We have many years of working knowledge of tax issues that affect property owners. However, we are neither accountants nor attorneys and nothing written here should be construed as tax or legal advice. Please consult the appropriate qualified professional for the advice necessary to make your decision.

Further, tax laws have changed many times over the years and homeowners and investors should be sure they are applying current law to their situation. This information was updated in 2004.

For informational purposes only, here are a few items that may affect a property owner's tax situation. Again, these should always be confirmed with the appropriate professional.

1. Tax-deductible items
   
   
   1. Principal Residence
      Generally, mortgage interest (subject to IRS limitations) and property taxes are deductible for taxpayers who itemize their deductions.
       
   2. Investment Property
      Almost all out-of-pocket expenses related to the ownership of investment real estate can be itemized on Schedule E. Owner's own labor is not deductible.
       
   3. Depreciation
      In addition to expenses actually paid, investment property owners can generally list physical depreciation of the property as an expense, even if the market value of the property appreciates.
   
    
2. Exclusion of gain on sale of residence
   
   Upon the sale of your personal residence, on your income taxes you may:

   Exclude $250,000 of gain (profit) for a single person or $500,000 for a married couple (both must be on the title to the property) if homeowner(s) claiming the exclusion have owned and occupied the property for two of the past five years (does not have to be the last two years).

   
    
3. Tax-Deferred Exchange
   
   Usually called a "1031 Exchange" for the IRS code section that authorizes it. Generally, an investor who has owned an investment property for at least one year may sell the property and purchase another "like-kind" investment property and transfer the taxable gain to the new property. General rules of the exchange are:
   1. New property must be "identified" within 45 days of closing escrow on old property
   2. New property must close escrow within 180 days of closing on old property
   3. Investor can't have control of the money from sale of old property
   
   
   "Reverse" Exchange
   
   Investor buys new property before selling old property. A less common exchange method, but one which some investors are utilizing.
   
   There are numerous other requirements. Consult an accountant to make sure that you are handling the transaction properly! We are able to refer you to accountants.
    
4. California Propositions 60 and 90
   
   These propositions have been enacted by California voters to give property tax relief to qualifying homeowners who sell their personal residences. Please see the following link and verify your eligibility with the county or counties involved.

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