Happy New Year to all!!

I certainly hope that you are looking forward to 2008 as much as I am!  I have set some terrific goals, and I am really anxious to start out the new year to reach them all!

Having gone thru some changes this year (changing brokers and improving my online presence), I really anticipate an awesome year in 2008!!

Good luck to all in this changing market!!

I am sure that come of you Active Rain real estate agents also invest in real estate as rental property.  You may or may not be able to deduct your rental losses... READ ON.

Rental losses are considered "passive" losses, and usually can only be used to offset passive income on the tax return.  Now rental losses can be deducted EVEN IF (added together for all rental properties) they exceed passive income up to $25000.  I put up an earlier post on this topic (more of a general public kind of post) that you may want to check out... Deducting Rental Tax Losses - Can you do it?

Here is the real estate professional exception to that rule (always an exception!!)...

"Real Estate Professionals" can deduct MORE than the $25000 loss on rental losses in a given year.  This is our NAR PAC dues working for us!

Now things get more complicated...

What is a "Real Estate Professional"?

Well, according to the IRS (IRC Sec. 469(c)(7)), the "Real Estate Professional" includes someone who satisfies both of the following:

1. More than 50% of your personal services are performed in the real estate business in which you materially participate AND your material participation in the real property trade or business exceeds 750 hours per year, AND
2. You must show that you materially participate in the rental activity

Before you read the above and say, "That's me! No problem!", read further!!

What is the definition of "real estate business"?

"any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business."

Did you see Real Estate Agent in that definition?

Me neither, and neither does the IRS. 

Before you go crazy and say, " I am in the brokerage trade or business!  The definition of a broker is someone who brings buyers and sellers together, and that is what I do!", I agree with you!

The IRS does not!

Before you say, "I don't agree with you or the IRS, and I am taking the deduction anyway!", know this... it has been denied before.  If you are a real estate agent, according to the IRS, you do not fall into the definition of a "real estate professional", and the deduction could be denied, and you may be in for a fight.

I do believe that it is a fight that you will win.  In the prior cases where the deduction has been denied, the taxpayer did not fight it all the way.  When I say all the way, I mean taking it to the tax court system.  I believe that anyone fighting it would have the full support or NAR and their state association, and that to settle the argument once and for all, would be in our favor for now and the future.  But the problem is... at what cost.  The reason that this battle has not been fought is the cost of the battle has outweighed the benefits for those taxpayers.

While I don't agree with the IRS on this issue, I do want to make you aware of the facts and issues with this deduction, and what may or may not happen.  Good luck!

In my rental experience as a real estate agent in Central Virginia, most of the time, the first five years or so of rental property ownership generates a tax loss.  Usually, unless it is a property that the owner purchased for very little because of the physical condition and put a lot into fixing it up prior to rental, it is about year 5 or year 6 before increased rents begin to generate income for the landlord.

Now comes the real issue, can you take these losses on your tax return?  Answer...MAYBE.  (Maybe is the classic answer when dealing with taxes, because there is an exception to every rule in the tax code.)

Rental income and losses are considered "passive" income, as opposed to "active" income, basically meaning you didn't have to physically do anything to earn it, like you would in your job or profession where you work to earn the money.  Examples of other passive income are interest income, dividend income, or capital gains income.

Passive income is always taxable, as is generally any income.  But the catch is... passive losses are not always deductible.  Passive losses are only deductible to the extent you have passive income.  This means that you use passive losses to offset, or wipe out, passive income on the tax return, but if you have more passive losses than passive income, the passive losses must be carried forward to the next year.

Here is the exception... (I told you there was always an exception.)  With rentals, you can write off passive losses up to $25000 per year in excess of your passive income.

This is really huge if you are thinking about investing in real estate.  Basically if you are in the 30% tax bracket (25% federal + 5% state), you get back in your refund (or reduction in what you owe) an extra $0.30 for each $1.00 of loss that you had on that rental property.  It's like a big HUGE rebate.  For instance, if repairing the plumbing in that rental property costs you $1000, the IRS is paying $300 of it.

One of the most wonderful tools that I use now with all of my buyers and sellers of real estate in Central Virginia is called a CAREERBook.  The CAREERBook was created by Barb Schwartz, the creator of home staging, in an effort to help her clients get to know her better.

I had been planning on putting together a brag book for myself to be left at listing appointments with potential clients, and then I happened across this product when I attended a course on home staging.

Once I obtained this product, it took some time to get everything together, but I must say I have gotten tremendous results.  What a better way to let a potential client get to know you, than by leaving them this monstrous book with all your credentials and achievements?  How can a competing agent hold a candle to that?  I simply leave my book with the potential client, and I set up another time when I can come back to pick it up (an opportunity for a follow up!  How ingenious!)  The first comment I usually get from sellers when they see the book is "Wow!"

This is a tremendous weapon in my arsenal of services for home sellers in Central Virginia.  We always want the potential clients to tell us who they are, so why not tell them who we are?

One of my corporate partners would like to include me in a booklet that they hand out to all of their employees (over 7000 employees).  This booklet is a booklet of vendors, most of which offer discounts to the employees for using their services.

I definitely want to be in the book, and I have offered a rebate to their employees as incentive to use me as their real estate agent.

My question is...  What are your experiences with these types of situations?  I have been advised both ways for various reasons that I understand, but I am looking for your opinions.

Just ordered my final broker course on the web today... Real Estate Law.

Having already completed three out of the four required courses necessary in Virginia to take the brokers exam, I am excited to hopefully finish up my broker studies soon!

I tend to go the self-study route, as it works better in my crazy schedule with my wife working full-time and taking care of the little ones (Mr. Mom, we call it!)

I will have to post updates on how it is going.

Can any of you that have taken the Law course in Virginia give me any idea of what I am in for?

How many of you have started to receive text messages on your cell phone that are sales propaganda, the equivalent of junk e-mail?  Over the last two weeks, I have started to receive several of these.

Knowing that text messages end up being an extra charge to my bill, I contacted my cell phone carrier today to see what I could do about this situation.  I use Verizon Wireless.  They directed me to a website http://www.vtext.com/ where I could login to my account and set preferences to block all text messages coming from email or the web, and told me that if it continued being a problem, call them back and they will block all text messages.

I do not use text messages too often, maybe one time per month to send a funny picture of the kids to my wife, so I don't have an unlimited text messaging feature on my plan.

Has anyone else ran into this issue?

In an effort to become the best real estate agent in Central Virginia, I have been improving myself through reading.

There are two books that I have found that have been quite helpful to me.

First -- How To Become a Power Agent in Real Estate : A Top Industry Trainer Explains How to Double Your Income in 12 Months by Darryl Davis gives a twelve month program in twelve chapters, one chapter for each month.

I have read this book twice already and working on my third time.  The first time to gain a quick understanding of the material and begin to apply some of it to my real estate business, the second time to actually outline the booklet to help me to digest the material, and now the third time I am reading one chapter each month to try to completely absorb it and study that one chapter for four weeks.

Second -- How to Develop a Six-Figure Income in Real Estate by Mike Ferry was recommended to me by my new broker.

I have already read this book one time and working on the second time outlining it as I go.

What books have you read that help you in your business and what reading suggestions would you have for me to improve my real estate career?

This time of year is a good time for real estate agents to do some self reflection.

At this time of year I always look at myself and ask myself the following questions...

• What can I do to make myself a better Central Virginia real estate agent?
• What areas of my game are the weakest?

Last year when I asked myself those questions, the answer was Home Inspections.  I felt like whenever the home inspection took place, I knew less than anyone present.  All I could say was, "uh huh" or "duh", and I could not contribute anything to the conversation.

So what did I do to improve myself in this area?

I took two home inspection courses in my spare time, and aced them!  Now, I am not an expert, and I have no intention of performing home inspections for the public, but you know what?  I am a lot smarter during this phase of the home buying process and I have expanded my knowledge to add to my home buyer services in Central Virginia.

I feel that if more real estate agents would take this opportunity to improve themselves, the profession would be a lot more professional!

One of the smartest things you can do AS A PERSON is recognize you have a weakness and then do something about it!

Last month I did a post on House Flippers - The Tax Consequences, which I thought was a very informative post.  Later that day after posting, I received an email from a writer, Mr. Christian Toto of the Washington Times, who just happened to be doing an article on House Flipping.  He wanted to draw from my expertise as a CPA and real estate agent in Central Virginia.

After talking to him on the phone, he apparently found what I had to say worth quoting in his article, Flip Side of Remodeling.

Even though he decided to call me Dave (I have been called worse), I was still very excited.

Anyway, isn't it wonderful when our personal marketing works for us?