Tax & Title Company Blunders: Real Estate Investors Beware
Imagine calling the IRS to find out where your tax refund is, only to be told that they applied it towards a $404,000 tax bill you didn’t even know you had! This just happened to a real estate investor in South Florida, and is likely a growing issue for others around the United States. In this case, it wasn’t a matter of the IRS targeting anyone, but a series of (now very expensive) paperwork mistakes. Unfortunately, you can’t just assume that everyone involved in your deal is reporting accurate information to the IRS, not even if you are thorough about reading the fine print on closing docs and gathering your income documentation at tax time. There is always a chance that mistakes will be made and it is up to you to spot them. The problem in this particular situation was a chain of major blunders by title companies, some that are no longer in business because of their past transgressions. Of course, there are title companies and real estate attorneys that will continue to pocket money from closings instead of paying property taxes or mortgages, but genuine mistakes can happen too. Many people are surprisingly unfamiliar with the mortgage process. If closing documents are recorded incorrectly, it can show that real estate investors pocketed hundreds of thousands of dollars in income that they never actually received. This can happen if the buyer and seller names are switched, social security numbers get mixed up or net proceeds do not reflect big mortgages that were paid off. Even if you ignore the advice to file taxes on time, real estate investors must at least have all their paperwork handy. If you get audited by the IRS, they aren’t just going to take your word on all the potential write-offs you could have claimed. Of course, on the bright side, real estate investing continues to offer amazing tax advantages. Just make sure you have a tax plan and keep good records; it can make difference of hundreds of thousands of dollars and double digit improvements in investment returns.
IRS and title company mistakes can cost real estate investors mega bucks. Watch out for these blunders and protect your wealth…