NOTE: I wrote this post in 2014, so be aware of its age.
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A professional in my network of contacts recently asked if I could help one of his clients. His client had sold some property for a large gain and was facing a tax bill of tens of thousands of dollars. According the professional, the client’s current CPA “had no suggestions” on how to make the tax hit go away, so he was hoping I could help.
It turns out, as it so often does with things like this, that the current accountant wasn’t an idiot, and I couldn’t do much to help either.
Why? Because this was in early May 2014, and the property in question had been sold in 2013.
Contrary to popular belief, there’s no magic that any accountant or tax preparer can work after something has been done, especially if the year has ended.
In this person’s case, he may have qualified for a 1031 exchange, but in order for a valid exchange to happen, the replacement property must be identified within 45 days of the sale of the old property. Since the sale happened in 2013 and it was now May 2014, that wasn’t an option. (NOTE: you also must meet other requirements, such as having a qualified intermediary in order to do a 1031 exchange; again, something you need to arrange BEFORE you sell the property, not after.)
And since the year had ended, things like selling other properties at a loss weren’t an option either.
Your accountant is not a magician. If you do something without asking for advice beforehand, and you end up with a big tax bill, and your accountant says there’s nothing that can be done … your accountant is saying that BECAUSE IT’S TRUE, NOT BECAUSE HE’S AN IDIOT.
The point is: the time to ask for tax advice about something that will generate a massive tax bill is beforehand, not afterwards.