WEBVTT NOTE This file was generated by Descript 00:00:08.209 --> 00:00:11.840 Welcome to Real Estate is Taxing, where we talk about all things real estate 00:00:11.870 --> 00:00:16.869 tax and break down complex concepts into understandable, entertaining tax topics. 00:00:17.440 --> 00:00:21.259 My name is Natalie Kalady, I'm your host, and I am so excited 00:00:21.259 --> 00:00:22.670 that you've decided to join me. 00:00:23.312 --> 00:00:25.232 Hey guys, welcome to today's episode. 00:00:26.102 --> 00:00:28.802 If, as you're listening to this, you are thinking, man, I 00:00:28.802 --> 00:00:30.602 really need to submit my taxes. 00:00:31.082 --> 00:00:34.142 I am very much hoping that you filed a tax extension. 00:00:34.712 --> 00:00:36.332 That's what we're going to talk about today. 00:00:36.842 --> 00:00:41.222 I want to chat with you guys about what an extension is, what it isn't 00:00:41.462 --> 00:00:45.812 and a handful of reasons why you might need to file one or why filing 00:00:45.812 --> 00:00:48.242 one could be beneficial for you. 00:00:49.172 --> 00:00:53.522 Miss episode was actually inspired by a Facebook post I saw last week. 00:00:54.122 --> 00:00:56.042 Another tax professional posted. 00:00:56.312 --> 00:00:59.192 And they said outside of the client needing more time. 00:00:59.372 --> 00:01:02.762 Like they're waiting on a document or they're finishing up their bookkeeping. 00:01:03.302 --> 00:01:04.202 Outside of that. 00:01:04.202 --> 00:01:07.322 I can't think of any good reason to file an extension. 00:01:07.322 --> 00:01:07.952 Can you. 00:01:08.672 --> 00:01:12.692 And the answer is, yeah, I can actually think of a few good reasons. 00:01:13.262 --> 00:01:17.462 So I would like to dedicate this episode to that tax professional. 00:01:17.882 --> 00:01:20.612 But I'm also hoping you guys will learn something cool as well. 00:01:21.362 --> 00:01:23.912 So what is, and what isn't an extension. 00:01:24.392 --> 00:01:27.842 An extension is an extension to file your taxes. 00:01:28.112 --> 00:01:30.572 It's not an extension to pay any tax you owe. 00:01:31.052 --> 00:01:35.432 So if you need more time to submit your tax return, this is the way to go. 00:01:36.152 --> 00:01:40.562 If you think you might owe taxes for the year, you do still need to make an 00:01:40.562 --> 00:01:43.712 estimated tax payment before April 15th. 00:01:45.182 --> 00:01:46.442 To get an extension. 00:01:46.472 --> 00:01:48.182 There's two ways you can do this. 00:01:48.452 --> 00:01:50.732 You can file form 48 68. 00:01:51.242 --> 00:01:55.352 You can also effectively get an extension by going to the IRS website. 00:01:55.742 --> 00:01:57.992 And submitting an extension tax payment. 00:01:58.652 --> 00:02:00.932 Either of these two, we'll get you an extension. 00:02:02.402 --> 00:02:06.002 Uh, tax extension gives you an extra six months from the original 00:02:06.002 --> 00:02:07.652 due date to file your taxes. 00:02:08.342 --> 00:02:12.512 So for your personal tax return, that is normally due on April 15th. 00:02:12.962 --> 00:02:15.902 This will bump out that due date till October 15th. 00:02:17.222 --> 00:02:20.252 Like with anything, there's always some potential downside. 00:02:20.672 --> 00:02:25.502 The big one here is that it also extends the look back period for an auditor. 00:02:25.862 --> 00:02:28.712 They can typically look back three years as a starting point. 00:02:29.162 --> 00:02:32.072 So if instead of that cutoff being April of the current year, 00:02:32.102 --> 00:02:33.602 we bumped it out to October. 00:02:34.112 --> 00:02:36.632 We're giving them that extra six month window as well. 00:02:37.412 --> 00:02:41.462 So that's the biggest downside I hear in relation to an extension. 00:02:41.592 --> 00:02:41.982 But 00:02:42.202 --> 00:02:43.252 There's a lot of good things. 00:02:43.252 --> 00:02:45.292 And a lot of reasons you might need an extension. 00:02:45.982 --> 00:02:47.932 The first and most common reason. 00:02:48.622 --> 00:02:50.752 Is your shit's just not together yet. 00:02:50.902 --> 00:02:51.892 That's okay. 00:02:51.982 --> 00:02:55.522 April comes really quick, especially after the holidays. 00:02:56.362 --> 00:02:58.802 If you're still working on your bookkeeping, you are 00:02:58.802 --> 00:03:00.272 still waiting on forms. 00:03:00.482 --> 00:03:04.982 You're sorting through receipts, whatever the reason, if you just need more time. 00:03:05.402 --> 00:03:07.202 That's what an extension is for. 00:03:07.652 --> 00:03:09.512 It'll give you that extra six months. 00:03:10.412 --> 00:03:13.442 We are seeing more and more people who are needing an extension 00:03:13.442 --> 00:03:14.912 because they're missing forms. 00:03:15.282 --> 00:03:19.242 if you invest in a syndication, anything where you're getting a K one. 00:03:19.572 --> 00:03:20.562 There's a good chance. 00:03:20.562 --> 00:03:23.382 You will not be getting that form until after April 15th. 00:03:23.832 --> 00:03:27.282 So in that case, you have no option, but to file an extension. 00:03:27.852 --> 00:03:31.572 And my advice is to let your tax professional know ahead of time. 00:03:31.819 --> 00:03:32.149 Right. 00:03:32.149 --> 00:03:35.899 If you know your taxes can't be finished until June. 00:03:36.469 --> 00:03:39.439 Then telling your accountant upfront, Hey, don't crunch to 00:03:39.439 --> 00:03:41.089 get my return done in January. 00:03:41.509 --> 00:03:43.219 I won't have everything till June. 00:03:43.669 --> 00:03:46.999 That's going to make things run a lot more smoothly and there's not going to 00:03:46.999 --> 00:03:50.869 be back and forth and half done things and waiting on one more document. 00:03:51.529 --> 00:03:53.059 It'll make you their favorite client. 00:03:53.059 --> 00:03:55.819 If you can openly communicate that and give them a date, 00:03:55.819 --> 00:03:57.259 you expect to have everything. 00:03:57.799 --> 00:03:59.509 And they'll help you make an estimated payment. 00:03:59.509 --> 00:04:00.379 If you need to. 00:04:00.949 --> 00:04:04.849 And then, you know, there's no chance of it getting done by April 15th because you 00:04:04.849 --> 00:04:06.469 won't even have all of your documents yet. 00:04:07.639 --> 00:04:10.669 That's the most common reason people file an extension. 00:04:11.149 --> 00:04:12.439 It's just for needing more time. 00:04:13.639 --> 00:04:16.969 There's several other reasons that aren't thought about as often. 00:04:17.416 --> 00:04:21.076 But can give you a really good opportunity in terms of tax planning 00:04:21.586 --> 00:04:24.556 or where they might need to happen because of other circumstances. 00:04:25.846 --> 00:04:27.316 One of the more common ones. 00:04:27.826 --> 00:04:31.816 Is just having additional time to fund some retirement accounts. 00:04:32.716 --> 00:04:36.226 There are retirement accounts where the date to contribute is the tax 00:04:36.226 --> 00:04:38.386 return due date, including extensions. 00:04:39.106 --> 00:04:42.856 So, if you're trying to figure out how much you want to contribute, how 00:04:42.856 --> 00:04:45.676 much money you made for the year, you're finishing up your books. 00:04:45.676 --> 00:04:47.836 You're trying to get all of your final numbers. 00:04:48.316 --> 00:04:51.946 Having that extra cushion of an extra six months to decide that 00:04:51.946 --> 00:04:54.886 and nail it down and figure out how much you want to contribute. 00:04:55.336 --> 00:04:56.506 Can be really nice. 00:04:57.256 --> 00:05:00.796 The next reason that you might need an extension. 00:05:01.396 --> 00:05:03.796 Comes up from doing a 10 31 exchange. 00:05:04.426 --> 00:05:07.546 Uh, 10 31 exchange lets you effectively sell. 00:05:08.236 --> 00:05:11.476 A piece of real estate has to be some kind of investment asset. 00:05:11.956 --> 00:05:13.816 And you get to defer that gain. 00:05:14.176 --> 00:05:17.626 As long as you purchase a qualifying replacement property. 00:05:18.196 --> 00:05:21.856 There are timelines that are required to complete this transaction. 00:05:22.392 --> 00:05:26.442 The window for closing on that replacement property is 180 days 00:05:26.442 --> 00:05:28.062 from when you start this exchange. 00:05:28.722 --> 00:05:33.042 So it is not uncommon that an exchange will straddle two years. 00:05:33.612 --> 00:05:37.812 If you didn't sell the first property until December, there's a chance 00:05:37.812 --> 00:05:41.472 you won't close on the replacement property before April 15th. 00:05:42.102 --> 00:05:45.072 In that case, you will have to file an extension. 00:05:45.792 --> 00:05:48.132 When you do a 10 31 exchange. 00:05:48.672 --> 00:05:53.262 You have to report the entire exchange on the tax return, where 00:05:53.262 --> 00:05:55.302 the original property was sold. 00:05:55.782 --> 00:06:00.942 So if you sold a property in 2023 and completed the 10 31 exchange 00:06:00.972 --> 00:06:03.732 in 2024, but it didn't finish. 00:06:03.732 --> 00:06:06.822 You didn't close on that replacement property till April 20th. 00:06:07.392 --> 00:06:10.272 You would have to extend because you would need all of that 00:06:10.272 --> 00:06:12.132 information on the new property. 00:06:12.702 --> 00:06:15.402 To finalize your 2023 taxes. 00:06:16.752 --> 00:06:22.092 So if you are doing a 10 31 exchange that falls across two calendar years. 00:06:22.572 --> 00:06:23.502 There is a good chance. 00:06:23.502 --> 00:06:28.242 You'll need to file an extension because you need all of the information from 00:06:28.242 --> 00:06:32.322 the property you're selling as well as the one or more properties you acquire. 00:06:32.922 --> 00:06:37.272 To be on the return for the year you sold that original property. 00:06:37.812 --> 00:06:40.032 So you might need a little bit of extra time. 00:06:40.782 --> 00:06:44.952 The next reasons to consider a tax return extension. 00:06:45.492 --> 00:06:49.062 Relate a little more to tax planning and tax strategy. 00:06:49.812 --> 00:06:54.012 If you are either a real estate professional or you're doing 00:06:54.012 --> 00:06:55.632 the short-term rental loophole. 00:06:56.352 --> 00:07:00.732 Or you just have a reason to generate some passive losses 00:07:00.732 --> 00:07:02.202 with your real estate this year. 00:07:02.832 --> 00:07:05.532 If you are doing a cost segregation study. 00:07:06.102 --> 00:07:10.962 To allow some of the components of your property to be pushed into shorter lives. 00:07:11.502 --> 00:07:13.362 Giving you a bigger tax write off. 00:07:14.112 --> 00:07:16.962 Having an extension can give you more time. 00:07:17.412 --> 00:07:20.652 To look at what year this works better in. 00:07:21.342 --> 00:07:22.152 Let me explain. 00:07:23.502 --> 00:07:26.562 If you do a cost segregation study on a property. 00:07:27.372 --> 00:07:29.712 Later than the year in which it's acquired. 00:07:30.342 --> 00:07:31.272 There's a good chance. 00:07:31.302 --> 00:07:33.762 You will have to file form 31 15. 00:07:34.242 --> 00:07:35.862 This is a change of accounting method. 00:07:35.862 --> 00:07:37.992 This is how you're telling the IRS. 00:07:37.992 --> 00:07:41.482 Hey, I was depreciating a whole ass house, and now I'm going to depreciate a 00:07:41.482 --> 00:07:46.362 house, but also some carpet and some land improvements and a bunch of other stuff. 00:07:47.322 --> 00:07:48.882 So it is with that form. 00:07:49.632 --> 00:07:54.762 You are allowed to file form 31 15 on any timely filed tax return. 00:07:54.972 --> 00:07:57.552 So that's a return filed by April 15th. 00:07:58.062 --> 00:08:01.962 Or by October 15th, if you submit an extension. 00:08:03.102 --> 00:08:07.872 You cannot submit form 31 15 on an, on an amended return. 00:08:07.872 --> 00:08:09.042 In most cases. 00:08:10.002 --> 00:08:13.212 So if you're looking at this and you're trying to decide if you 00:08:13.212 --> 00:08:14.712 should do a cost segregation. 00:08:15.042 --> 00:08:17.142 For this year or the next year. 00:08:17.592 --> 00:08:24.162 Knowing that you will have to file form 31 15 in the year that you submit this study. 00:08:24.732 --> 00:08:27.012 And in the year that you submit this. 00:08:27.642 --> 00:08:31.872 That is when you get to take this large write-off for these 00:08:31.872 --> 00:08:35.352 accelerated depreciation items or for bonus depreciation. 00:08:36.222 --> 00:08:38.082 Having an extension in place. 00:08:38.442 --> 00:08:41.202 Means that instead of having to decide by April. 00:08:41.892 --> 00:08:45.612 If having a cost segregation on this year's return or next year's 00:08:45.612 --> 00:08:47.392 will be more beneficial for you. 00:08:48.472 --> 00:08:51.202 You now have until October to decide. 00:08:51.652 --> 00:08:54.862 So you have now made it through most of the next tax year. 00:08:55.312 --> 00:08:59.302 Before you have to decide if you should be doing a cost segregation 00:08:59.302 --> 00:09:03.982 study on your current year tax return or your next year's tax return. 00:09:04.672 --> 00:09:08.692 By waiting until October and making it through most of that second year. 00:09:09.592 --> 00:09:11.392 You can look side by side. 00:09:11.872 --> 00:09:15.052 At your income for both years and you can really determine. 00:09:15.652 --> 00:09:18.922 During which year would having this large write-off. 00:09:19.372 --> 00:09:21.172 More greatly benefit you. 00:09:21.742 --> 00:09:25.102 So don't jump the gun and just do a cost SEG. 00:09:25.132 --> 00:09:26.122 Don't think about it. 00:09:26.122 --> 00:09:27.322 Submit it with your return. 00:09:28.072 --> 00:09:29.512 Put an extension in place. 00:09:29.932 --> 00:09:31.762 Look at the numbers for both years. 00:09:32.092 --> 00:09:36.742 You can do a cost segregation at any point until your tax return is 00:09:36.742 --> 00:09:39.142 submitted, including extensions. 00:09:39.772 --> 00:09:44.062 So it really gives you a great planning opportunity to get to look at. 00:09:44.392 --> 00:09:47.992 Three quarters of the next tax year before making this decision. 00:09:48.742 --> 00:09:50.152 The final reason. 00:09:50.346 --> 00:09:53.019 That an extension for your taxes. 00:09:53.196 --> 00:09:54.486 Can be helpful. 00:09:54.642 --> 00:09:59.862 Is that it gives you more time to submit what is known as a superseded tax return. 00:10:00.269 --> 00:10:01.919 Versus an amended return. 00:10:02.262 --> 00:10:03.042 Let me explain. 00:10:03.369 --> 00:10:04.989 Uh, superseded tax return. 00:10:05.409 --> 00:10:09.849 Is any tax return that you resubmit before that filing deadline? 00:10:10.179 --> 00:10:14.739 So, if you filed your taxes February 1st, you were, you 00:10:14.739 --> 00:10:16.119 know, on it, you're on the ball. 00:10:16.119 --> 00:10:17.289 You're getting them turned in. 00:10:17.582 --> 00:10:23.342 And then March 1st you receive another tax form that you forgot you were waiting for. 00:10:23.759 --> 00:10:28.326 If you resubmit your taxes as a superseded return, you're just sending 00:10:28.326 --> 00:10:30.366 in a new 10 40 before the deadline. 00:10:30.812 --> 00:10:36.056 What happens is that superseded tax return replaces the original one. 00:10:36.416 --> 00:10:38.516 It's like that original one doesn't exist. 00:10:38.516 --> 00:10:41.486 It gets bumped out of there and replaced with the new one. 00:10:41.779 --> 00:10:43.879 The differences and amended return. 00:10:44.156 --> 00:10:46.346 That original return still exists. 00:10:46.562 --> 00:10:49.832 You are just saying, whoops, I need to make a change to it. 00:10:50.042 --> 00:10:51.632 And they have record of both. 00:10:51.722 --> 00:10:53.462 Both of those things are in your file. 00:10:53.989 --> 00:10:55.669 If you file an extension. 00:10:55.929 --> 00:10:59.139 You now have a window out until October. 00:10:59.499 --> 00:11:02.649 Where you can file a superseded tax return. 00:11:02.886 --> 00:11:05.526 Now what you might be thinking is why do I care? 00:11:05.606 --> 00:11:10.646 The reason is there are certain elections and certain things that can only be 00:11:10.646 --> 00:11:14.136 changed on an originally filed tax return. 00:11:14.442 --> 00:11:17.922 There are certain things that you cannot change with an amendment. 00:11:18.272 --> 00:11:23.469 So if you filed your tax return February 1st, You are jumping the 00:11:23.469 --> 00:11:25.239 gun, you got everything in there. 00:11:25.239 --> 00:11:28.809 And then later you realized that there's something related to your 00:11:28.809 --> 00:11:32.169 taxes, where there's a certain election that could benefit you. 00:11:32.829 --> 00:11:34.929 If you have an extension in place. 00:11:35.589 --> 00:11:37.329 Even if you don't need it, right. 00:11:37.329 --> 00:11:40.539 You're planning to submit in February, you are very organized. 00:11:40.799 --> 00:11:44.909 But if June comes around and you meet with your tax professional 00:11:44.909 --> 00:11:48.209 and you guys realize, oh, this would be such a huge benefit. 00:11:48.622 --> 00:11:52.312 There are certain things that you can submit on a superseded return 00:11:52.372 --> 00:11:53.782 that you can't with the amended. 00:11:54.262 --> 00:11:58.552 If this is one of those things, you now have all of that time to find 00:11:58.552 --> 00:12:00.382 it and resubmit your tax return. 00:12:00.772 --> 00:12:02.782 This gives you a huge window of time. 00:12:03.042 --> 00:12:07.182 Where you can send in a new one with that credit, with whatever 00:12:07.182 --> 00:12:08.562 it is that's going to benefit you. 00:12:08.752 --> 00:12:11.482 It is going to bump out that original tax return. 00:12:11.542 --> 00:12:12.622 It just replaces it. 00:12:13.012 --> 00:12:14.422 The IRS sets it on fire. 00:12:14.422 --> 00:12:16.612 We pretend it never existed. 00:12:16.892 --> 00:12:21.062 And you can just treat that new one as an originally filed return. 00:12:21.269 --> 00:12:23.009 If you hadn't filed. 00:12:23.156 --> 00:12:24.446 An extension, right? 00:12:24.476 --> 00:12:27.446 If you just said I'm filing in February, why would I need one? 00:12:27.806 --> 00:12:29.306 Gonna just go ahead and submit. 00:12:29.416 --> 00:12:33.916 And then in June you found that you missed that election and you wanted 00:12:33.916 --> 00:12:37.156 to send an amended return because now we're, after the deadline, 00:12:37.186 --> 00:12:38.356 you didn't extend your deadline. 00:12:38.356 --> 00:12:40.456 You're just sending in a change to your return. 00:12:40.776 --> 00:12:43.476 You won't be able to, you will not be able to make certain 00:12:43.476 --> 00:12:45.649 changes using an amended return. 00:12:45.886 --> 00:12:50.699 So if you are in a year, Where there are new circumstances on your taxes. 00:12:51.149 --> 00:12:54.859 Or where there is pending tax legislation that might change. 00:12:55.066 --> 00:12:58.756 Or where you just want a little more time for planning. 00:12:59.002 --> 00:13:02.152 Having an extension in place just gives you more time. 00:13:02.406 --> 00:13:05.616 What I like to tell people is a tax extension is basically 00:13:05.616 --> 00:13:07.116 the condom of the tax world. 00:13:07.296 --> 00:13:09.396 It's better to have it and not need it. 00:13:09.696 --> 00:13:12.336 Then to find out you need it and you don't have it. 00:13:12.486 --> 00:13:12.996 So. 00:13:13.116 --> 00:13:14.796 That's the whole deal with extensions. 00:13:14.886 --> 00:13:17.346 There's a lot of reasons you might need one. 00:13:17.526 --> 00:13:21.906 And several of them relate to giving you tax planning opportunities and 00:13:21.936 --> 00:13:23.496 getting to look at the big picture. 00:13:23.732 --> 00:13:28.352 If you file an extension and don't end up using it, if you file an extension, 00:13:28.352 --> 00:13:30.872 but you still submit before April 15th. 00:13:31.382 --> 00:13:32.912 No one comes and kicks you. 00:13:32.972 --> 00:13:34.652 There's no penalty for doing that. 00:13:34.652 --> 00:13:35.522 You're not in trouble. 00:13:35.522 --> 00:13:36.872 You are allowed to do that 00:13:36.949 --> 00:13:38.539 So I hope this helped you guys. 00:13:38.539 --> 00:13:42.739 I hope you've got a better insight to what a tax extension is and some 00:13:42.739 --> 00:13:46.879 ideas for when and how you could use one in your own tax circumstances. 00:13:47.282 --> 00:13:51.272 As always, I hope that you found this show helpful, but remember, before 00:13:51.272 --> 00:13:55.292 you do anything that we talk about, make sure you talk with your tax 00:13:55.292 --> 00:14:00.092 professional, because while I'm a tax strategist, I am not your tax strategist. 00:14:00.422 --> 00:14:04.412 As always, I hope you will subscribe and come back and I 00:14:04.412 --> 00:14:06.512 will talk to everyone next week.