Real Estate and the AMT: Rental or Investment Property

The Alternative Minimum Tax is a very important consideration for taxpayers who own real estate because just about every tax rule applying to real estate is different for the AMT than it is for the Regular Tax.  This article on Real Estate and the AMT will address those situations where the individual holds the real estate as an investment, typically as rental property.  The differences in tax treatment between the Regular Tax and the AMT can be significant.

Interest expense

Interest paid on the mortgage taken out to acquire the property is fully deductible, both for the Regular Tax and the Alternative Minimum Tax.  Unlike itemized deductions that allow a tax benefit for what amounts to personal expenses, the tax law generally allows all deductions a taxpayer has to make in the pursuit of business income.

Thus, the limitations discussed in the previous article on home mortgage interest do not apply.

If, however, the equity in the rental property is used as security for an additional loan – a second mortgage, for example – then the taxpayer must look to how the proceeds of that loan are used to determine interest deductibility.  If the proceeds are used for a car loan or to finance a child’s education, for example, then the interest is nondeductible personal interest.  If the proceeds are used to improve the rental property, the interest is deductible.

Suggestion – it is best that taxpayers keep personal borrowings separate from business borrowings.  Mixing the two creates recordkeeping challenges and can result in disputes with the IRS.

Property taxes

Property taxes paid on rental or investment property are allowed in full both for Regular Tax purposes as well as for the Alternative Minimum Tax.

Planning idea – if you have an opportunity to pay your property tax bill either this year or next, pay it in a year when you have enough income from the property so as not to generate a rental loss.  This strategy can help avoid triggering the passive activity loss limitations described below.

Example – in Florida property tax bills are mailed in October, and are payable under the following discount schedule: November – 4%, December – 3%, January – 2%, February – 1%.  If you have a loss from the property in 2010 but expect to generate income in 2011, do notpay your bill in November or December – forgoing that small discount could help you avoid the loss-limitation rules.


Depreciation is allowed for property held for investment.  The portion of the cost allocable to land is not depreciable, but for the building itself and the furniture, appliances, carpeting, etc.

a depreciation deduction may be taken.

Real property (this is the legal definition of the house or other building) held for rental/investment may only be depreciated for Regular Tax purposes under the “straight-line” method, over a useful life of 27.5 years.  Thus, a property with 5,000 allocated to the building would be depreciated at the rate of ,000 per year.

Personal property (this is the legal definition of things such as furniture, appliances, carpeting and the like) may be depreciated for Regular Tax purposes under an “accelerated” method over a useful life of five years.  An accelerated method allows a larger depreciation deduction in the early years, in recognition of an obsolescence or decline-in-value factor that you see in new property (cars are a good example).


For purposes of the AMT, however, personal property may be depreciated only by using a straight-line method.  Thus, an AMT item will be generated in the early years if the accelerated method is used.

Planning idea – for personal property consider electing the straight-line method for Regular Tax purposes.  While giving up a little tax benefit from the greater depreciation in the early years, it could mean avoiding paying the AMT.

Active/passive investment rules and the “at-risk” rules

A taxpayer who is not “active” in managing investment property may not use losses from rental property to offset other income such as salaries and wages, dividends, interest, capital gains, etc.  Instead, these losses are deferred until the taxpayer either sells the property or generates passive income from this or other passive investment sources.

The at-risk rules similarly deny using these types of losses to the extent the taxpayer has acquired the investment with borrowed money and does not have personal liability on the debt.

Planning idea

If these loss limitations apply, consider the planning ideas mentioned above to minimize the losses being generated each year.  They are not doing you any good anyway.

Sale of the property

Several different AMT issues can arise on the sale of rental/investment property.  One is that your gain or loss may be different for the AMT than it is for Regular Tax purposes.  This would be caused if different depreciation methods were used.  For example, if the personal property was depreciated using an accelerated method for Regular Tax purposes, then the basis in that property when calculating gain or loss on sale would be different because the straight-line method had to be used for Alternative Minimum Tax purposes.

Gain on the sale of investment property generally is capital gain, although a portion may be treated as ordinary income depending on the accelerated depreciation method was used.  Capital gains in and of themselves are not an AMT item, but nonetheless they can result in AMT being paid.  This is because the AMT exemption amount is phased out for taxpayers at certain income levels, so this additional income can have the result of reducing the exemption which in turn increases taxable income for purposes of the Alternative Minimum Tax.

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Electronic Books and Real Estate – Online Marriage Made in Heaven

E-book is the latest weapon in the war on the disc on the market. Stiff competition between real estate agents also applies to buyers and sellers to come from the streets of American cities and towns in the web page.

Internet has proved in recent years is the most fertile ground to find and develop potential leads for buyers and sellers, and many organizations are investing thousands of dollars in online marketing.

E-book is one of the most powerful and popular for real estate agents to attract customers.

Many web design and development company called their clients that the property offers a free e-books to improve lead generation. With the initial cost ranges from $ 500 to $ 1,000 for a typical e-book cost-benefit analysis clearly shows the creation and use of electronic books.

Some web design and development, in fact, hired a special writer for real estate projects that you can quickly write an e-book, which is unique for each client that provides value to potential buyers and sellers and provide the agency a valid email address to follow the marketing .

Electronic books are on topics such as: How to get your house ready to sell, The Ten Commandments of Buying a Home; first time Homebuyers Regulations and instructions to buy your first home.

The key is to have an effective electronic book interesting name, valuable content, as well as the need for someone to enter an email address, it is true that e-book can be delivered.

Busy real estate agents tend to choose website design company to create e-books for themselves and often in partnership with mortgage lenders and other real estate professionals to cover the cost of e-book. E-book may contain links to professional people chosen agency.

With home buyers and sellers more turning to the Internet to buy and sell two homes, real estate agents must continue to invest in Internet marketing and e-books are one of the easiest and most effective way to develop leads on competitive especially in real estate.

The Hospitality Industry – A Prospect That Appears Financing Real Estate Projects

In 2007, the majority of hotels, investors and developers when it comes to good growth prospects in the hospitality industry. They had good reason to be optimistic, because any factor that will affect the industry, directly or indirectly, in the growth trajectory.

GDP grew more than ever before, and each has its own look at the history of Indian development. Expansion plans to fill the newspapers and newsletters, and investors are more willing than ever to get a fair share of the pie.

The recession, however, have a plan, and burned much of the pie. The global economic crisis and its impact on Indian economy was watering the fire of enthusiasm and real estate developers and investors, the most optimistic.

Has led to extreme crisis for investment in the hospitality sector, combined with reduced demand for rooms. Dual problem to rest most ambitious expansion plans across the country.

All players should reconsider its plans for a more challenging macroeconomic situation today. Number of rooms will be added to the present time, almost half of what was previously announced. All four projects announced so far not been realized, while others depend on the edge of viability.

DLF, Parsvnath Developers and other similar executives have reduced or slowed down their expansion plans. Parsvnath had plans to add at least 10 000 numbers now no longer acquire land for other future projects, two dozen hotels, which they did.

There have been reports that DLF is in talks with several companies that sell the hotel from 8 to 9 of the plot is limited to hotel projects to raise funds. Hotel Gurgaon Unitech has sold the project to reduce the huge debt.

The developers are more focused on completing the project at hand, rather than plan for the future. Implementation of investment projects the weight of the hotel seems to be the best way to cash shortages, the player must survive the current economic situation.