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Using real estate to jump tax hurdles

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When starting the reporting on his in-depth story on the unique tax advantages of real estate, “Gimme Shelter: Help clients leverage real estate's investment clout and tax advantages," Financial Planning Senior Editor Charles Paikert didn’t have to look far for inspiration.

“After reading about the tax benefits of real estate for large developers inspired by a certain presidential candidate, I thought it would be worthwhile to do a deep dive and see how advisers use the tax code to benefit their own, less-famous clients,” Paikert says.

Quickly, he was surprised to learn “how many real estate-related tax benefits actually exist and how complex most of them are,” he says.
Among other hurdles, advisers must help clients determine which benefits match what types of property, while also accounting for regulations that differ from state to state, municipality to municipality.

No single planner can keep it all straight. While one might have experience advising clients on the advantages of purchasing an office building, she probably won’t be as familiar with the benefits of owning apartment buildings.

Even fewer are up to speed with certain recent trends, such as the advantages of owning midsized warehouses in Colorado for cannabis growing. But it’s worth it to get up to speed, Paikert found.

When it comes to hurdles, Form ADVs are in a category unto themselves, as Senior Editor Ann Marsh reported in her piece, “5 hot spots on your Form ADV that reveal conflicts.”

“Reporting this story reminded me just how pervasive conflicts of interest are in the world of financial planning and how difficult it is to both manage those conflicts well, or reduce them,” she tells me. “I’ve seen the worst that unchecked conflicts of interests can do to clients, and I’ve seen high-minded advisers reduce their conflicts to the point where they have suffered financially themselves. The perennial question remains: How do you strike the right balance between your interests as a planner and those of your clients?”

The answer to that question, I believe, will dominate the industry in the coming months as advisers and their firms prepare for the first phase of the fiduciary rule.

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