REAL ESTATE

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Real estate can be a good investment, whether used as your principal home, as a second residence, or held for profit.

Following are some tax facts for real estate investors. Remember, these tips are general information. Every tax situation differs. That�s why at "J.L. Galang", we treat you with the special attention your particular tax situation deserves.

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YOUR PRINCIPAL HOME

• Real estate taxes on your home are fully deductible on Schedule A.
• Interest paid on qualified residence debt is deductible on Schedule A. The debt must be secured by your principal home and is limited to acquisition debt of up to the lesser of: The cost of your principal home plus the cost of improvements to the home or $1 million of debt incurred to acquire, construct, or improve the home (or the amount of qualified residence debt incurred before October 13, 1987, if greater) Plus home equity debt (which can be spent however you wish) of up to the lesser of: The fair market value of your principal home minus your acquisition debt or $100,000
• �Points� on loans used to buy or improve your home are deductible in full in the year paid.
• If you sold your home before May 7, 1997 you will defer gain on the sale if you purchase a new home within 24 months of the date of the sale.
• If you sold your old home before May 7, 1997 and are 55 or older on the date of the sale, you may qualify for the $125,000 gain exclusion.
• If you sold your home after May 6, 1997 you are entitled to use the new $250,000 ($500,000 for married filing jointly) exclusion.
• If you sold your home after May 6th but before August 5th you may have an additional option in calculating your gain this year. This option allows you to use the old deferral rules in place prior to May 7th. This option can have tax effects in the future so careful consideration is necessary.

YOUR SECOND HOME

• Real estate taxes are fully deductible on Schedule A.
• Interest on debt incurred with respect to your second home is included with debt on your first home for purposes of the $100,000 limitation described above.
• You can have only one second home for this purpose. If you have more than one second home, you must select one of them as a second home for purposes of qualified residence interest. Interest on debt secured by an additional home or homes is nondeductible personal interest unless you use the debt proceeds for business or investment purposes.
• Special provisions apply to a second home used partly for rental purposes. Consult you "J.L. Galang" tax return preparer to learn more about these provisions and how they may affect your individual situation.
• You can deduct real estate taxes and mortgage interest allocable to the rental-for-profit portion from the rental income.
• You may be eligible to deduct on Schedule A the taxes and interest allocable to personal use. If you select this home as your second home, the interest is subject to the restrictions applying to qualified residence interest. Otherwise, unless you use the funds for investment or business purposes, it is nondeductible personal interest.

REAL ESTATE INVESTMENTS

• You may claim qualified rental real estate losses against other income, limited to a maximum of $25,000 per year. This limitation phases out for adjusted gross income between $100,000 and $150,000.
• You can carry over losses disallowed by this rule and use them in future years when you have rental income or other passive activity income. You can claim unused losses on the property when you dispose of it. To do so, you must keep adequate and separate records for each piece of property you own.

RECORDKEEPING

• Keep adequate records of income, expenses, and basis of property. In the event of an IRS audit, lack of good records can result in disallowance of deductions and credits and in the assessment of negligence penalties.
• Depending on the type of sale or exchange of real estate you make during the year, you must report proceeds on Form 2119, Sale of Your Home; Form 4797, Sales of Business Property; Form 6252, Installment Sale Income; Schedule D (Form 1040), Capital Gains and Losses.

To Keep current with the latest rules and regulations affecting your real estate investments, consult with your "J.L. Galang" tax return preparer before closing a purchase, sale, or exchange. "J.L. Galang's" experienced tax preparers are trained to help you make the most of the current tax law as it affects your individual tax and investment situation.

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