Investing in real estate was probably one of the best decisions of your life. However, current vacancies, demanding tenants, and minimum income are some of the issues that are compelling you to seriously consider selling your investment property. Here are some options that are available to you: Sell your property and pay the taxes. In California, the capital tax gains includes 15% federal tax, 9.3% state tax, 25% recapture of depreciation tax, and most likely you will get hit with the alternative minimum tax. Therefore, you may end up paying between 25% to 40% tax on your gain. Please consult your CPA to calculate the worst possible tax liability before selling the property. Installment Sale. In this option, your property is exchanged for a note and corresponding mortgage against the property. Depending on how the note is structured, most will come with a balloon payment at the end of the note. If so, your will end up paying taxes on the interest earned each year. On the last year of the note, you will end up paying taxes on interest earned, capital tax gains and depreciation recapture all at the same time. You become the lender, so consider the buyer's credit rating, foreclosure risk, and expense as well as the difficulty of selling the note to the open market should your circumstances change. Charitable Remainder Trust. Your property can be given to an irrevocable trust that sells the property and invests the proceeds. The trusts pay you an income for life, or a certain number of years, and the remaining value is donated to your IRS-approved charity. A wealth replacement trust can be added to provide for your heirs, or you can use the proceeds to buy a life insurance against yourself. This option, in effect, removes the property from your taxable estate in exchange for a modest income tax deduction. Private Annuity Trust. Your property can be given to an irrevocable trust in exchange for a lifetime income contract or private annuity with the remaining value given to your designated beneficiary. Income received is prorated as taxable ordinary income, capital gains, depreciation recapture, and partly, as non-taxable return of your original basis. Move In and Sell 2 years Later. Coverting your investment property into your personal residence. After two years, a single taxpayer may exclude up to $250,000 or $500,000 for a married couple. Unfortunately, you do need to stay there for 2 years. Consider the location and any necessary renovations. 1031 Tax-Deferred Exchange. Section 1031 of the Internal Revenue Code allows investors to sell investment property and defer payment of capital gains tax if the proceeds are invested in a like-kind property. For example, a single family rental may be exchange for a duplex. Besides deferring all taxes by exchanging into another property, an exchange gives you the opportunity to diversify in to other property types and locations, and continue to own similar investment properties. 1031 Tax-Deferred Exchange to Co-Ownership Property. Since 2002, IRS Revenue Procedure 2002-22 has provided guidelines for investors to exchange their relinquished property in to "fractional" ownership of institutional grade properties. This means you can diversify both geographically, throughout the 50 States and US territories. You can invest in an apartment complex, office building, shopping center, hotel, or other qualifying property. Up REIT. An upReit can effectively convert a single family home into shares of a private or publicly-traded REIT. Using 1031 exchange, your property is exchanged for a fractional ownership in an institutional grade property. After 12 to 18 months, a REIT company acquires the institutional property and allows the current owners to exchange their equity position for shares based on the fair market value. The resulting REIT shares may be sold in small quantities with taxes due as the shares are sold. Oil & Gas Royalties. Royalties can complement a real estate-dominated portfolio. IRS Section 1031 classifies royalties as "like-kind" for 1031 exchange. Owners receive fluctuating revenue based on the current oil and gas proceeds and production from any wells and gas demand and rising process. In some cases, the royalties' interest extend over one million acres of land, thousands of producing wells, with dozens of major well operators that are financially responsible for maintaining production and even adding new wells - at their own expense. If you have any questions, my direct line is 925-212-1727 or email me at wlam@adelphiretirement.com. Wai-Yew "Andrew" Lam, President Adelphi Retirement Management, Inc. www.AdelphiRetirement.com

Revenue Procedure 2005-14: Combine IRC §121 and IRC §1031 to Save Taxes Until recently, a taxpayer that converted a personal residence to an investment property or vice versa, had to choose between using IRC §121 (exclusion of gain on the sale of a principal residence) or IRC §1031 (non-recognition of gain in like-kind exchange). However, with the issuance of Revenue Procedure 2005-14 (1/27/2005, corrected 2/3/2005), taxpayers can combine the benefits of both code sections, as long as the requirements of both sections can be separately met. The following example will be used throughout the article for illustration purposes: John buys a house for $200,000 and uses it as his principal residence from 1985-2004. From 2005 until now, John has been renting the house and claims depreciation deductions of $200,000. Fast forward, John now decides to sell this investment property for $800,000. Using the above combined ruling, John will be entitled to a tax-free credit of $250,000 as a single person under Section 121 and he will have the second option to use Section 1031 to deferred capital tax gains. Here's how it works: With a Sale price of $800,000, typically, he will have to pay agent's commission and escrow closing cost, lowering the proceeds down to $750,000. At the close of escrow, the Title company will issue John a check of $250,000 under Section 121. The balance of $500,000 can now be wire directly from the Title company to an exchange company to complete a 1031 tax-free exchange deferring paying any capital tax gains. Step 1: Determine if the property qualifies for IRC §121. IRC 121 allows a taxpayer to exclude from income a gain up to $250,000 ($500,000 if married, filing jointly) resulting from the sale of a principal residence as long as the taxpayer has lived in the property for at least 2 of the last 5 years as a principal the 5-year period prior to the exchange. Step 2: Determine if the property qualifies for IRC §1031. IRC 1031 allows the deferral of capital gain realized by exchanging property held for productive use in a trade or business or for investment for like-kind property to be held for productive use in a trade or business or for investment. To the extent that the taxpayer also receives cash or other non like-kind property (boot), gain must be recognized. John's property qualifies for 1031 because it was used as an investment property for the periods 2005-presently. Step 3: Apply IRC §121 before IRC §1031. If the taxpayer meets the requirements of both IRC 121 and IRC 1031, the taxpayer must apply IRC 121 to the gain realized before applying IRC 1031. John will apply IRC 121 residence John's property qualifies for IRC 121 because he has lived in the property as his personal residence for at least 2 years during first to exclude $250,000 as his primary residence. Step 4: Apply IRC §1031 to gain attributable to depreciation. Although IRC 121 does not exclude depreciation recapture after May 6, 1997, this amount may be deferred by utilizing IRC 1031. John may complete a 1031 exchange on the remaining $500,000 using IRC 1031. Selecting a Qualify Intermediary: From the simplest exchange to the most complex, we have built our reputation on expertise, financial strength, and customer satisfaction - San Francisco, & Oakland, California. If you have any questions, my direct line is 925-212-1727 or email me at wlam@adelphiretirement.com. Wai-Yew "Andrew" Lam, Principal www.AdelphiRetirement.com

Retirement Account for Small Business Owners. If you are a self-employed business owner, a solo-401(k) may be just the right retirement option for you. The solo-401(k) or Individual (k) gives self-employed business owners the same great retirement benefits that large corporations have enjoyed for years. The solo-401(k) is significantly less complex than a typical 401(k) or other profit sharing plans and in many cases, it allows for much greater tax-sheltered contributions than other traditional types of small business retirement plans. There are many advantages to having a solo-401(k) over other small business retirement plans, such as SEPs and SIMPLES. First, the contribution limits can be much higher. As the self-employed business owner, you can set aside up to 25% of your income as a tax-deductible, profit sharing contribution. You can also contribute up to $16,500 for 2009 ($22,000 if you are age 50 or older) as a salary deferral. The maximum contribution for an solo-401(k) plan for 2009 is the lesser of $49,000 ($54,500 if age 50 or older), or 100 percent of compensation. Another advantage to the solo-401(k) is the Roth contributions that you are eligible to make. You can designate some or all of your deferrals as Roth contributions. Roth contributions are after-tax dollars, so those contributions will grow tax-free. Unlike an IRA, you may take loans from your solo-401(k). Make sure to check with your tax professional to find out the limitations and amounts that you can borrow from your solo-401(k) plan. Who qualifies? To be eligible to have a solo-401(k), you must be a self-employed business owner with no full-time employees other than your spouse. Employees that work less than 1,000 hours annually, employees under the age of 21, Union employees and Nonresident alien employees are generally excluded from coverage under your company's solo-401(k) plan. Last, the solo-401(k) is very low in administrative costs. Like an IRA, you will need to first open the plan with a qualified custodian for your solo-401(k), you may act as trustee for your own plan. Once the account is opened, you simply open another checking or savings account in the name of your solo-401(k) plan trust and work with your tax professional to determine how much you can contribute each year. You may also choose to not contribute in any year, for any reason. The solo-401(k) gives you complete flexibility to contribute when you would want. Once your account accumulates $250,000 you'll have to start filing a Form 5500-EZ, which your tax professional should be able to help you prepare. Feel free to call me and I will be happy to explain in detail how we can set up your solo-401K account. At Adelphi Retirement Management, Inc., we've helped thousands of investors over the years in truly diversifying their retirement proceeds into non-traditional investments in to real estates, businesses, private notes, tax liens, and much more. Why would you put all your eggs in one basket? Wai-Yew Lam is the founder of Adelphi Retirement Management, Inc., based in Oakland, California. He can be reach at 925-212-1727, please visit our company's website at www.AdelphiRetirement.com.

New Tax Law On 2nd home & Investment Property One of the most cherished part of the U.S. tax code is the provision that allows sellers to exclude up to $250K or $500K if they file a joint return of profit they make when they sell their homes. Not to worry. That's still around if you own just one property and have lived in it as your primary for at least two of the last five years before you sell it. With the passing of the Housing Assistance Act of 2008, the bill designed primarily to provide relief to some homeowners facing foreclosure, will cost some folks who have a vacation homes, other type of second property including investment properties. Effective this year, even if they convert their second piece of real estate or investment property into their primary home, they'll owe tax on part of the sales money based on how long the house was used as a second or investment, rather than their main, residence. How it used to work? The reason the law was changed? Money. The U.S. Treasury generally lost some every time a second home was sold by the owners who took advantage of the primary-home sale exclusion. Under the old rules, if you owned your main home and place in the mountains that you used for family vacations, you could sell both and keep up to $250K or $500K, in profit out of IRS hands as long as you sold them in the correct order. First, you would sell your primary residence and pocket that profit. Then you would move into the vacation place, live there for two years and then sell it. Because it had been your primary residence, you could exclude profit from that subsequent sale too. There was no limit on the number of properties for which you could use the home sale exclusion. As long as you were able to make each place your primary residence and not claim the tax break for at least two years between each sale, you were in the tax clear. How it now works With the closure of the conversion loophole, now the seller of a second home or investment property, even if it's converted to primary residence status, will owe taxes for the time that the home was a second or investment property after Jan. 1, 2009. You will take the number of years the property was your main home and divide that by the number of total years you owned it. That gives you the percentage of time that the house was your primary residence. You can exclude that much gain, up to the $250K or $500K limits, from your taxes. The major determinant here is Jan. 1, 2009, effective date. Example 1: Buy a second home or investment property in 2009 Let's look first at the tax ramifications if you buy a second home or investment property this year and use it for vacation getaway or a rental for 10 years. Then you sell your main home and move into this property full time, where you live for another 15 years before selling. Your total ownership is 25 years, 10 as a vacation home, and 15 as your primary residence. Fifteen divided by twenty-five equals 60 percent, the amount of time it was your main home. So if you made $250K profit on this sale, under the new law you can only exclude $150K from tax. You have to pony up capital gains taxes on the remaining $100K profit. But what if you've owned a second home for years? Let's find out. Example 2: Second home or Investment property you already own Using the same circumstances as before, we'll shift the ownership and sale calendar a bit. This time, you owned your home for five years before the new law kicked in and five years after Jan. 1, 2009. You still have 10 years of vacation ownership and 15 years of living there as primary residence. But the new law doesn't count those five pre-2009 years of ownership as use that does not qualify for the exclusion. So for tax purposes, your ownership calculation is five years as a second home or investment property and 20 years of use that are eligible for the exclusion. During those 25 years, the property was your primary residence or otherwise eligible for the exclusion for 80 percent of the time, meaning now you can exclude $200K of your $250K profit, with a balance of $50K in capital gain tax. As of 2009 With the closure of the conversion loophole, now the seller of a second home or investment property, even if it's converted to a primary residence status, will owe taxes for the time that the home was a second or investment property after Jan. 1, 2009. Do note that for investment property sale; there is the additional recapture of depreciation tax which will apply at closing. Please feel free to visit my company's website at www.AdelphiRetirement.com to learn about our services. You can also contact me at wlam@AdelphiRetirement.com. Thank you.

Self-employed Solo 401K vs. Sep IRA basics If you have self-employment income, there are a variety of ways to save some taxes to grow your retirement account annually. Here are two retirement plans that are most commonly available: SEP-IRA: Allow tax deductible contributions and tax-deferred growth. Easy to set up with most administrators and very little paper work. The max contribution for this plan is up to 25% of compensation with a cap of $44,000 as of 2006. Account does not allow account holder to borrow against the account. Solo 401K: Similar tax advantages as SEP-IRA, but with more paperwork, a more limited number of administrators, and higher contribution limits. This account allows profit sharing contributions of up to 25% of compensation plus tax-deductible salary deferrals to the plan of up to $15,000 as of 2006. The cap is the same at $44,000. Business owner at min of 50 years old can take advantage of a catch-up provision that allows an additional $5,000 contribution. Couples can contribute up to $98,000, the contribution to your Solo 401K are based on self-employment income, not on income earned. While most retirement plans provide a tax break and help you save for the future, the Solo 401K by far offers additional benefits. Another benefit this account provides is the ability to borrow against it over max of 5 years and up to $50,000 or 50% of the account value, penalty free. So, while the caps are the same, you can make very little self-employed income and basically defer it all, which you can’t do with Sep-IRA. This gives you that added flexibility which is especially beneficial for those who have some self-employed income as secondary income and want to get the most tax advantages. For example, if you made $15,000 for the year, you can contribute all of it into a Solo 401K, while only $3,750 (25%) with a SEP-IRA. However, if your self-employed income is substantially higher and is your sole source of income, then 25% contribution may be plenty and maybe a SEP-IRA account would work best to keep things simple and the account cost down. Please feel free to email me at wlam@adelphiretirement.com, or visit our website at www.AdelphiRetirement.com. My contact number is 510-286-7988 ext.2. Sincerely, Wai-Yew "Andrew" Lam, President Adelphi Retirement Management, Inc.