Real Estate and Taxes — Don’t Pay Too Much

No one wants to pay more taxes than necessary.  In fact, there is a quote I ran across from Judge Learned Hand (philosopher and US Court Judge) that says “Anyone may arrange his affairs so that his taxes shall be as low as possible…..for nobody owes any public duty to pay more than the law demands.”   Although Judge Hand was referring to income taxes, the concept can reasonably be expanded to all taxes.

There are several areas where real estate and taxes overlap.   One area is property taxes — the taxes paid to local governments based on the assessed value of the property.   In Colorado, property is generally reassessed every two years.   Notices are sent out with the revised values and the timeframes for appeals.   The appeal process is pretty straightforward — owners may submit alternative comparable properties to support a revised (hopefully lower) value.   Counties use an automated system for identifying comparable properties that does not always come up with the most similar properties.   This is particularly true of properties not in big subdivisions.  If you can find 3 properties that support a lower valuation, you may be able to save some money on your property taxes for a couple of years.   We have had many clients that have successfully appealed their valuation.

Another area where real estate and taxes come together is on properties that have been sold through a short sale or foreclosure proceedings.   A previous post on this issue has the details but the bottom line is act this year if this situation may be something you are facing.   Right now there is no tax on any debt forgiven but this exemption expires the end of 2012 (unless Congress takes further action).

The sale of investment property can result in a taxable gain.   It is possible to defer the taxes if the money is reinvested in similar property through a section 1031 exchange.   There are rules about the timing of the exchange (days until the new property is identified, days to close, etc) and how the proceeds can be held until the “new” investment is made but it is a well established process and there escrow companies that specialize in assisting with these types of transactions.

If you have questions about any of these issues, give me a call at 303-402-6000 or email me at karenb@bernardirealestate.com

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