University of Nebraska Extension Releases Land Value Survey

The University of Nebraska-Lincoln Extension has issued its 2013/2014 Nebraska land value survey report. The state average value for farmland increased 5% to an average of $3,195 per acre with regional per acre averages ranging from $770 per acre in the Nebraska panhandle to $7,215 per acre in East-Central Nebraska. A table summarizing the regional values is provided below:

 Nebraska 2013-2014 Land Value Survey

A full copy of the report, can be obtained at: http://goo.gl/bdvgqq.

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If I Want to Buy Property for Investment, Should I Purchase It With a Business Entity?

Business entities are very useful when you want to purchase real estate. If there is more than one person involved in making a purchase, I would tell you almost every single time the answer to that question is yes because it gives you more flexibility in structuring how the financial benefits of that property are going to be allocated to the owners, how further investment is going to work, and determining the maintenance of the property and those types of things. Also, a business entity can give you some distinct tax advantages, again usually if there is more than 1 person involved. Finally, a business entity can give you liability protection so that if something happens and you don’t have insurance for it, the most you could lose is just the value of that asset.

© 2014 Parsonage Vandenack Williams LLC

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What Are the Tax Benefits of Investing in Real Estate?

There are a variety of tax benefits to investing in real estate. One of the significant tax benefits is that you will get capital gains treatment in a lot of cases for the sale of real estate. That is particularly true if it is investment real estate. For example, if you invest in a parcel of farmland and that land appreciates and you then sell it, you are going to get a tax rate that is lower than the ordinary tax rate.

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A Group of Investors Are Buying Real Estate – What Should They Consider?

When a group of people want to come together and buy real estate, some of the first things they should consider are what are we going to purchase, why are we buying it, and how are we going to fund it. Who’s putting in the money? Is there going to be a loan involved? If a bank is going to loan you money, they are probably going to want personal guarantees. Is everybody coming together willing to give a personal guarantee? Is everyone’s tax situation the same? How should taxes flow from this property? What are you going to do with the property? Is one person going to run their business out of it, or are you all just buying it to rent it out to third parties? There are so many questions that group of investors needs to answer before they can decide the best way to purchase the property.

© 2014 Parsonage Vandenack Williams LLC

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Tax Court Rules Trusts Can Be Real Estate Professionals

The United States Tax Court has recently released a decision in Frank Aragona Trust v. Commissioner that will affect tax planning for many trusts that own businesses or hold real estate. In that case, a trust operated rental real estate properties and developed other real estate properties. It incurred losses from these activities, which it deducted as non-passive losses.

Under prior law, rental real estate losses were automatically passive losses unless incurred by a “real estate professional.” The IRS’s position in Frank Aragona Trust was that a trust could never qualify as a real estate professional. However, the Tax Court found for the taxpayer. It stated that a trust could qualify as a real estate professional if the rental real estate activities of its trustees were regular, continuous, and substantial. It did not, however, address whether trusts could count the activities of employees who were not trustees. The decision will also have a significant impact on planning for the Net Investment Income Tax.

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Trusts Can Be Excepted From Passive Activity Losses Related to Real Estate

The IRS has historically argued that trusts are categorically excluded from obtaining an exception to the passive activity rules for rental real estate activities. A recent Tax Court ruling has contradicted this position and indicated that a complex trust engaged in rental real estate activities can qualify for an exception to the passive activity rules.  In determining that the exception was available, the court looked to the activities of the individual trustees and determined that the material participation trust was satisfied. This is an important ruling in the trust income tax regime and creates the opportunity to limit trust exposure to the tax on investment income.

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How Does the NII Relate to Real Estate?

The Net Investment Income Tax applies to real estate in a variety of ways. One of those ways is if your income from real estate is passive, then it’s going to be subject to the NII if you’re in a bracket that is subject to the tax. In addition, to the extent that your income is passive from capital gains, those capital gains are going to be subject to this tax. To the extent that you are involved in real estate, this tax will have an impact and should be considered in your tax planning.

© 2014 Parsonage Vandenack Williams LLC

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