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May 6-May 19, 2015 — COLORADO REAL ESTATE JOURNAL — Page 25
Law & Accounting
O nce again tax day has
rolled around, and
many commercial
real estate investors wonder if
their tax bill was higher than
necessary for 2014. For a hap-
pier April 15, 2016, there are
ways commercial real estate
pros – and their clients – can
save money on taxes through-
out 2015.
For Certified Commer-
cial Investment Members, or
CCIMs, it’s all about learning
and applying how to legally
minimize taxes. The biggest
issue for our clients and our-
selves is to plan ahead for the
best tax position because the
night of April 14 is too late.
There are seven simple strate-
gies that can change taxes for
CRE investors in 2015. This
advice requires consistent atten-
tion but can fit into every busy
commercial real estate inves-
tor’s schedule through practice
and patience.
n Maximize deductions
and depreciations. The gold-
en tax rule is for commercial
real estate professionals to stay
on top of all Internal Revenue
System rules and changes that
boost their clients’ pocketbooks.
Being aware of key deductions,
such depreciation changes, is
critical.
n Aim for exclusions. For
example, advise clients that
gifts to anyone are not subject
to income tax. And they are
not subject to gift tax – if they
do not exceed
the annual
exclusion of
$14,000.
n Defer
income and
a c c e l e r a t e
deductions.
Property sell-
ers can defer
income by
using deferral
techniques,
such as an
ins ta l lment
sale. Under
this scenario,
part of the sale can be recorded
during the year of the sale, and
a portion of the taxable gain can
be directed toward income in
future years.
n Use tax-deferred exchang-
es. Internal Revenue Code Sec-
tion 1031 exchanges permit the
deferral of capital gains/Sec-
tion 1231 gains if the taxpayer
fulfills the 1031 requirements
and transacts both a qualified
sale and purchase within the
limits in the code, which gener-
ally provides for a 180-day time
frame for the transactions.
n Characterize income as
capital gain instead of ordinary
income. Under the code and IRS
guidelines, there are instances
where income can be defined as
long-term capital gain instead
of ordinary income. The dif-
ference in tax rates can be sub-
stantial. For example, ordinary
income can be taxed at up to
39.6 percent (with even some
additions), whereas capital
gains are taxed, generally, on
the high side at 15 percent or
20 percent, depending on the
income of an individual and
other rules, such as recapture.
n Obtain tax credits versus
tax deductions. Tax credits
directly reduce tax bills dollar
for dollar, while tax deductions
lower the tax bill but only in
relation to the tax rate of the
taxpayer.
n Establish a miscellaneous
category. Some tax issues defy
the other six buckets and come
up only occasionally. Consider,
for example, the area of passive
losses or the new net invest-
ment income tax (Medicare tax).
If individuals do not know the
rules, they should hire an expert
to advise them.
Every day you hear about
cases where a few hours of
planning could have made a big
difference to owners and busi-
nesses. For instance, four broth-
ers owned a ski resort together,
and one of them died without
a will. The result was terrible
financial uncertainty about the
future of the ski resort. This
would have been so easy to fix
before the brother’s death.
Planning ahead to maximize
tax deductions, tax deferrals
and tax credits takes a little
more time but typically adds up
to significant savings on April
15.s
Mark Lee Levine,
CCIM, PhD, JD,
LLM
Levine Segev LLC,
Denver
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Editor’s Note:
If you would like to contribute an expert article to the Law &
Accounting section, please contact me a r
303-623-1148, Ext. 106.
The Colorado Real Estate Journal always is looking for infor-
mative articles, approximately 900 words in length, related to
any aspect of the commercial real estate industry.
I would be happy to discuss your topic ideas, issue dates, mate-
rial deadlines, photos and reprints and answer any questions
you may have. Authors of expert articles also may be eligible for
continuing education credit.
Jennifer Hayes, Editor