There is a lot of talk recently about President Biden and congress changing the tax laws. If you’ve been around long enough, you’ve likely seen this before when there was a party change in the White House.
Will these changes be good or bad?
As always, it depends on your point of view.
Some of the new rules might be a little scary to real estate investors. While these changes might be averse to a real estate entrepreneur, this is not the first time it’s happened.
I remember when Bill Clinton succeeded George H. W. Bush. In the summer of his first year in office, congress changed the tax law and made it retroactive to the previous year. I can’t remember the mechanics, but I do remember that I was presented a very large tax bill after my taxes had already been filed. It was painful, but at least the IRS gave me three years to pay that off.
It was unpleasant and it cost me some money, but it didn’t change my life. My tax people still found plenty of legal ways for me to reduce my taxes. So, though this might change your tax strategy over the next few years, there is always hope.
I can’t predict what congress will pass, when it will go into effect, or how bad it will be for my portfolio. Frankly, if I was that good at predicting the future, I would be betting on sporting events and would never have to work the rest of my life!
Since my crystal ball is decidedly opaque, I like to fall back to what I know works today.
I’ve said before that the US is a tax haven relative to many other countries, and I believe it will continue to be, no matter what new laws get passed. Taxes are a way to incentivize people to take risk and produce the infrastructure that keeps the country running. Many of those incentives will remain unchanged.
Though I would like to see the 1031 tax exchange remain in place and I would prefer not to pay over 40% on long-term capital gains, I’m confident the government will still leave me and my brilliant tax advisor some options to reduce taxes.
One tool that has always been good to real estate investors is depreciation. This is a phantom loss that allows them to pay less tax on their real estate income. In my mind, it’s like a gift from the government.
It’s one of the few times in your life that you will show a loss but will be happy about it!
If that sounds crazy to you, click the link below for a five-minute video that explains why depreciation is your friend, and a powerful tax-saving tool.
Click Here for a Video on the Benefits of Depreciation
Until next time!
Tom
P.S.: More effective results are produced when you have teams and mentors.
