The Benefits of Hiring a Tax Advisor to Look over Your Real Estate Transactions
August 15th, 2006 (Real Estate)
A tax advisor may not be the first person that you think to consult before making a real estate transaction. However, judging from most experiences, it is that a good tax advisor can provide terrific feedback on the potential benefits and pit-falls of different real estate investment strategies. Of course, make sure that your tax person has experience with real estate investing and understands your needs and specific goals in regard to your property investments.
Although you may pick up a lot of information about real estate and discover some of the advantages of property investing speaking with some tax people, don’t rely on generic information (”Investing in real estate offers a terrific tax shelter,” for example). You need specific feedback and ideas from a tax expert regarding your unique financial situation and which types of real estate investments will work best for you.
Based on your age, income, and other important factors, the benefits you seek from real estate may be entirely different from other investors. Many real estate investors are looking for immediate cash flow from their properties. But others have sufficient income currently from other sources and prefer to look at real estate as a wealth builder for their retirement years. And almost all real estate investors are looking for tax benefits.
The role of your accountant is to evaluate and recommend investments and tax strategies that will maximize your financial position. Remember the old adage that says, “It is not what you make that matters, but what you keep.”
A good tax advisor with property investment experience can tell you whether your best real estate investment is the direct ownership of properties or perhaps owning triple net leased properties with lower returns but fewer management headaches. An accountant can inform his clients as to whether they can still meet the active participation required for certain tax benefits while hiring a property management company to handle the bulk of the day- to-day tenant/landlord issues.
You may also want to find out if you qualify for the added tax benefits that are available for some investors who qualify as real estate professionals. Achieving such qualification isn’t easy, and the IRS may someday audit you. Meet with your tax advisor and get to know the benefits and pitfalls of your proposed real estate investments before you start making offers.