Real Estate Tax Advice for Realtors

Like I wrote before, last Thursday and Friday I attended a Continuing Education seminar given for Certified Public Accountants.  I was a practicing CPA for over 50 years before I became a realtor.  I still go to the CPA seminars on Real Estate Laws and Real Estate Investing.  There were some very technical items discussed that Realtors should only be aware of but should not give advice on. 

As Realtors we are not CPAs but should know when to tell our clients to seek tax advice from their tax professional and only hope that their tax professional is not H & R Block!!!  The new tax law (Trump's tax law changes from last year) gives the taxpayer a 20% Qualified Business Income Deduction for certain types of businesses and Real Estate might qualify under certain conditions.  There are hours and documentary requirements that your clients have to be aware of and their tax professional is the only one who can help them with that. 

If you have a client with multiple rental properties they may be able to group some of them and get a tax advantage.  If your client gets involved in a Section 1031 Exchange you should guide them to their tax professional.  In a Section 1031 Exchange, you can only defer the gain on real property, like-kind real property like an investment property for investment property and no tangible personal property.  Also, primary residences do not qualify for Section 1031 Exchanges, they have their own rules and everyone thinks that the rules are easy, a $250,000 capital gain exclusion for a single person living in a house or $500,000 for a married couple living in a house. 

Depending on the circumstances, the situation can become very complicated and that's when the tax professional should be called in.  There are more questions like, when is someone who owns Real Estate a Real Estate "Professional"?  There are different rules for Real Estate professionals and Real Estate Investors.  Well, I think I gave you enough information to know that Realtors are not supposed to or capable of giving tax advice to clients.  Realtors should have a relationship with a competent and professional tax advisor to refer their clients to.