How to Find REI Opportunities: Just Ask

*Repost from December 2016; as we get into the holiday season, childhood family traditions become nostalgic and lead me back to this little story…
“If you can move the house by the end of the month, you can just have the whole thing!”

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real estate investing pensacola fl
As the year is coming to an end, the sights, sounds, and smells of Christmas often remind me of those precious childhood memories. Forcing me to reflect and think about love ones who have passed and I hope those great memories stay with me forever. On that note, when thinking about real estate investing, I sometimes think about my Maw-Maw & Paw-Paw. For as long as I can remember my grandparents owned & operated what they referred to as a tenant building – low income, mid-size multi-family rental property that provided them a way of life. I hope to blog about more of those memories one day, but they lived in the house next door to their tenant building and the story on that house acquisition is amazing.
As the story goes, my Paw-Paw was in need of some spare lumber, this was late 1970s, ’78 or ’79 I think. Driving by this house, he noticed the owner was outside and in the process of removing the front porch from this 2 story, 3 bedroom / 1.5 bath, 1900 sq. ft. home. When Paw-Paw asked if he could have some of the lumber being discarded from the front porch removal, the owner simply said, “If you can move the house by the end of the month, you can just have the whole thing!”
And that’s exactly what they did. They acquired a lot a few blocks away near downtown, hired a moving company, and a few weeks later my grandparents were setup in their new home. I cannot tell this story without mentioning the power company. The path of the move required the power company to drop lines on 2 sides of the street – the largest cost of this project which had to be done on a Sunday; when most businesses downtown were closed (late 70s). I believe their all-in cost was around $25k. Simply put, an amazing opportunity.
real estate investing pensacola fl
Paw-Paw (green hat, 2nd from the right)

We created many holiday memories in this home and my parents still own it today. Opportunities are everywhere and through this event, my Paw-Paw has certainly encouraged me to Just Ask.

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Tax Season: How Real Estate Can Affect Your Tax Return

First things first, I’m not a CPA or tax attorney and this or any post should not be considered legal nor accounting advice πŸ™‚

But if you’ve bought or sold real estate in the past year, either for yourself or as an investor, you’ll need to make sure the good ol’ IRS knows what you’re doing. Real estate purchases and sales can definitely have an affect on your tax return, and if you aren’t careful that can result in you owing a lot of money at tax time. Naturally, that can be a nasty financial surprise that you’ll want to avoid. Some of the tax concerns may be inevitable, but you can avoid most of them with some careful planning. When you buy and sell real estate as an investor, you’re running a business. The profit you make will be subject to tax just as it would with any business, but you don’t have to worry about capital gains tax and related issues that come about when you sell the home you live in (as long as you’ve lived there for at least 2 years). There’s also some fancy stuff you can do with what’s called a 1031 Exchange to defer taxes into a new purchase, but this is certainly where you will want some help from your CPA or tax attorney in Pensacola.

Sellers who decided that they wanted to move, and sold their primary home, will be asked some questions at tax time. The IRS will be looking to see how long they owned that home before they sold it, and if they made a profit on it. If you lived in your home for at least two years before you sold it, you probably don’t owe any tax unless you made a very big profit on the sale. If you didn’t live in it for two years, though, you’ll owe capital gains on the profit of the sale. Fortunately, most people who don’t live in their house for at least two years don’t make a profit, because it takes a while to get real value out of buying a house. Because of that, they will likely not owe anything extra at tax time.

Buyers can get tax breaks for purchasing a home, because they can now take a deduction for the mortgage interest they have paid. The mortgage company will send them a statement detailing how much they paid in the prior year, so they have that information for their taxes. Of course, if you buy a home and pay cash, you won’t have that mortgage interest deduction to use. If you make improvements to your home, some of those are also tax deductible (like energy tax credits – https://www.irs.gov/uac/Form-5695,-Residential-Energy-Credits), so you could save some money on your taxes in that way, as well. The best choice when buying or selling a home is to talk to a tax advisor and make sure what you’re doing isn’t going to cause you tax trouble.

Remember, if you purchased a home recently in Escambia County, the deadline to file for homestead exemption is March 1. Here is more info from the Escambia Tax Collector’s Office: http://www.escambiataxcollector.com/ad-valorem-assessments .

If you ask first, and get some answers, you can buy or sell a home in the Pensacola or Cantonment, FL area without fear of a big tax bill. In some cases, people have waited to buy or sell until a certain date (such as owning a home for a full two years before you sell it), so they can avoid any chances of seeing their taxes go up. That makes sense, and can be the right choice when you want to make a move in the real estate market but you don’t want to be paying extra for it the next time April 15th comes around.

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