So, you’ve decided to participate in an Internal Revenue Code (“IRC”) Sec. 1031 exchange. Qualified intermediaries (“QIs”) can make or break your exchange, so hiring the right one is crucial. Here’s what you need to know.
Joint ventures offer several potential advantages. They enable smaller construction companies to take on large projects while dividing the contractual and financial risks of such projects. Further, those projects could be in geographic locations that you otherwise would not be able to access. A joint venture can also enable you to increase your bonding capacity, provide an opportunity to learn about more sophisticated technologies, and access other contractors’ relationships.
A well-designed succession plan is critical to the long-term survival of a construction business. In developing one, it’s important to consider the objectives and needs of your company’s owners as well as their family members. But it’s equally important to examine your plan from the perspective of your surety.
Some people are drawn into the real estate game largely for the potential tax benefits—done right, for example, you can leverage any real estate losses you sustain into some generous deductions for business expenses. There’s a catch, though: You can’t be engaged in your real estate activities just to generate losses. If the IRS finds that you lack a profit motive, it will limit and perhaps disallow your deductions altogether. One taxpayer recently learned that the hard way.
Financial statements are an indispensable tool for gauging your construction company’s historical results and financial health. But relying on them alone is like driving a car by looking in the rearview mirror. To see the road ahead, you need a work-in-progress (“WIP”) report for every job.
Due diligence is key
Properties with triple net leases offer investors several advantages, but the primary one is the opportunity to receive a steady stream of income with minimal management responsibilities for the property. This is because the tenant is responsible for paying real estate taxes, insurance, and property maintenance.
During the last decade, limited liability companies ("LLCs") have become one of the most preferred forms of business entities through which to hold title to investment real estate properties. Prior to LLCs, real estate investors seeking limited liability protection were largely limited to using corporations to acquire title — a form of entity that has potential drawbacks.
If you’ve invested in a trade or business in which you don’t materially participate, remember the passive activity rules. Why? Passive activity income may be subject to the NIIT, and passive activity losses generally are deductible only against income from other passive activities. You can carry forward disallowed losses to the following year, subject to the same limits.
Factors to consider when purchasing property
Even though today’s real estate market has improved, you can still find investment properties at bargain prices. But, as with any real estate investment, the price may be too good to be true. Therefore, you’ll need to consider more than just the purchase price.
Could you use a tax strategy that can save you significant tax dollars and boost cash flow? If so—and who doesn’t want to save tax?—consider looking into a cost segregation study on the dealership real estate you own. It could save you a bundle.