Real Estate Sales: Six Tax-Intelligent Questions to Ask Your Clients

Jennifer Milligan, CFP® 
Strojny Financial Services 

Tax-Intelligent Financial Professionals know real estate sales can create a variety of tax consequences. Unfortunately, many tax filers aren't aware of these complexities and may simply tell their financial or tax professional “I sold real estate this year.”  

To make matters more complicated, there are many types of transactions - personal residence, rentals, commercial property, inherited property, gifted property, raw land and installment sales - and each comes with its own intricacies. 

So, how can you easily get the information you need to accurately calculate your client’s potential tax burden associated with real estate sales? Financial advisor and tax professional Jennifer Milligan has found success at Strojny Financial Services by asking their clients the following questions, which even allows members of their support staff to get started without waiting on a senior advisor. 

1. How did you acquire the property?   
    
2. If you purchased the property, we need the purchase date and amount paid for the property. If you have the first two pages of the settlement statement showing the borrower or seller transactions, that is very helpful. 
3. If you inherited the property, we need to know if you were on title prior to the death of the original owner, the approximate date you were added to the title and the purchase price paid by the original owner.  
    
4. Did the property pass through a trust or estate? If so, we need to get in touch with the trustee or tax advisor who will be preparing those returns to find out what information will be on the K1. 
    
5. Were you added to the title after the property passed through probate or through a life estate? If so, we need to know the original owner’s date of death and the fair market value of the property at that date of death, unless the property was sold within six months of the date of death. 
    
6. What were the sales date, sales price and closing costs? This is usually included on the first two pages of the settlement statement showing the borrower or seller transactions. 
    
7. Was the property ever used as a rental or business property? If another financial or tax professional prepared your prior year’s tax return, we will need the depreciation schedule on the property.   
    
8. Was the property used as your primary residence at any point? If yes, please let us know the time frame. 

Once you gather this information from your client, you can run projections and let them know how much they will need to set aside for taxes, and whether they need to pay estimated taxes on the sale. Now that’s tax intelligent!