Tax Breaks for Real Estate Investors

Stimulus bill contains tax breaks for real estate investors

Thursday, 19 February 2009

By James T. Hammond SCBIZ Daily Staff

GREENVILLE -- Real estate investors and business owners can reap tax advantages by speeding up new investments and purchases into the current tax year.

Foremost among the new laws, says Mark Cooter, head of the real estate group at Elliott Davis LLC, are reinstated bonus depreciation rules. Set to expire Dec. 31, 2008, the bonus depreciation rules have been extended for one year, to now end Dec. 31, 2009.

The provision allows business and individuals a 50% bonus over standard IRS depreciation allowances, to encourage people to purchase fixed assets, Cooter said.

The tax benefit is large enough that it “will definitely change some behavior,” Cooter said.

Other tax provisions in the new stimulus bill include:

• Extended increases in IRS Code, Section 179, for claiming small business expenses. Up to $250,000 can be claimed on certain fixed assets placed in service during 2009.

• Increased net operating loss carry-back provisions. NOL losses in 2008 can be carried back five tax years, to 2003, and tax refunds for those years could be made possible under the provision. Previously, carry-backs were only allowed for two years.

• Cancellation of indebtedness. If a bank forgives a portion of a debt, such as a mortgage loan, a taxpayer must report the amount of debt cancelled as income. The new provision allows that new income to be spread over five years, until 2014, for tax purposes.

• New markets tax credits. The provision aim to promote capital spending in certain areas, such as poor urban areas. “It’s a very complex provision and few people will take advantage of it,” Cooter said.

• New home buyer’s tax credit. The new law allows a first-time homebuyer an $8,000 tax credit for the purchase of a new home.

Cooter predicted the tax credit for first-time homebuyers will not change many people’s behavior. If they had the money to buy a house, they’ll do it anyway. If they did not have the money to buy a house, it’s not enough money to help them qualify, he said.

Published Feb. 19, 2009