Real Estate and Inflation
The Consumer Price Index (CPI) is one measure the government uses to track the rate of inflation in the U.S. economy. Recently, the CPI has been fairly low by historical standards, but some analysts believe that the CPI actually understates the real rate of inflation. See e.g., www.shadowstats.com for a critique of the CPI. One feature of inflation, however, is that the value of debts and other contractual obligations to pay a fixed amount in the future are reduced or discounted as the rate of inflation increases.
Many investors are seeing signs of increased inflation in the near future. For example, commodity prices, as measured by the Standard & Poor’s GSCI, are up about 7 percent in the past year. Food prices have increased by about 20% over the same period. According to the Federal Bureau of Labor Statistics, a pound of ground beef went from an average of $2.23 per pound to $2.77 over the past two years, which represents an annual increase of 12%. Similarly, the price of butter has increased 27% and coffee has increased 16%. Finally, energy prices are around $4/gallon in many places in the country. Given the signs of inflation, what options are available to real estate investors to hedge against a depreciating dollar?
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1031 Basics: Useful Forms for Tax Preparation
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The tax filing date for many taxpayers is less than two months away. IRS Form 8824, Like-Kind Exchanges, must be completed and filed with the Internal Revenue Service every time a taxpayer performs a 1031 exchange. This form has three sections related to a 1031 exchange: Part 1, Information on the Like-Kind Exchange; Part II, Related Party Exchange Information; and Part III, Realized Gain or (Loss), Recognized Gain, and Basis of Like-Kind Property Received. To access Form 8824 and other related tax forms that may be needed, download now… |
IRS Releases the Dirty Dozen Tax Scams for 2012
The Internal Revenue Service issued its annual “Dirty Dozen” ranking of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.
The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.
The following are the Dirty Dozen tax scams for 2012: Read more…
Revenue Procedure 2012-17
Rev. Proc. 2012-17 provides the requirements for furnishing substitute Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc., in electronic format. A partnership (including an Electing Large Partnership, as defined in section 775 of the Internal Revenue Code) that follows the procedures set forth in this revenue procedure will satisfy the requirements of section 6031(b) of the Internal Revenue Code and section 1.6031(b)-1T(a)(1) of the Income Tax Regulations. Read more…
IRS Guidance on the Economic Substance Doctrine
The economic substance doctrine was codified in Section 7701(o) of the Health Care and Education Reconciliation Act. The new statute defines economic substance doctrine under which certain tax benefits are not allowable if the transaction does not have economic substance or lacks a business purpose. The statue defines a transaction as having economic substance only if: (A) the transaction in a meaningful way (apart from the Federal income tax effects) changes the taxpayer’s economic position, and (B) the taxpayer has a substantial purpose (apart from the Federal income tax effects) for entering into such transaction. Read more…