While I make it my business to understand the tax code, it becomes apparent sometimes just how much there is to know. New regulation is only part of it. Existing tax code is also not stagnant and often there are finer points missed or little used. The tax code is made up of many exceptions that for the average person are little or never used, but for tax preparers we need to know when any exceptions might apply.
As I look back on this tax season I realize that I probably learned more during this season than any other. For me, that’s saying something because I’ve been at this for over 20 years.
Rules impacting the financial service industry are very much impacting the real estate world as well. Rules created to provide health insurance to all, also impose tax changes many of which are still in the process of being written.
It is not enough to watch and read the tax code. There are so many court cases and IRS private letter rulings that must be reviewed as well. Most states also impose an income tax and their rules vary widely and are also frequently changing.
Imagine you live on a flat planet. The outer edges on all sides are less well defined. Segments are pulled and new segments appear. Some of these segments might quickly fall away while others slowly dissolve. Perhaps this is one of the most beautiful areas on the planet. The center of the world seems to change less and undergoes less radical change. Obvious the center of this world would be the safest place to live, but perhaps offer the least benefit.
The tax world is very much like this. While some areas of the law are very well defined there are other areas that are poorly defined. Even areas of the law that are well defined get muddied with special “facts and circumstances” issues.
There are many who might think they understand what a repair is. My guess though is that under the new rules you might be wrong. The new rules provide fewer bright line tests and will require more judgment.
A tax adviser can add some value by informing you of what is clearly within the law. They add more value though by shedding light on what is less clearly defined. It is not about trying to skirt the law, but about learning where you can safely operate.
The law allows many tax strategies: 1031 exchanges, cost segregation, installment sales, master lease arrangements, real estate in qualified retirement accounts and many others. Many of these strategies have tax pitfalls that go along with the advantages. Understanding where these pitfalls are is extremely important.
BawldGuy Here: That last sentence may be in the running for ‘Understatement of the Year’.