The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful.
When structuring real estate investments, navigating the tax code and structuring deals will nearly be as complicated as your investment decisions themselves. Paying close attention to capital gains tax, income tax, and 1031 are a natural part of the real estate investment process. It’s important to keep on top of any tax changes that may be taking place to ensure your deals are structured correctly for maximum benefit.
Richard Wilson: What areas of the tax code are you navigating most often when it comes to structuring real estate investments? Are there 5-7 things, or 10 things, or just 1 or 2 you’re really focused on?
Ben Marks: It’s really I’d say 2 or 3. Obviously we always have a very keen eye on capital gains taxes. Under the Biden plan looks to be, appears to be he’s going to be president we’ll find out soon enough for sure, but it certainly look like there’s going to be some potential tax changes and again depending on how the senate race comes out in Georgia, we may or may not see significant increases that are proposed under the Biden plan on capital gains. We try to run things, and we’re very fortunate to be able to run our companies so even though they’re all positively cash flow we buy them right and we structure it so that most of them depreciate out. So I like to joke that any time we get close to having to pay income taxes on cash flow we buy another building and add depreciation and reset the clock. So we tend to keep a very close eye on number one capital gains, number two on income. And I’d say a very important not too distant third is 1031 and how that fits into estate planning. So for the other family offices and brokers listening when you add in all of these layers on top of each other, I don’t want to say it’s rocket science, but you certainly need a lot of folks smarter than me to properly sort of navigate the difference between, you know, year to year taxes, capital gains taxes, 1031, what you’re going to be doing with legacy proceeds and all that, and it’s almost as time consuming and as difficult as the actual investing into real estate. So that’s what we’re spending quite a bit of time on.
Richard: Right, right.