Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q: With the election of Donald Trump, what should real estate investors consider as they plan their year-end tax strategy?
A: Typical end-of-year advice would be to have the client see if there are suspended passive activity losses–losses on income such as rental property that cannot be realized during the current tax year because of IRS-imposed limitations–and then accelerate gains to offset those losses, or vice versa, said William L. Abrams, partner at Abrams Garfinkel Margolis Bergson in Los Angeles. President-elect Donald Trump has talked about doing away with the tax on passive income, also known as the Obama Tax, so it might make sense to hold off recognizing any such income until 2017, Mr. Abrams said.
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Edward Mermelstein, managing partner of the Manhattan law firm of Rheem, Bell & Mermelstein, followed a similar train of thought: "With the anticipation of a change in tax rates to take effect in 2017, all sellers of real estate should defer the sale of their property to 2017 to take advantage of a lower tax rate."
However, Mr. Abrams cautioned that no one really knows what is going to happen next year, after Mr. Trump takes office. "If Hillary Clinton were president, you would think everything would stay the same," he said, "but I don’t anticipate anything staying the same. It’s just a question of how fast that happens."
Mr. Abrams noted that after President Barack Obama was first elected at the end of 200 8, experts made assumptions about estate planning that ended up being entirely wrong. The only certainty: Normalcy for the next year is gone.
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