your company can use. If you are renting an entire building, then all of the square footage is considered usable. This is an important distinction that we will discuss later.

Rentable Square Feet

The part of an office complex that your company uses in conjunction with the rest of the tenants in the building is called the common area. Commercial property owners use various complex mathematical formulas to calculate common area and you should try to understand those calculations as much as possible. The common area combined with the usable square feet is called the rentable square feet.

Calculating Commercial Rent Per Square Foot

Most commercial property owners have one rate for usable square feet and a separate and lower rate for common areas. The rentable square feet is rarely used to calculate the monthly rent. Instead, the formula for monthly commercial rent is:

Commercial Rent For An Entire Space Per Month = (usable square feet x usable square feet rate per month) + (common area x common area rate per month)

Factors That Affect Rates

Commercial real estate is graded on a scale of A to D, with A being the best properties and D being the least desirable. Most commercial property owners will set rates depending on the length of the lease and the grade of the property. Commercial tenants will find that the longer the lease is they are willing to sign, the lower their overall commercial rent per square foot will be.

Common Space In Single Units

Earlier we mentioned the conditions of a lease if the tenant is renting an entire building. The rental rate for common areas is often much lower than the rate for usable square feet. When a tenant rents an entire building, they are often charged only the usable square foot rate for the entire property because no other tenants will be using what would be considered common areas. This is just one reason why many companies prefer to rent space in larger complexes.

As a business owner, you need to understand the basics of calculating commercial rent per month if you want to be sure you are getting a good deal. By understanding the difference between usable and common space, you can save your company money on commercial rent each and every month.

Jim Treebold

Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!

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Defining rental property
While the tax code provides a $250,000 per person tax exemption for gains made on your primary residence, this does not apply if you’re selling a rental property. A rental property is defined as a residence where you don’t live. This means that if you have a vacation home or a second home, you’ll owe taxes if your sale represents a gain. However, if you do live in the home for two years prior to selling it and you have owned it for five or more, you can claim some of the deduction. This is ideal for people who once treated their property as a rental before deciding to move into it.

Calculating capital gains tax
The capital gains tax rate is 20%, which means you will generally pay that rate on whatever you have gained from the sale. Figuring out what you have gained can be somewhat tricky.

The first thing to do is figure out your basis in the home. This includes what you paid for the home and any improvements you have made. Think, for instance, about the couple that buys a rental property for $200,000 in 2010. Over time, they put in a new kitchen, renovated the bathroom and added that fancy man save that everyone has been dreaming of. They updated the countertops, put in new wooden floors and built an over the garage apartment. These improvements cost roughly $100,000. This means that the couple has a $300,000 basis in the home.

The next step is to calculate the sale price properly for tax purposes. Imagine in the scenario above that the couple was able to find a buyer for $400,000. They have done quite well, netting a true $200,000 gain from purchase to sale. However, they have an additional $100,000 in improvements to add to the basis. On top of that, they had to pay $8,000 in selling costs, plus a $15,000 payment to the real estate agent who sold the home. This means that the sale price will be reduced by $23,000, leaving them with a taxable gain of $77,000.

Unless they are able to exempt some of that income, they would owe 20% on this figure, bringing the total to $15,400 in owed taxes. These taxes are unavoidable, and they become more complicated if the couple happened to take depreciation on the home from their earlier tax returns. If that is the case, then the government may be able to “recapture” some of that depreciation as ordinary income in the year of the sale.

Jim Treebold

Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!

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Why figuring out the fair market value is important
When you file your taxes, you may be in a position to take itemized deductions. If this is you, then you’ll be able to deduct the value of your donations to qualifying charities. Getting the amount right can allow you to extract maximum value from your philanthropy. It can also ensure that the IRS does not scrutinize your return too closely.

If you overestimate the fair market value of your donations, then the IRS may take issue not only with that part of your return, but also with the rest of your tax situation. This is one of the quickest ways to end up in an audit, which can cause major headaches. The first place to start when figuring out fair market value is with the charity itself.

In-kind donation forms
Many charities will provide a form that documents the value of services you have provided or items you have donated. If you donate a car, for instance, then the charity can provide evidence of the market value of the vehicle at the time of donation. Some business owners will donate their expertise, including things like consulting, editing or other services. The charity will likely provide some documentation that can be used for tax purposes when you make this sort of donation.

No single formula to use when valuing donated items
The IRS provides some guidance to people who want to make use of a deduction from donated items. Generally speaking, this guidance informs taxpayers that there is no single, simple method to figure out what a donation was worth. The goal is to determine what the item would sell for on the open market if you happened to sell it there. This is fairly easy with some items, such as boats and cars, because the book value of such an item can be reliably located. For other items, including clothing, it becomes more difficult.

One guideline suggested by experts is to discount off of the original price of the item. To be on the safe side, individuals should discount as much as 70% off of the original price to come up with the market value of used goods. For new goods, the original sale price may be a good option for determining fair market value.

Jim Treebold

Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!

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Parcel Number Format

The parcel number is used as an identifier on your local parcel maps and it has a unique format. Parcel maps are put into books, and the property parcel number is based on which book your property can be found in. Most property parcel numbers are in three or four sets of numbers. The first set is the number of the book where your parcel is located and the second set is the page in the book where your map is found. The final sets are the actual parcel number and that can vary in length. The three or four sets are all separated by a hyphen.

Your Tax Bill

The easiest way to find the parcel number for a property you own is to simply look on your annual property tax bill. The parcel number is clearly marked and it can be found next to your name as the property owner. Some people get confused because of how a parcel number can vary, but they are easy to spot once you understand how they are formatted.

Renewing Your Home Purchase Paperwork

It is understandable that, after several years, many homeowners lose their original paperwork and cannot find it. If you have an escrow account that handles your property taxes, then you might not ever see your property tax bill. If you fall into both of these categories, then you can renew your deed and title to get your property parcel number. There is a cost involved in this process, but at least you will have all of your paperwork if you ever need it.

Research With Your County Tax Assessor’s Office

Many counties throughout the United States have created websites for all of their departments, including their tax assessor’s office. If your county tax assessor has a website, then you should easily be able to research any property parcel number in the county through that site.

If your county tax assessor does not have a website, then you can go to their office and request any property parcel number. Most counties do not charge a fee for this information, and you would not need to prove that you own the property you are researching.

A property parcel number can help you to confirm the address of a property, or see where that property falls on a parcel map. The parcel number is used when paying taxes, selling a property or sometimes when getting a permit to do work on a property. If you ever need a property parcel number, it is something you can easily find with a little research at the county tax assessor’s office or by checking your property tax bill.

Jim Treebold

Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!

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