faq
Is rental real estate a good tax shelter?
What is Alternative Minimum Tax?
Do I have to pay tax if I sell my residence?
What is the first step in estate planning?
Is rental real estate a good tax shelter?
Owning rental property allows deductions for actual expenses paid in connection with operating the property, such as mortgage interest, taxes, insurance and maintenance. It is also possible to claim a deduction for depreciation on the building. However, there are rules known as the passive activity loss rules that put substantial restrictions on the ability to use these deductions each year.
What is Alternative Minimum Tax?
Alternative Minimum Tax (AMT) is a separate calculation that everyone must perform after calculating regular tax liability. It is a very complex set of laws, but it basically requires that you recalculate your taxable income without claiming a deduction for certain expenses that are allowed for regular tax. In California the biggest of these disallowed deductions is state and local tax paid, including income and property taxes. After recalculating taxable income you then apply the AMT tax rate of 26 or 28 percent. If the AMT is higher than regular tax, you must pay the AMT amount.
Do I have to pay tax if I sell my residence?
Federal and California law allow you to escape tax on up to $250,000 ($500,000 for married couples) gain on the sale of your principal residence if you meet certain requirements. You are not required to purchase a new residence to take advantage of this law. If your gain is more than $250,000 you are no longer allowed to roll over the gain into a new residence.
What is the first step in estate planning?
A basic estate plan starts with a will and a revocable trust, sometimes known as a living trust. This allows you to designate to whom your property passes on your death and avoids the probate process. Probate, which is nothing more than the court supervising the distribution of your property, is very time consuming and extremely expensive in California. A properly drafted trust avoids probate. A trust also names the person who will manage your affairs if you become incapacitated and are unable to do so. This avoids the need for a court supervised conservatorship.
