Discover Real Estate Loopholes such as the Primary
Residence Exclusion Test, Purchasing Real Estate
with an IRA, and getting money from a Section 1031
sale

Primary Residence Exclusion Test
The Property Selling section detailed how you can exclude up
to $250,000 of gain on the sale of your principal residence if you are
single, or up to $500,000 if you are married.  You may ask "can I
use the primary residence exclusion as a tax shield for gains on
real estate other than my primary home?"  The answer is YES.  If
you own a rental property or a vacation home you can qualify for
this exclusion if you move out of your primary residence and into
your vacation or rental property, live there for two years, then sell
the former vacation home or rental property.  If you are willing to
make the sacrifice to move into your vacation home or rental
property for the 2 year minimum requirement, the tax reward could
prove to be quite large.  The steps are simple and as follows:
 

Getting Money From a 1031 Exchange
As noted in the Property Selling section of this site, any money
you receive while using a section 1031 like-kind exchange is
considered "boot".  Boot is fully taxable and is added to your
income.  When you do a 1031 exchange for like-kind property, you
are required to roll over all cash you might receive in the sale.  You
may think to yourself, "Why not take a loan out on my existing
property prior to doing the like-kind exchange?"  The answer is that
you can't.  The rules of Internal Revenue Code 1031 say that you
cannot do that.  What you can do is take out a loan on the property
you received in the like-kind exchange.  Thus, you would do the
following to get cash from the 1031 exchange; (1)do the 1031
exchange for like-kind property,(2) receive the new property, and
(3) refinance.  This loophole allows you to receive cash without
jeopardizing the 1031 transaction.

Using an IRA to Purchase Real Estate
One of the lesser knows caveats to real estate investing is that you
can structure your individual retirement account (IRA) so that you
can purchase real estate through your IRA.  Depending on the type
of IRA, the rental income you receive and the capital gains on
those investments will be either tax deferred, or in the case of a
Roth IRA, completely TAX FREE.  This isn't really a "loophole"
per se, just a relatively lesser known method to acquire real estate.

You may also withdraw up to $10,000 from your IRA to help with
the down payment on your new home without having to pay the
10% IRS penalty for withdrawing money from your IRA before the
age of 59 1/2.

Learn about real estate investing using an IRA here


Charitable Contribution Deduction
As the end of the year approaches, the IRS reminds taxpayers that
they may be able to use their gifts to tax-exempt charitable and
religious groups to reduce their taxes. 

Charitable contributions are deductible only if you itemize your
tax deductions.  For a comprehensive overview of charitable
tax deductions, click here.



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