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. Salt Lake City, UT* Las Vegas, NV * Beverly Hills, CA * Cedar City, UT Telephone / Facsimile © 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) Appreciation 2) Mortgage Reduction and “OPM” 3) Tax Deductions Mortgage Interest Depreciation, Cost Segregation Small Business 4) Cash Flow 5) 1031 Exchanges, CRT’s for 6) Greater Control and Risk Management

The Power of Rental Real Estate AppreciationMortgage Reduction Tax DeductionsCash Flow

Appreciation Rental Property- $150,000 Cash Down- $ 15,000 Mortgage- $135,000 5% Annual Appreciation: 1 st Year- $7,500 2 nd Year- $7,850 Return on Investments (“ROI”): 1 st Year- 50% 2 nd 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- $150,000 Cash Down- $ 15,000 Mortgage- $135,000 Rental Income ($900/mo) - $ 10,800 Mortgage Payment, 6%, 30yr - $ 809 monthly - $ 9,708 annual Annual Principal- $1,657 Annual Interest- $8,051 Return on Investment: 1 st Year- 11% 2 nd Year- 12%

Tax Deductions Rental Property- $150,000 Cash Down- $ 15,000 Mortgage- $135,000 Land- $ 15,000 Building- $135,000 Average Depreciation - 1 st Year- $4,704 2 nd 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- $10,800 Annual Interest - ($ 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%

Appreciation 50% Mortgage Reduction 11% Tax Deductions 4% Cash Flow 4% Total ROI - 1 st 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 Cost Segregation 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-2 Employee Health Savings Account (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 Must maintain high deductible insurance policy - Must utilize 3 rd party admin - Fixed payments, balances carry forward. For the Small Business Owner an HRA can create a deduction for ALL medical Expenses. -No Savings Account, but No insurance requirement - Self-administered and No limits - Reimbursement procedure THE HEALTHY HIGH EXPENSES Small Bs. 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-Employed If 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 Employee 15.3% FICA Family Sole Prop or SMLLC Pick up Spouse as Employee and adopt an HRA plan for he/she and their dependents. Service or management Fee Family LLC * Be careful if you have other employees than family For ‘consolidated group’ rules and fringe benefits

S-Corp Employee 15.3% FICA C-Corp Pick up Self as Employee and adopt an HRA plan for he/she and their dependents. Employee Leasing Fee Family LLC * Be careful if you have other employees than family For ‘consolidated group’ rules and fringe benefits No longer Salary/Dividend Split Lease employee instead. Health Reimbursement Arrangement (HRA) The Process – “Single” Scenario #2

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