By Mike Southwick
I have been involved in the real estate field long enough to know where my boundaries are in relationship to what I know and what I think I know. After 25 years in the business I would like to think that I know a lot about the ins and outs of real estate but I can tell you that when it comes to taxes I like to defer to tax professionals; they are the ones in the know.
With that said, there have been a number of recent changes to tax laws, tax codes and tax loopholes; plus the ongoing discussions in Congress regarding tax increases, sequestration, spending cuts, government shut down and quantitative easing has me convinced that unless we stay informed, the one thing we can count on is less money in our pockets. It was Will Rogers who said, “The only difference between death and taxes is death doesn’t get worse every time Congress meets.” In 1986 Ronald Reagan said in his talk during a White House conference on small business, “Government’s view of the economy could be summed up in a few short phrases: If it moves tax it. If it keeps moving regulate it. And if it stops moving subsidize it.” As you can see, even our 40th President of the United States was concerned about taxes and protecting our assets, and so should we.
If you own a home and have a mortgage you should be eligible to receive a Mortgage Interest Deduction (aka MID) on your taxes if you itemize. For some people this has enormous advantages as the deduction often exceeds the standard deduction allowed by the IRS. The MID is currently being debated by Congress and is at risk of modification or even possible elimination. For some people this deduction has huge benefits. If it is eliminated it could have enormous consequences if you are counting on this for your overall tax strategy. No one knows what the results will be on the short- or long-term debate over this issue but you should be talking with your tax advisor to have a contingency plan. I personally am in favor of the MID and, depending on your position on the MID’s overall benefit, you should also consider getting involved in the political process to protect your interests.
Some of the recent tax changes have also impacted or may impact long-term capital gains and this is an area that you should definitely consult your tax advisor about as you plan for your future and the future of your children and grandchildren. If you own rental property or properties that do not qualify as your primary residence as defined by the IRS and you plan to liquidate them now or in the future, you should also consult your tax advisor to evaluate that decision in light of upcoming changes to the tax code. The benefit of deferring a tax consequence from the sale of a property (sometimes called a 1031 tax deferred exchange) remains a viable solution to your overall tax strategy. That decision should involve the advice of professionals: a tax advisor, tax attorney, an asset preservation or exchange company and a Realtor who are experienced in these matters. If you own property you should have both a short-term plan and a long-term plan when considering liquidating such an important asset. Obtaining professional advice is really in your best interests. Often these types of consultations are very reasonably priced or, in some cases, there is no charge associated with the initial consultation.
Since there appears to be more changes in the works as Congress debates a number of important issues it would be in our interests to guard and protect those interests, especially as it relates to such an important asset like our homes.
There are a number of other property tax benefits that you should be aware of but for the sake of time that will need to come in a future publication. I usually post a more detailed explanation of these and other topics on my blog: placervillerealestateguy.com or rosevillerealestateguy.com.