I just received an email advertisement from a company called Spidell Seminars entitled "ARM YOURSELF FOR AUDITS OF REAL ESTATE TRANSACTIONS". You see, I was a practicing CPA for over 50 years before I became a realtor and I have taken many Spidell seminars. The new tax law that the Trump administration passed last year has a far-reaching impact on real estate and real estate transactions. The new tax law affects the sale of principal residences, mortgage interest deductions, real estate tax deductions as well as rental real property used for investment purposes and when you can use the new Section 199A provisions of the Internal Revenue Code. There are also clarifications as to the $250,000 / $500,000 capital gain exclusion rule on principal residences now that time has passed and we have court cases that are used as precedents for future cases.

I know that we are realtors and that we cannot give tax advice to our clients. The standard line is "Please speak to your tax preparer to clarify the treatment for this transaction". By the way, I would recommend that you use the term "tax preparers" as opposed to your "accountant" as a lot of people do not have accountants, they just go to H & R Block to get their taxes done every year. But you would be surprised how many people trust H & R Block with complicated transactions because they do not have an accountant or a CPA and they should seek out informed professional advice.

So, it is my advice that realtors and brokers have to have a basic knowledge of tax law, some knowledge, as it pertains to real estate so you can know when to advise your clients to seek the appropriate professional advice.  IF YOU DON'T KNOW WHEN IT'S A TAX QUESTION YOU CAN'T TELL YOUR CLIENT TO SEEK THE CORRECT PROFESSIONAL ADVICE.
With the new tax law and new rules that have not all been tested in the courts, there will be a multitude of tax audits of real estate transactions and you can bet that either the client's CPA or the client is going to be looking to you for answers. 

In the next few weeks, I will be posting a number of articles concerning investing in Apartment Buildings on my website, "YOURDREAMLUXURYHOME.COM", to build wealth and give you cash flow in inflationary times and during recessions.  I am involved in finding the land, working with some great developers to build the buildings and either sell the building upon completion or running it as a business before selling it.  I am involved in such a project now in Sherman Oaks and the investors will make a lot of money.  I am a unique Realtor who looks at things differently than others do because of an extensive tax and business background practicing as a Certified Public Accountant, spanning over 50 years.

I'm at the beginning of a wonderful journey in Real Estate. I started in Real Estate a little over 2 years ago and found out that selling single-family homes was a bore. I was lucky enough to pick up an old accounting client who had a piece of property in Sherman Oaks that we joint ventured with a builder and will develop into an apartment building. I spearheaded the development process and we will start construction soon. I will eventually sell that apartment building. and I will sell another provided by this developer. That will be over $50 million in Real Estate that I will sell in the next two to three years. I also saved my clients over $200,000 in taxes. I was a practicing CPA for over 50 years before going into Real Estate. I don't think any other realtor in Los Angeles has my experience or connections. I'm having a blast!!! At age 70 I changed professions and I'm doing great and having fun doing it. So, if you want to buy or sell apartment buildings or condominiums please call me at (818) 298 - 4000 and I'd be happy to help you.

Expanded deductions for real estate investors.

Real estate investors could see savings in three areas: bonus depreciation, deductions for rental and nonresidential property costs, and deductions for pass-through income. Specifically:

First-year bonus depreciation has been increased from 50% to 100%. Additionally, owners can now apply bonus depreciation to both new and used “qualified property” (defined by the IRS). The bonus depreciation allowance will be reduced by 20% each year from 2023 through 2026.

Rental property owners can deduct the costs of personal property (subject to limitations) they use in their rental real estate. They also can deduct improvement costs for nonresidential properties.

Owners who hold assets in pass-through entities such as limited liability companies (LLCs) or limited partnerships (LPs) might be able to benefit from the new 20% deduction on qualified business income. More good news: Real estate used for business purposes, such as rental property, is not subject to the new $10,000 limit on deductions for state and local income taxes (SALT), including property taxes. Taxpayers can also continue to deduct their mortgage interest on these properties without limitations.

Increased Alternative Minimum Tax (AMT) exemption amounts. Increased exemption amounts and phase-outs should mean fewer taxpayers will be subject to this tax. The new exemption amounts for 2018 are:

$70,300 for unmarried individuals not filing as a surviving spouse.

$109,400 for joint filers and surviving spouses.

I recently heard that there is some talk going on in Washington, D.C. about an adjustment to the tax law as it concerns long term capital gains.

Now, there is talk about indexing the cost basis of any capital asset for capital gains purposes. The way the law is now is you take the proceeds from the sale of a capital asset and subtract the cost basis to arrive at the capital gain amount. Depending on your tax return the income is either taxed at your ordinary income rate or the capital gain rate, whichever is lower. It does not matter if you held the asset for one year or forty years. Assets held for one year or less are subject to ordinary income rates and called short term capital gains. This discussion pertains to long term capital gains for assets held for longer than one year.

Under the old rules, if you bought an asset in 1970 for $100,000 and sold it in 2018 for $500,000 you would have a long term capital gain of $400,000. Under the proposed legislation the asset that you bought in 1970 would be adjusted each year for the increase in the index for the cost of living. So, the asset you bought in 1970 for $100,000 might now have a tax basis of $175,000 yielding a long term capital gain of only $325,000. At a 20% maximum long term capital gain tax rate that is a tax saving of $15,000.

By the way, I sold a home this past month in the Santa Clarita area and the client is very happy.

This article is from Neal Frankle, CFP

Real estate is interesting. What seems to be happening in many real estate markets is that rents are falling while property prices continue to rise.
 
To me, that signals speculation. Part of what is fueling this speculation is that a hand full of banks are making very risky loans.
 
Some irresponsible lenders are offering loans up $3 million with only 10% down. To add fuel to the fire, they are making loans without giving much weight to borrowers’ other debts or their FICO credit scores. It’s reminiscent of the mid-2000’s isn’t it? This bad lending practice isn’t nearly as wide-spread as it was back then but it’s still dangerous.
 
So, in my opinion, real estate could be vulnerable. This is especially true in places where real estate prices are high, such as in the North East and California. And those expensive properties became automatically more expensive when the income tax law changed making it difficult to fully deduct the state, local, income and property taxes.
 
That’s why I think property prices could decline – especially if interest rates climb.  
 
How far could real estate prices drop? This is impossible to predict. If interest rates go up quickly, home prices could take a bigger hit. If rates only go up modestly, prices may not drop but stay stable. Also, the government could come in and clamp down on the wild lenders I spoke about earlier. That would be a good thing.
 
You know me – I don’t make predictions and I’m not predicting a real estate melt down. But I do suggest you use caution right now. If you are buying property that you can afford and you are buying it as a long-term investment, that could be fine. But if you planning to sell property in the near-term, you might consider doing so sooner rather than later.