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It may seem natural for home buyers and sellers to come to you with questions about how recent changes in the federal tax code will affect their transactions. But resist the temptation to offer advice outside your expertise as a real estate professional. Even if you’re confident you can provide answers, direct your clients to speak with a tax professional about their concerns. It will minimize your risk of offering inaccurate or incomplete information—which can burn bridges with your customers.
You can confirm details of the tax law, but don’t weigh in on how it affects a client’s particular tax situation, says Forrest Baumhover, a tax expert and certified financial planner with Tampa, Fla.–based Westchase Financial Planning. “As long as you understand the difference between being helpful and giving tax advice, you’ll be all right,” he says. “Discussing tax concepts you’ve learned through professional training is perfectly acceptable. But refrain from giving specific advice or trying to help a customer make calculations. That would start to fall under tax advice.”
“Every agent should have a stable of experts—a financial planner, a certified public accountant, an attorney—not just for closings but for family, finance, and estate law specialties as well,” says Leigh Brown, ABR, CRS, broker-owner of RE/MAX Executive Realty in Charlotte, N.C. “You rely on these experts to guide your clients when you can’t.” Brown says she has seen a recent spike in buyers relocating from high-tax states such as Massachusetts, New Jersey, and New York.
Indeed, newly enacted limitations on deductions for state and local income and property taxes, as well as for mortgage interest, is causing some buyers and sellers, particularly in high-tax states, to rethink their next move. Jim Kinney, ABR, GRI, associate broker at Baird & Warner in Chicago, has seen more clients clamoring to leave Illinois and escape its high taxes. “Even before the changes in the tax law, I was dealing with a huge number of wealthy clients either selling and leaving Illinois or taking residency in another state,” he says. “That has only accelerated. I have already seen clients dumping second homes and shying away from bigger-ticket properties.”
During the tax debate, the National Association of REALTORS® was able to secure substantial wins for residential and commercial real estate, including retention of the rules for the exclusion of capital gain on the sale of a principal residence and preservation of 1031 like-kind exchanges for commercial property owners.
But the work continues; NAR is now advocating to restore financial incentives of homeownership that were reduced or lost in the legislation. “The tax law fundamentally alters the benefits of homeownership by nullifying incentives for individuals and families,” NAR President Elizabeth Mendenhall said after the law was enacted. “That should concern any middle-class family looking to claim their piece of the American dream. We will look for opportunities to improve the tax landscape for homeowners.”
Let your clients know that REALTORS® are working on their behalf in Congress, but don’t engage in “crystal ball talk” with them about the law’s long-term ramifications or potential for change, says Iona Harrison, GRI, senior vice president of Pioneer Realty Inc. in Upper Marlboro, Md., and immediate past chair of NAR’s Federal Taxation Committee. And don’t interject your opinions to save a deal; let clients come to their own conclusions based on their situation. Harrison suggests helping them make a list of their tax questions so they can be prepared to talk with a tax adviser. Those questions might include:
- If I’m a first-time home buyer, will my tax cuts be large enough to put toward a down payment?
- Is the new tax law going to change lenders’ credit standards for approving a mortgage?
- What tax deductions will I be able to qualify for as a homeowner?
- Do I need to itemize deductions anymore?
The exercise of writing down questions may help calm clients’ worries about the tax law changes. If you’re the one who’s worried, remember that tax ramifications are just one factor in a home sale or purchase decision. “People buy and sell houses for a variety of reasons,” Harrison says. “If you need more house because you’re having twins, that need isn’t going to change. And you won’t hold off on retiring and downsizing just because of taxes.”
