Interesting Time to Be In Real Estate

As the world leaves the 2020 Covid 19 crisis behind, we still live-in interesting times. Just a short but not conclusive list of things you cannot control in real estate.

• Price increases for materials

• Supply chain issues

• Skilled labor shortages

• Long term rental license and inspections

• Eviction laws and new proposals

• Increasing the capital gains tax to 43.4% on higher income households

• Abolishing the 1031 like-kind exchange transactions on real estate sales greater than $500K

• Not allowing the step-up basis on assets by the beneficiary on inherited assets

• Increasing federal, state, and local regulation

Changes are coming to the real estate investor fast. It is hard to keep up. Troy Miller, ICOR and our friends at the National Real Estate Investors Association (NREIA) are working diligently to keep you informed and fight for you about all the changes going on at the federal, state, and local levels. You should give them all the support you can muster. What can you control? You can maximize your legal tax deduction and save as much as cash as allowed by using a detailed strategic tax plan. It allows you to accomplish your personal objectives with pre-tax dollars. Any time you can pay for something in pre-tax dollars, you automatically win.

We all have personal objectives such as funding children’s education (home schooling, private tuition, or college), paying medical expenses, retiring the mortgage on your personal residence, or building your retirement nest egg. We all would like to improve our cash flows. What else could you do with the money, if you are not writing that check to the IRS?

Another advantage of the detailed tax plan is that it guarantees savings. You have identified the changes which you are going to implement. The plan allows to calculate the potential cash savings you are targeting. When you complete your tax return, you can measure the dollars you saved.

This tax plan should be in writing. Verbal advice is worth the paper it is printed on. It should tell you what to do, when to do it, how to do it and why to do it. The why is the most important. It describes where in the tax code, revenue procedures, and tax court cases it states that you can do it. This is the keystone to preparing a tax return where you can defend the information you report to the IRS. It is always good to be ready to explain why your deductions qualify under the tax law.

Although the risk of audit is historically low, the IRS is increasing its budget for performing audits by 40% this year. In addition, the President has proposed $80 Billion to enhance the IRS abilities to perform audits. You should be ready for the increased scrutiny.