April 18, 2007

Webinar“The Numerous Benefits of Investing

in Real Estate”Mathew N. Sorensen, J.D.

“Strategies for our Rising Health Costs”S. James Park, J.D., LL.M.

www.kkolawyers.comSalt Lake City, UT* Las Vegas, NV * Beverly Hills, CA * Cedar City, UT

Telephone 435.586.9366 / Facsimile 435.586.9491

© Kyler Kohler & Ostermiller, LLP 2007

Disclaimer- Although the information contained in this Presentation may be extremely useful and helpful, please understand that the presentation of this information does not constitute an attorney-client relationship. Moreover, the information contained in this Presentation is for general guidance only. It is strongly recommended that each individual or entity obtain their own legal advice, particularly applied to their own set of circumstances, facts and specific situation. Kyler Kohler & Ostermiller, LLP is not responsible or liable for any advice that is taken and applied in a situation without direct consultation and representation specific to that individual’s or company’s needs.

Numerous Benefits of Investing in Real Estate

1) Appreciation2) Mortgage Reduction and “OPM”3) Tax Deductions

• Mortgage Interest• Depreciation, Cost Segregation• Small Business

4) Cash Flow5) 1031 Exchanges, CRT’s for 6) Greater Control and Risk Management

The Power of Rental Real Estate

Appreciation Mortgage Reduction

Tax Deductions Cash Flow

Appreciation

Rental Property - $150,000Cash Down - $ 15,000Mortgage - $135,000

5% Annual Appreciation:1st Year - $7,5002nd Year - $7,850

Return on Investments (“ROI”):1st Year - 50%2nd Year - 53%

Real Estate versus The Stock Market

• From 1999 to 2004 in the U.S.• Real Estate 56% • Stocks -6% (S & P 500).

• Real Estate and Stocks are both good long term investments.

• Real Estate offers additional benefits stocks cannot.

Mortgage Reduction

Rental Property - $150,000Cash Down - $ 15,000Mortgage - $135,000Rental Income ($900/mo) - $ 10,800

Mortgage Payment, 6%, 30yr - $ 809 monthly - $ 9,708 annual

Annual Principal - $1,657Annual Interest - $8,051

Return on Investment:1st Year - 11% 2nd Year - 12%

Tax Deductions

Rental Property - $150,000Cash Down - $ 15,000Mortgage - $135,000

Land - $ 15,000Building - $135,000

Average Depreciation -1st Year- $4,7042nd Year- $4,908

•This is a simple illustration that does not take into account other expenses, such as repairs, maintenance, property management fees, and closing costs.

Annual Rental Income- $10,800

AnnualInterest - ($ 8,051)Depreciation - ($ 4,704) ---------------Net Income - ($ 1,955)

Tax bracket 30%Tax Savings - $586

Return on Investment - 4%

Cash Flow

Annual Rental Income - $ 10,800

Mortgage Payment - ($ 9,708) Misc. Expenses - ($ 500)

---------------

Annual Cash Flow - $ 592

Cash on Cash ROI – 4%

Appreciation50%

Mortgage Reduction11%

Tax Deductions4%

Cash Flow4%

Total ROI - 1st Year 69%

The Power of Rental Real Estate

Types of Real Estate Investors

• Passive Investors

• Active Investors

• Real Estate Professionals

Cost Segregation

Without Cost Segregation

Assumption- $260,000 residential rental purchased in 2006, with a Land value of $65,000 (25%), and Building of $195,000

Depreciation Expense- $6,795

* Assuming 25% Federal Rate and 5% State.

*Potential Tax Savings - $2,038

With CostSegregation

Without Cost Segregation

Assumption- $260,000 residential rental purchased in 2006, with a Land value of $65,000 (25%), and

$20,000 in 5-year property, and $24,000 in 15-year property. Remaining $151,000- Building.

Beware of Depreciation Recapture!

Depreciation Expense- $31,662

*Potential Tax Savings - $12,740

Depreciation Expense w/ §179 -$49,262

Depreciation Expense- $6,795

* Assuming 25% Federal Rate and 5% State.

Cost Segregation

Tax Deferral and Sale Strategies

• 1031 Exchanges can be used to defer paying taxes when selling property and re-purchasing new property.

• Charitable Remainder Trusts can significantly reduce the amount of taxes paid when selling a highly appreciated piece of real estate.

“Strategies for our Rising Health Costs ”S. James Park, J.D., LL.M.

How do Medical Expenses Play into Real Estate?Maximizing my Deductions

- Insurance deducted “above the line”

W-2Employee

Health SavingsAccount (HSA)

Health Reimbursement

Arrangement (HRA)

- All medical expenses are deducted as itemized deduction and limited to 7.5% Adjusted Gross Income

Same and also:

Tax deductions into Health Savings Account: $2,850 Individual $5,650 Family * $800 catch up if 55-65

- Must maintain high deductible insurance policy

- Must utilize 3rd party admin

- Fixed payments, balances carry forward.

For the Small BusinessOwner an HRA can createa deduction for ALL medicalExpenses.

-No Savings Account, but No insurance requirement

- Self-administered and No limits

- Reimbursement procedure

THE HEALTHY

HIGH EXPENSES

SmallBs. Owner

Same

and also:

Medical/Dental Expenses

• Medical expenses include dental expenses paid on behalf of you, your spouse and dependents.

• You can deduct only the part of your medical and dental expenses that is MORE THAN 7.5% adjusted gross income (“AGI”).

• So… If your medical and dental expenses are not more than 7.5% of your AGI, you cannot claim a deduction.

• Deduction only applies to amounts actually PAID during the year, regardless of when the services were performed. (Date sent check or used credit card usually sufficient)

Medical/Dental Expenses, Cont.Here is a snippit of What is

Included?• Abortion• Acupuncture• Alcoholism• Ambulance• Artificial Limb• Artificial Teeth• Autoette (Wheelchair)• Bandages• Breast Reconstruction Surgery• Birth Control

• Braille Books/Magazines• Capital Expenses• Car (Special Equipment)• Chiropractor• Christian Science Practitioner• COBRA • Contact Lenses• Crutches• Dental Treatment• Diagnostic Devices• Disabled Dependent Care

Medical/Dental Expenses, Cont.• Drug Addiction • Drugs• Eyeglasses• Eye Surgery• Fertility Enhancement• Guide Dog• Health Institute• HMO (Premiums)• Hearing Aids• Home Care• Home Improvements• Hospital Services

• Insurance Premiums• Hospitalization, Surgical Fees, X-

rays, etc.• Prescription Drugs• Replacement contact lenses• Free-Choice Associations• Qualified Long-Term Care

Contracts• Medicare Part A – B – D

• A: Voluntary Premiums• B: Voluntary Premiums• D: Prescription Drug Premiums

• Pre-paid Insurance Pre• Unused Sick Leave used to pay

premiums

Medical/Dental Expenses, Cont.What is NOT Included?•Premiums to pay for:

•Life Insurance Policies•Policies for loss of earnings•Policies for loss of life, limb, sight, etc.•Portion of your car policy providing medical coverage.

•Medicare Taxes

For the Self-EmployedIf you were self-employed and had a net profit for the year, were a general partner (or a limited partner receiving guaranteed payments), or received wages from an S corporation in which you were a more than 2% shareholder (who is treated as a partner), you may be able to deduct, as an adjustment to income, all of the amount paid for medical and qualified long-term care insurance on behalf of yourself, your spouse, and dependents.

The insurance plan must be established under your trade or business, and you cannot take this deduction to the extent that the amount of the deduction is more than your earned income from that trade or business.

You cannot take this deduction for any month in which you were eligible to participate in any subsidized health plan maintained by your employer or your spouse’s employer. This rule is applied separately to plans that provide long-term care insurance and plans that do not provide long-term care insurance.

If you qualify to take the deduction, use the worksheet attached to Form 1040 to figure the amount you can deduct.

Health Reimbursement Arrangement (HRA)The Process – “Married” Scenario #1

S-Corp

Employee15.3% FICA

FamilySole Prop

or SMLLC

Pick up Spouse asEmployee and adopt

an HRA plan for he/sheand their dependents.

Service or management

Fee

FamilyLLC

* Be careful if you have other employees than familyFor ‘consolidated group’ rules and fringe benefits

S-Corp

Employee15.3% FICA

C-Corp

Pick up Self asEmployee and adopt

an HRA plan for he/sheand their dependents.

EmployeeLeasing

Fee

FamilyLLC

* Be careful if you have other employees than familyFor ‘consolidated group’ rules and fringe benefits

No longerSalary/Dividend Split

Lease employee instead.

Health Reimbursement Arrangement (HRA)The Process – “Single” Scenario #2

Thank You!!

kkolawyers.com856 South Sage Dr., Suite 2, Cedar City, Utah

Telephone 435.586.9366 / Facsimile 435.586.9491

© Kyler, Kohler & Ostermiller, 2007