Homeowner tax savings revealed in new book

Author explains real estate exchanges, investing retirement funds.
By: Robert J. Bruss: Inman News
Whether you own just your house or a condo, or perhaps millions of dollars worth of investment real estate, you will benefit from studying "Tax Secrets of Millionaire Real Estate Investors" by attorney Richard T. Williamson. Although I know most of the real estate tax saving tactics, I learned many new strategies that are little known.

Williamson writes in an easy-to-understand style, considering he's a lawyer. The book begins with the tax basics for investors, then progresses to more sophisticated investment strategies, such as tax-free trading of investment property for management-free tenancy-in-common (called TICs) investments.

Although the book is written primarily for real estate investors, homeowners and heirs who inherit property will also benefit. Williamson's explanation of "stepped-up basis" for inherited real estate and how to maximize tax savings is especially profitable reading. However, there isn't a word about the benefits of holding title in a living trust to avoid probate costs and delays.

The two chapters that are intense "heavy reading" deal with private annuity trusts and charitable remainder trusts. Most readers won't care about these important chapters for very savvy investors, so you can safely skip over them.

As I was reading those highly technical chapters on a flight from Chicago to San Francisco, the jovial businessman sitting next to me jokingly reminded me: "I am your conscience. Pay attention. There might be something important there."

But one chapter not to be skipped is about tax-deferred and tax-free real estate investing with IRA, Roth IRA and other retirement accounts. Williamson shows how to switch to self-directed retirement accounts, which allow real estate investing. Unfortunately, he fails to name the few IRA trustees who allow investors to self-manage and invest IRA funds in real estate.

For some strange reason, the two chapters that will interest most readers are hidden away almost at the end of the book. They do an excellent job of explaining principal-residence tax exemptions, including partial exemptions for sales after less than 24 months of occupancy, and stepped-up basis for inherited properties. Why these vital chapters were left until the end is hard to understand.

Throughout the book there are lots of examples to illustrate the topics under discussion. These examples simplify what can otherwise be difficult-to-understand tax strategies.

Whether you want to learn basic tax benefits of real estate investing, such as understanding depreciation and the passive activity tax rules, or you want more detailed information about tax-deferred exchanges and installment-sale benefits, this new book reveals virtually everything in as understandable explanations as possible. Even reverse exchanges are explained.

One unique chapter explains the rules for "cost segregation" showing how investors can maximize tax deductions for the components of their investment properties. Most investors won't want to spend the money to have a special appraisal of their properties made, but owners of large properties will find this chapter especially important. I have not seen this tax tactic discussed elsewhere.

Chapter topics include "Estimating Capital Gains Taxes"; "Dealer Versus Investor"; "Benefits of Depreciation"; "Passive Investment Rules and Exceptions"; "Tax-Free Exchanges"; "Build-to-Suit Exchanges"; "Tenant-in-Common Exchanges"; "Using Installment Sales"; "Hybrids – Combining Tax Strategies"; "and Using Your IRA to Buy Real Estate."

Contrary to the book's title, you don't have to be a millionaire to benefit from understanding these important and very profitable real estate tax tactics. This new book has something for every real estate owner, whether you want to maximize homeowner tax benefits or you are a tycoon real estate investor. On my scale of one to 10, this superb book rates a solid 10.

"Tax Secrets of Millionaire Real Estate Investors," by Richard T. Williamson, Esq. (Dearborn Trade Publishing Co., Chicago), 2005, $22.95, 262 pages; Available in stock or by special order at local bookstores, public libraries, and www.amazon.com.