Taxation and Real Estate: GHB's Persistence Pays Off in a Foreign Investor Real Estate Deal

Penny Banks, Frisco tax partner, has a client from Mexico who had invested in a condominium in a Colorado resort that was titled under his wife's name. During the course of preparing his wife's tax returns, Penny would regularly inquire of the client as to whether he needed to file tax returns because of his other United States interests. The answer was always that the partnership he was in took care of his returns. After 20 years, the client found out that the partnership had decided to sell the underlying asset, and that his share of the profits would generate an $80,000 tax liability. Penny knew that her client had generated losses each year, so she convinced the client to do a Section 1031 exchange. The other partners did not want to do the 1031 exchange, but ultimately agreed to distribute the asset prior to sale so that each partner could proceed in their own manner. Penny's persistence with the client paid off. She was able to get a full refund of $80,000 for her client, by convincing the partners to allow him to exchange his share of the property for other rental property. Penny also filed back taxes for the previous 20 years in order to establish the operating loss carry forward to offset the sale, and increase the basis in the traded property.