Vacation Properties and Income – Part 2

Another way for retirees to generate income from a vacation home is to sell it. By using the federal capital gains exclusion in conjunction with the sale of your primary residence, you can potentially realize tax-free income. Here’s how it works. The basic capital gains exclusion rules state that you must have owned and used the home as your primary residence for at least two years out of the five-year period ending on the date of the sale. If you are married, the full $500,000 exclusion ($250,000 for single homeowners) is available as long as one or both of you satisfies the ownership test (two years) and you both satisfy the use test (primary residence).

Vacation Properties and Income – Part 1

If you have a vacation home, you’re already aware of the enjoyment it provides and the benefits it can offer at tax time. But you may not be aware of how vacation property can be used to generate income in retirement or how it can play into an estate plan. In fact, vacation properties offer retirees a number of different options in managing their finances and estate.
Vacation property may be used to generate income in several different ways. The first, and most obvious, is renting it. The IRS allows you to deduct mortgage interest on your primary residence and one additional property up to a limit of $1 million in combined mortgage debt for mortgages taken out after 1987. Current tax rules also allow you to rent out a second home for up to 14 days per year without having to report the rent as income. If you rent for more than 14 days, the home is considered investment property, and rent must be reported as income. Converting the property to an investment property, however, allows you to deduct rental expenses, such as insurance and utilities, if you have a net profit on the property (deductions are limited if you report a loss). You can still use an income-producing property for personal use while maintaining your tax advantages — but only for the greater of 14 days or 10 percent of the total days it is rented. Maintenance days do not count as personal-use days, but use by in-laws or other part-owners does, even if rent is charged.

Simple Truths

As a financial advising firm, one of the simple truths we have learned is that relationships are the single greatest influence on how people use their money and plan for the future. When people talk about their hopes and dreams, they talk about the people they love. Their future, the life they wish to live, is always full of the people most important to them. They don’t talk first about dollars and cents, Dow averages, or bond yields. They talk about a spouse, a parent, a child. When imagining their financial futures, even those without family often focus on others, such as employees, friends, faith communities, and charities.

Keeping Your Emotions in Check…

In times like these, with the economy in a tailspin, and the stock market in the tank, investing requires an extra dose of patience, perseverance and perspective.
It takes patience to ride out the bear market, perseverance to continue to invest even through a difficult economy, and perspective to see the long-term picture and realize that recessions and bear markets are just part of the natural economic cycle. Slumping economies and bear markets of the past have always turned around — and there is no reason to believe that this time will be any different.

Saving for College

Saving for College
Another school year is around the corner and your children or grandchildren are that much closer to college. If you haven’t already started to save for their college costs, this may be a good time to talk to your adviser about setting up a tax-sheltered college savings plan.
By planning ahead, you can use a 529 college savings plan to give your children a head start on their college costs. There are two types of 529 plans: college savings plans and prepaid tuition plans.
College savings plans are state sponsored investment accounts that allow participants to contribute regularly. A 529 plan account grows tax-deferred and withdrawals from the plan for qualified educational expenses are exempt from federal income tax. There are no income limits.

Trusts and How They Can Work For You

Trusts and You

Trusts are vehicles that can help shelter your assets from taxation and manage the property that you leave to your heirs. Simply put, you transfer property in the name of a trustee who manages it for the benefit of a third party, the beneficiary. One of the great advantages of trusts in their flexibility. They can be adapted to fit a wide variety of situations. In fact, as our attorneys at Wealth Enhancement Group say, “Trust is not the key word. Trust doesn’t tell you that much.”

What precedes the word trust tells you everything. The most important aspect of trusts is that they allow property to be managed according to the donor’s specific wishes, far into the future. Living trusts allow you to control trust assets; irrevocable trusts take away control but offer many attractive estate tax implications and more. Your advisers can help you determine which type of trust best suits your situation

Is It Time For a Financial Checkup?

If you are working with a financial advisor already, now might be a good time for a “financial checkup”: to reconfirm your goals and time horizon, and in light of the current market environment, gain a better understanding of your tolerance for risk. All of which can help you determine whether you’re on track for a comfortable retirement.
Now more than ever, investors need a trusted financial advisor, an experienced professional who can guide you through difficult times and help maximize opportunities in good times. Further, we believe that such an advisor should be independent, not tied to the sales quotas of a large brokerage firm, for example, but committed solely to providing objective and constructive advice.

Rebuild | Wealth Enhancement Group Tools

• Wealth Enhancement Group takes a 360° view of you and your financial situation

• We are a 1-stop resource providing everything from tax planning to financial planning there to help you and guide you

• We build relationships with our clients on a foundation of trust

• We have some of the most adept financial planners in the industry and much more to offer you…

Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, a registered investment advisor.

Restoring Confidence in Today’s Economy with Wealth Enhancement

Despite uncertainty, at Wealth Enhancement Group, we feel confident that in the long run, the financial markets offer the best opportunity to achieve important financial goals. The question is how can you best take advantage of these opportunities? First thing, don’t panic. There are ways to help you get through these irrational times. Consider working with a trusted financial advisor, who can offer the insight and experience needed to help you through difficult times.

Working with you, a financial advisor can:
• Help you identify and continually reconfirm your short-term and long-term goals.
• Help you maintain a customized investment strategy that supports your individual, financial objectives.
• Guide you through fluctuating markets and help you avoid making emotion-driven mistakes in turbulent times.
• Provide you with access to a broad selection of highly diversified securities.
• Walk you through the current market crisis, the upcoming bull market and the next market dip.

Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, a registered investment advisor.

What is a Bear Market?

The generally accepted definition of a bear is a decline of 20% or more in a broad stock market benchmark, such as the S&P 500 Index, over at least a two-month period.

Even though we have been in a recession for more than a year now, since December of 2007, the current bear market actually began last September. In comparison, the average bear market in the 20th century lasted 14 months, with stocks declining an average of 32%, and fully recovering their lost ground in 22 months. Since 1950, there have been nine bear markets, including the current one.

Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, a registered investment advisor.

Financial Professionals – The Ones Who Can Help

In today’s world, many financial institutions offer a wide range of financial services to clients. Since the regulatory wall between banks and brokers was knocked down, the distinctions have been blurred, with many banks offering brokerage services, and vice versa. Still, I believe it remains true that most professionals tend to focus their efforts more narrowly.

Stockbrokers. Stockbrokers help primarily with the accumulation phase and tend to have a shorter-term approach to investing, concentrating on the best possible returns at any given time, rather than a longer-term view that helps you get to where you want to be.

CPAs. Certified Public Accountants are primarily tax specialists, not investment specialists.
Private Bankers. Banks tend to focus on trusts, so they offer legacy/transfer services but usually not broad-based planning.

Insurance Agents. Insurance Agents focus on risk or the legacy/transfer phase of planning. They are often also well versed in certain types of tax-deferral or tax-avoidance products that are insurance related. Most do not, however, offer well-rounded financial strategies.

Attorneys. Lawyers work primarily on estate planning, a legacy/transfer niche.

Financial Advisors. Financial Advisors can take your financial plan beyond accumulation strategies to address distribution and legacy/transfer issues as part of a comprehensive plan. I’m proud of what I do, and I believe independent companies like mine, by brining together experts in all of the planning phases, offer the most comprehensive service.

Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, a registered investment advisor.