LET'S TALK ABOUT WHAT A COMMERCIAL REALTOR SHOULD DO WITH THE INCOME TAX ISSUE...

Yesterday I completed a two-day article about 1031 Exchanges, something that every commercial realtor should know something about. Commercial realtors are not supposed to be experts in income taxes, in fact, you are told not to touch the topic and to refer every income tax question to the client's Certified Public Accountant. But, you have to know when you have been asked an income tax question to properly advise your client to contact his or her CPA.

Any commercial piece of property should have a Cost Segregation Study performed on it when the property is purchased and when it is sold. You do it when the property is purchased so that you get a lot of Bonus Depreciation in the beginning and you do it in the end so that you maximize your capital gain and minimize your ordinary income. As a commercial realtor, you should know what that means but you should not be required to explain it past saying to your client, that's a question for your CPA.

And, you should know what Bonus Depreciation is and that it is being phased out starting on December 31, 2022. Past knowing that, there are many CPAs that don't know these things and that is a real problem. More times than I like to admit, after teaching a client about these things I get a follow-up phone call telling me that their CPA either looked at them as a dear looking at a pair of headlights coming to it or the CPA says that cannot be right.

Then you should have knowledge of Section 1031 Exchanges and there are such things as Delaware Statutory Trusts that can help you maintain the legitimacy of the exchange. But, the CPA has to know this stuff, I just love technical words, because that's his or her job. If your CPA doesn't know this, please, please for your own benefit, call me and I will lead you in the right direction. I am a RETIRED CPA and I do not want your business but I will help you find someone competent if your CPA is not!!!

Getting back to the main point, refer all income tax questions to the client's CPA. You are not licensed to answer those questions and you can get into trouble if you give income tax advice and it's wrong or even if it's right. But, and this is so important, you have to know when you are asked an income tax question in order to look somewhat competent. I still take income tax classes given to CPAs and not realtors. You, on the other hand, take income tax classes given to commercial realtors. I will promise you something. I will take an income tax class given by the Board of Realtors and follow up this article with a critique of that class!

My name is Paul Levine, and I am a Commercial Realtor, a Residential Realtor of luxury homes in Southern California, a Real Estate Advisor, an Investment Advisor, and an Income Tax Consultant!!! You can call me at (818) 298 – 4000 after 10 AM Pacific Time Monday through Friday and, yes, even on the weekends. Or you can send an email to me at [email protected] and I will always try and answer you in a timely manner.