Of all the dates accountants and their clients face in the upcoming weeks and months, Oct. 15 may be the kindest. Not only is it the date when those who filed for an extension must submit proper tax forms, it’s also two months removed from three other looming deadlines that could prove to be fiscal headaches for real estate investors.
Then there’s the presidential election itself, with each nominee providing a different tax scenario should he be elected into office. To be sure, the terrain for accountants is murky at best.
“The tax situation is very unsettled,” said Jerry Glassman, a partner at Holtz Rubenstein Reminick. “It’s very hard for a tax professional to do tax planning next year for a client. We don’t know what the law is going to be.”
If President Obama is reelected, the tax cuts enacted by President Bush more than a decade ago—both the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003—will expire, many tax professionals believe.
“I think if Obama is reelected, I think the tax cuts will expire,” said Mr. Glassman “If Romney is elected, I think it’s going to expire for sure, but he won’t be able to take it up until next year, and may try to make any changes [to the code] retroactively,” he added.
The cuts were given a two-year extension in 2010 as part of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act. With that extension set to expire in 2012, accountants are advising real estate owners and professionals to take advantage of more favorable tax rates. That may include expediting a sale of a building before 2012 rolls around.
“If your building closed on Jan. 5  versus Dec. 25 , you may pay 10 percent more in taxes on that same building just because there was a 10-day difference,” said Robert Gilman, a partner and a co-chair of the real estate practice at Anchin, Block & Anchin LLP.
A client of Mr. Gilman’s, a building owner in New Jersey, worked quickly to sell a residential property before the end of 2012. It was a tricky scenario that had to be played out given the uncertain tax picture in 2012. “You have to make decisions knowing there is an uncertainty: so are you going to rush out a sale of a building, maybe get a little bit less money, to save a significant amount of money next year?” Mr. Gilman asked.
The gift tax limitation is another benefit that will become a looming issue once it expires on Dec. 31. Until now, an individual could make a $5 million gift tax free (otherwise known as the “Lifetime Gift Tax Exemption”). As that is set to end by 2012, accountants are pushing their clients to give cash, or in some instances property, before the close of the year.
“Gifting property would somehow be taking advantage of the higher exemption this year that may not be available next year or ever again,” said Mr. Glassman.
One new tax development that will prove to be unavoidable is President Obama’s healthcare initiative, which will put forth a 3.8 percent Medicare tax that will affect everyone.
“It’s 3.8 [percent] on unearned income, which means it’s going to hit you on your dividends, your capital gains, your interest income,” said Marc Wieder, a partner and a co-chair of the real estate services group at Anchin, Block & Anchin LLP.
“There can be significant changes next year,” he added, “and it’s just not so easy to plan for it.”