As a CPA I get to deal with all kinds of tax issues in various industries. I work with contractors, doctors, architects, engineers, retired folks, investors, businesses, consultants and so much more.
AND IT IS FUN! I love the tax world. Of course, Congress has made the tax laws so complex that I will never run out of work to do. That’s okay with me!
BUT, IN THE TAX WORLD, REAL ESTATE IS MY FAVORITE SUBJECT. And it is truly a world unto itself. The tax laws surrounding real estate are incredible and some of the most flexible on the planet. Really.
I do an enormous amount of work with contractors, developers, rental owners, flippers, and real estate investors of all shapes and sizes. If you know the real estate rules it is amazing what kind of fabulous planning can be done. I insist on meeting with my real estate clients a couple of times a year (at a minimum) so we can strategize, plan and work on their particular situation.
There are huge opportunities in the real estate area to make money, save taxes and maximize the tax benefits for transactions…..like analyzing a sale or a like-kind exchange. The rules can be a bit overwhelming to the inexperienced. But, like I said earlier, I absolutely LOVE dealing with the tax rules for real estate. It should be illegal to have so much fun.
These are sometimes referred to as “1031 exchanges”. They dropped off the map when our country went into the deep recession (remember that?). Now that we are out of that recession, we are seeing a large increase in these 1031 exchanges…..and rightly so.
Some key points to keep in mind if you are contemplating one of these:
- You must engage the services of a “qualified intermediary”. This is the person or firm that will facilitate the transaction. You need to get this person/firm in place BEFORE you sell the property. This is critical. Many taxpayers mess this up and end up paying a lot of taxes.
- Always be on the lookout for “boot”. If there is any “boot” you may find that some or all of the gain is taxable right now. Boot, primarily, refers to any cash you get out of the deal or any debt the other party takes over. It’s complicated, but I can help look at the transaction for you.
- If the potential gain on the sale is small, it may be foolish to do a 1031 exchange because the cost may outweigh the benefit. The same can be true if there is a lot of “boot”.
Okay….I think I am running out of space. Hope this gave you some food for thought. I am always so happy to meet with any of you to discuss your real estate situation. It’s just a LOT of fun.