Since homes often represent clients' biggest asset and area of expense, financial advisors and tax professionals can help homeowners unlock savings and income in their own backyards.
The five tax strategies collected in the roundup below come courtesy of interviews with Sam Petrucci, the head of advice, planning and fiduciary services for New York-based
The strategies they suggest each carry their own potential caveats and downsides for some clients. They also show why the ideas extend far beyond
Taxes play "a key part" in any kind of real estate investing, Clement said.
"A lot of people get into real estate to make more income, but what we realize is it's not how much you gain, it's how much you keep," he said.
On the surface, the lower levels of itemization for deductions in areas like mortgage interest,
Just as
The
"Financial advisors should be educated on all of these issues so that they can speak intellectually with their clients about major complications as they contemplate moving to a new state," he said.
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Establishing a new residence
When leaving a high-tax jurisdiction like New York, buying a home in a new state and relocating there is just the starting point for getting the lower rates.
Clients need to establish residency to avoid extra tax burdens in their former state. To do so they should adjust their estate plans, voter registrations and car records; enroll their children in a local school; find new, local doctors; join clubs in their adopted area; and ship their most valuable jewelry or other household items to their new home, according to Petrucci. In addition, they'll need to be "really mindful" of the amount of time they spend in their old state while "keeping accurate records" to back up those figures, he said.
"New York can
Property tax deduction
On the other hand, some states that have lower income taxes may collect higher property taxes. The cap of up to $10,000 in federal deductions for state or local taxes under the Tax Cuts and Jobs Act reduced the potential exemptions for clients, but it didn't wipe them away entirely, Clement noted.
Based on "all of my conversations with CPAs and tax attorneys over the past 15 years," the possible exemption for property taxes "is one of the most overlooked deductions," he said. "That's a big deduction for people."
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Qualified personal residence trust
For those looking past yearly bills into the long-term future of an estate, a
"It's an elegant way to transfer real estate down to the next generation in an efficient manner for tax and gift purposes," Petrucci said.
House hacking
"
"It's a popular concept that's growing quickly, especially in the Airbnb economy. People have been using this term in the real estate investing space for the last five or six years," he said. "Your tenants are paying your portion of the mortgage and, as a real estate investment property, you're able to get all of those deductions that are attractive to real estate investors."
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Home office deduction
Exemptions for the cost of expenses
"For many people in this hybrid work environment, their home office would work," he said.