Real Estate Investment

INDIVIDUAL INVESTMENT IN REAL ESTATE

The Tax Reform Act (TRA) of 1986, specifically, and other federal laws have changed the rules under which real estate in-vestments must function. A primary characteristic of real estate investments in the contemporary environment must be the earning of an income on the investment through the operation of the venture (Tax Management, Inc., 1987, p. 18.5). A real estate investment may no longer be designed solely for the purpose of gaining tax write-offs.

While the TRA of 1986 will reduce taxes for high income

earners, a need still exists for acceptable ways to shelter high incomes. The tax reform requires that real estate tax shelters be designed with objective and realistic prospects that such ventures will earn profits. Aside from that provision, a tax sheltering potential for real estate investments continue to exist.

A tax shelter is defined as an investment vehicle which

permits the "tax benefits inherent in an investment to flow through directly to the investor and which also permits the cash-flow inherent in an investment to flow directly to the

investor, thereby avoiding double taxation" (Goldberg, 1984, p. 69).

Unfortunately, in the past, the tax shelter concept has been abused. Congress defines an abusive tax: shelter as

. . .
es an incentive for some tax payers to switch from a corporation type of organization to a partnership. Depending upon the level of income, capital gains may be taxed as high as 34 percent under a corporation form of organization, where the maximum applicable tax under a partnership (at individual rates) would be 28 percent. This provision is significant to real estate investors, depending upon how real estate investment ventures are structured. CORPORATE INVESTMENT IN REAL ESTATE The acquisition of and investment in real estate is an increasingly important consideration for corporations. Criteria for such acquisition and investment have been brought under intensive review, as a result of the federal income tax reform enacted in 1986. There exist corporate-level objectives for the acquisition of an investment in real property. These corporate level objectives, however, represent a composite of the more specialized objectives of various organizational functions, with respect to the acquisition of and investment in real property. The essential objective of all of an organization's functions concerned with the acquisition of or the investment in real property is the same. That objective is to improve the strategic performance of
. . .

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Approximate Word count = 2508
Approximate Pages = 10 (250 words per page)

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