Real Estate Is Taxing

Welcome to Real Estate is Taxing, where
we talk about all things real estate

tax and break down complex concepts into
understandable, entertaining tax topics.

My name is Natalie Kalady, I'm
your host, and I am so excited

that you've decided to join me.

Hey guys, welcome to today's episode.

If, as you're listening to
this, you are thinking, man, I

really need to submit my taxes.

I am very much hoping that
you filed a tax extension.

That's what we're going
to talk about today.

I want to chat with you guys about
what an extension is, what it isn't

and a handful of reasons why you
might need to file one or why filing

one could be beneficial for you.

Miss episode was actually inspired
by a Facebook post I saw last week.

Another tax professional posted.

And they said outside of the
client needing more time.

Like they're waiting on a document or
they're finishing up their bookkeeping.

Outside of that.

I can't think of any good
reason to file an extension.

Can you.

And the answer is, yeah, I can
actually think of a few good reasons.

So I would like to dedicate this
episode to that tax professional.

But I'm also hoping you guys will
learn something cool as well.

So what is, and what isn't an extension.

An extension is an extension
to file your taxes.

It's not an extension
to pay any tax you owe.

So if you need more time to submit
your tax return, this is the way to go.

If you think you might owe taxes for
the year, you do still need to make an

estimated tax payment before April 15th.

To get an extension.

There's two ways you can do this.

You can file form 48 68.

You can also effectively get an
extension by going to the IRS website.

And submitting an extension tax payment.

Either of these two, we'll
get you an extension.

Uh, tax extension gives you an
extra six months from the original

due date to file your taxes.

So for your personal tax return,
that is normally due on April 15th.

This will bump out that
due date till October 15th.

Like with anything, there's
always some potential downside.

The big one here is that it also extends
the look back period for an auditor.

They can typically look back
three years as a starting point.

So if instead of that cutoff
being April of the current year,

we bumped it out to October.

We're giving them that extra
six month window as well.

So that's the biggest downside I
hear in relation to an extension.

But

There's a lot of good things.

And a lot of reasons you
might need an extension.

The first and most common reason.

Is your shit's just not together yet.

That's okay.

April comes really quick,
especially after the holidays.

If you're still working on
your bookkeeping, you are

still waiting on forms.

You're sorting through receipts, whatever
the reason, if you just need more time.

That's what an extension is for.

It'll give you that extra six months.

We are seeing more and more people
who are needing an extension

because they're missing forms.

if you invest in a syndication,
anything where you're getting a K one.

There's a good chance.

You will not be getting that
form until after April 15th.

So in that case, you have no
option, but to file an extension.

And my advice is to let your tax
professional know ahead of time.

Right.

If you know your taxes can't
be finished until June.

Then telling your accountant
upfront, Hey, don't crunch to

get my return done in January.

I won't have everything till June.

That's going to make things run a lot
more smoothly and there's not going to

be back and forth and half done things
and waiting on one more document.

It'll make you their favorite client.

If you can openly communicate
that and give them a date,

you expect to have everything.

And they'll help you make
an estimated payment.

If you need to.

And then, you know, there's no chance of
it getting done by April 15th because you

won't even have all of your documents yet.

That's the most common reason
people file an extension.

It's just for needing more time.

There's several other reasons that
aren't thought about as often.

But can give you a really good
opportunity in terms of tax planning

or where they might need to happen
because of other circumstances.

One of the more common ones.

Is just having additional time
to fund some retirement accounts.

There are retirement accounts where
the date to contribute is the tax

return due date, including extensions.

So, if you're trying to figure out
how much you want to contribute, how

much money you made for the year,
you're finishing up your books.

You're trying to get all
of your final numbers.

Having that extra cushion of an
extra six months to decide that

and nail it down and figure out
how much you want to contribute.

Can be really nice.

The next reason that you
might need an extension.

Comes up from doing a 10 31 exchange.

Uh, 10 31 exchange lets
you effectively sell.

A piece of real estate has to be
some kind of investment asset.

And you get to defer that gain.

As long as you purchase a
qualifying replacement property.

There are timelines that are required
to complete this transaction.

The window for closing on that
replacement property is 180 days

from when you start this exchange.

So it is not uncommon that an
exchange will straddle two years.

If you didn't sell the first property
until December, there's a chance

you won't close on the replacement
property before April 15th.

In that case, you will
have to file an extension.

When you do a 10 31 exchange.

You have to report the entire
exchange on the tax return, where

the original property was sold.

So if you sold a property in 2023
and completed the 10 31 exchange

in 2024, but it didn't finish.

You didn't close on that replacement
property till April 20th.

You would have to extend because
you would need all of that

information on the new property.

To finalize your 2023 taxes.

So if you are doing a 10 31 exchange
that falls across two calendar years.

There is a good chance.

You'll need to file an extension because
you need all of the information from

the property you're selling as well as
the one or more properties you acquire.

To be on the return for the year
you sold that original property.

So you might need a
little bit of extra time.

The next reasons to consider
a tax return extension.

Relate a little more to tax
planning and tax strategy.

If you are either a real estate
professional or you're doing

the short-term rental loophole.

Or you just have a reason to
generate some passive losses

with your real estate this year.

If you are doing a cost segregation study.

To allow some of the components of your
property to be pushed into shorter lives.

Giving you a bigger tax write off.

Having an extension
can give you more time.

To look at what year this works better in.

Let me explain.

If you do a cost segregation
study on a property.

Later than the year in
which it's acquired.

There's a good chance.

You will have to file form 31 15.

This is a change of accounting method.

This is how you're telling the IRS.

Hey, I was depreciating a whole ass
house, and now I'm going to depreciate a

house, but also some carpet and some land
improvements and a bunch of other stuff.

So it is with that form.

You are allowed to file form 31
15 on any timely filed tax return.

So that's a return filed by April 15th.

Or by October 15th, if
you submit an extension.

You cannot submit form 31 15
on an, on an amended return.

In most cases.

So if you're looking at this and
you're trying to decide if you

should do a cost segregation.

For this year or the next year.

Knowing that you will have to file form 31
15 in the year that you submit this study.

And in the year that you submit this.

That is when you get to take
this large write-off for these

accelerated depreciation items
or for bonus depreciation.

Having an extension in place.

Means that instead of
having to decide by April.

If having a cost segregation on
this year's return or next year's

will be more beneficial for you.

You now have until October to decide.

So you have now made it through
most of the next tax year.

Before you have to decide if you
should be doing a cost segregation

study on your current year tax return
or your next year's tax return.

By waiting until October and making
it through most of that second year.

You can look side by side.

At your income for both years
and you can really determine.

During which year would
having this large write-off.

More greatly benefit you.

So don't jump the gun
and just do a cost SEG.

Don't think about it.

Submit it with your return.

Put an extension in place.

Look at the numbers for both years.

You can do a cost segregation at
any point until your tax return is

submitted, including extensions.

So it really gives you a great
planning opportunity to get to look at.

Three quarters of the next tax
year before making this decision.

The final reason.

That an extension for your taxes.

Can be helpful.

Is that it gives you more time to submit
what is known as a superseded tax return.

Versus an amended return.

Let me explain.

Uh, superseded tax return.

Is any tax return that you resubmit
before that filing deadline?

So, if you filed your taxes
February 1st, you were, you

know, on it, you're on the ball.

You're getting them turned in.

And then March 1st you receive another tax
form that you forgot you were waiting for.

If you resubmit your taxes as a
superseded return, you're just sending

in a new 10 40 before the deadline.

What happens is that superseded tax
return replaces the original one.

It's like that original one doesn't exist.

It gets bumped out of there
and replaced with the new one.

The differences and amended return.

That original return still exists.

You are just saying, whoops,
I need to make a change to it.

And they have record of both.

Both of those things are in your file.

If you file an extension.

You now have a window out until October.

Where you can file a
superseded tax return.

Now what you might be
thinking is why do I care?

The reason is there are certain elections
and certain things that can only be

changed on an originally filed tax return.

There are certain things that you
cannot change with an amendment.

So if you filed your tax return
February 1st, You are jumping the

gun, you got everything in there.

And then later you realized that
there's something related to your

taxes, where there's a certain
election that could benefit you.

If you have an extension in place.

Even if you don't need it, right.

You're planning to submit in
February, you are very organized.

But if June comes around and you
meet with your tax professional

and you guys realize, oh, this
would be such a huge benefit.

There are certain things that you
can submit on a superseded return

that you can't with the amended.

If this is one of those things, you
now have all of that time to find

it and resubmit your tax return.

This gives you a huge window of time.

Where you can send in a new one
with that credit, with whatever

it is that's going to benefit you.

It is going to bump out
that original tax return.

It just replaces it.

The IRS sets it on fire.

We pretend it never existed.

And you can just treat that new
one as an originally filed return.

If you hadn't filed.

An extension, right?

If you just said I'm filing in
February, why would I need one?

Gonna just go ahead and submit.

And then in June you found that you
missed that election and you wanted

to send an amended return because
now we're, after the deadline,

you didn't extend your deadline.

You're just sending in
a change to your return.

You won't be able to, you will
not be able to make certain

changes using an amended return.

So if you are in a year, Where there
are new circumstances on your taxes.

Or where there is pending tax
legislation that might change.

Or where you just want a
little more time for planning.

Having an extension in place
just gives you more time.

What I like to tell people is
a tax extension is basically

the condom of the tax world.

It's better to have it and not need it.

Then to find out you need
it and you don't have it.

So.

That's the whole deal with extensions.

There's a lot of reasons
you might need one.

And several of them relate to giving
you tax planning opportunities and

getting to look at the big picture.

If you file an extension and don't end
up using it, if you file an extension,

but you still submit before April 15th.

No one comes and kicks you.

There's no penalty for doing that.

You're not in trouble.

You are allowed to do that

So I hope this helped you guys.

I hope you've got a better insight
to what a tax extension is and some

ideas for when and how you could use
one in your own tax circumstances.

As always, I hope that you found this
show helpful, but remember, before

you do anything that we talk about,
make sure you talk with your tax

professional, because while I'm a tax
strategist, I am not your tax strategist.

As always, I hope you will
subscribe and come back and I

will talk to everyone next week.