
                          INCOME RELATED TAX STRATEGIES                   
                          ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^          

         
      1- REAL ESTATE:
         
      Low interest loan(s):
      --------------------

      a- Do you have an old, low interest rate mortgage on your principle
      residence or on a rental  or business property?  Ask your lender if
      they would be willing to offer you a discount for an early payoff.

      CAVEAT(S): Understand,  that any difference between  an outstanding
      loan balance and the (discounted) amount paid  to payoff your loan,
      may be considered as ordinary income.
 
      Also, you will lose a tax advantage in terms of deductible interest
      (mortgage interest) against your reported income.

      This is an area where  you will have to weigh all considerations of
      advantages/disadvantages to this type of transaction.


      Sale of your property:
      ---------------------

      a- Any gain made  on the sale of your property  will be tax free if
      you re-invest the  full selling price  of your old home against the
      price of your new home. You must buy your new home within two years
      before or after the sale of the old one.

      b- You can take a one time $125,OOO exclusion against the gain from
      the sale of your home,  if you are  a taxpayer  over the age of 55.


      Home equity loans:
      -----------------

      a- You can get  a home equity loan  (second mortgage)  against your
      residence  for most anything that you may want.  In fact, it can be
      set up  like a checking account  where you merely write a check for
      the article  that you want  to buy.  Not unlike  a regular checking
      account.

      b- An equity loan  will probably be given at a lower  interest rate
      (maybe one or two percentage points)  then a personal loan  because
      the equity in your home is used for collateral for the loan.

      c- And therein  lies some of the problems,  that are  inherent with
      this type of loan.  One major problem of course,  is that since you
      are using the equity in you home to secure the loan,  you stand the
      possibility of losing your home, if you default on the second loan.

      A borrower  should be fully aware  of the pit-falls involved,  when
      trying to obtain this type of loan.

      Be aware of balloons  for this type of loan.  The repayment figures
      might be figured  on a twenty year repayment schedule, only to find
      that in  five  years say,  your lender  may  decide  for  full  and
      immediate payment,  after you have only paid a small portion on the
      principal.

      The amount  that  would be  considered for  a loan,  would  be  the
      difference  between the  outstanding  balance owed  for your  first
      mortgage on your home and the appraised value.

      So- it really makes sense to shop around for the best deal that you
      can get  for a home equity loan.  Just like you would  when looking
      for a first mortgage on a new home.

      d- There  are times  when this  type of loan  makes sense.  A large
      medical expense  would be one reason.  An addition  to your present
      home would be another.  And a child's education expenses would be a
      third good reason.

      e- Home equity loan  interest payments,  like your  normal interest
      payments on a first mortgage, are fully deductible. Since all other
      types of loan interest rate payments are now,  non-deductible, this
      type of loan makes the most sense.


      Rental properties(s):
      --------------------

      a- If you "actively participate"  in a real estate investment, such
      as owning a 1O percent  or more interest  in the property,  with no
      limited partnership agreements, participate in management decisions
      such as approving new tenants, setting rental terms and determining
      capitol or repair expenditures,  then you may shelter up to $25,OOO
      against earned salary (etc.),  investment income,  dividends, gains
      from investment sales and interest.                                   
 
      b- This allowance ($25,OOO) for  rental real estate,  phases out $1
      for every $2 when your adjusted gross income exceeds $1OO,OOO.  The
      allowance is $5O,OOO  for a married couple filing separate returns.

      c- Your adjusted gross income will be calculated in lieu of any IRA
      contributions, taxable social security benefits and passive losses.

      d- For individual's with a modified adjusted gross income exceeding
      the $15O,OOO level, this allowance will be entirely eliminated.

      e- All real estate  rental losses are subject to  the limitation on
      passive activity losses,  if an individual's adjusted  gross income
      exceeds the $15O,OOO level.


      Hobby income loss rules:
      -----------------------

      a- If you have a hobby  that has generated an income  for you after
      expense deductions,  for at least three out of five consecutive tax
      years,  the IRS will consider your hobby  as an activity for profit
      and any resulting losses that you have incurred, may be deductible.

      b- The time period is extended from two out of seven years, if your
      activity consists of breeding, training, showing or racing horses.


      Medical deductions:
      ------------------

      a- Your  medical  expenses  must  exceed  seven and a half  percent
      (7 1/2%)  of your adjusted gross income  to qualify as a  deduction
      and the definition of deductibles has been expanded by the IRS. So-
      make plans  to take advantage of as many medical deductions  as you
      can.

      b- Deductions can be taken  for specific treatments in the areas of
      diagnosis  for the  treatment  and prevention  of diseases,  or for
      affecting  any structure  or function of the body.  The  deductions
      are not allowed for general health improvement.

      c- Medical bills  for another person  can be deducted provided that
      you have paid for more than half of that person's support either in
      the year that the bills were generated or the year they were paid.

      d- You can also  deduct bills paid for a former spouse,  so long as
      you were married at the time when the bills were incurred.

      e- Deductions  for surgical,  hospital and  laboratory expenses and
      transportation costs  for a transplant donor  are allowed. A person
      that is being considered  as a prospective donor,  even if found as
      unacceptable, can deduct expenses incurred.

      f- Recipients paying expenses, will get the deductions.

      g- Generally,  other deductibles  include:  birth control pills and
      other prescription drugs, vasectomies,  legal abortions, face-lifts
      and hair transplants.

