Tax/financial planning paramount in today's strong market.

When times are good, the saying goes, it's hard not to make money. True, perhaps... but the real trick in a strong market such as today's is to make - and keep - all that you deserve.

Good times often have a curious way of creating a whole new set of tax traps and financial pitfalls to snare the unwary. They also can create new opportunities for those who are tax-savvy. So now, more than ever, it pays to be vigilant and watchful: new tax rules and rapidly-changing market conditions can impact your bottom line faster than you can say "depreciation" - often just a you're thinking that things have never been better.

Fortunately, there are several sound tax and financial planning strategies that real estate businesses can implement to minimize tax obligations and preserve profits. Following are some of the major tax and financial issues on the horizon for 2000 and beyond - and some tips on how to capitalize on current trends, while safely side-stepping any hidden pitfalls that may arise:

Future Economics-based Deals

With tax laws regarding depreciation now less favorable than back in the '80s, deals are increasingly based on their economics, and less so on tax considerations. Overall, that is good for the industry - it adds stability. But because this is an environment of rising prices, future economics are often the issue in structuring a deal today. This is a complex matter. It's important to do extremely thorough and careful due diligence. Projecting whether today's $30-a-foot property is going to fetch a $35, a $37 or a $40 price a few years down the road makes all the difference in how deal is structured. More than ever, we are being called on to conduct such rigorous financial analysis in order to ensure that clients are not overpaying. Such valuation techniques also come into play for mortgage purposes and in determining gift and estate tax liability. In one case, we were able to save a client literally millions of dollars by performing an analysis that demonstrated convincingly that the seller's cash-flow projec tions were unrealistically high. The buyer was able to renegotiate more realistic terms based on an accurate projection, which the seller conceded was on target.

Rising Revenue Streams

As values and revenue streams increase, so does taxable income. While that's good news, of course, it also means good news for the IRS. Tax planning is more of an issue than ever -especially because many of the traditional ways to shelter cash-flow have evaporated. Other techniques are needed to reduce the tax burden, and establishing trusts has become a tool of choice.

GRATS (grantor retained annuity trusts) and GRITS (grantor retained interest trusts) have become popular means of transferring ownership to children at a reduced tax rates. These trusts can also help mitigate gift taxes. Charitable lead trusts enable the owner to make gifts on a current basis and transfer remaining interest to children at greatly reduced rates.

Alternate Minimum Tax (AMT)

Lately, the AMT has been kicking in for virtually every real estate entrepreneur we represent. Why? Accelerated depreciation and deductions are now being added back on, so the AMT applies in more and more situations. This is one of the toughest taxes to avoid or mitigate, but careful, advance planning can help soften the blow somewhat. Here, especially, it pays to think - and plan - ahead.

Tax News: Good and Bad

The capital gains rate is now down to very low levels (20 or 25 percent) and there is talk in Washington of reducing it even further. Proposals are also afoot to reduce or even eliminate the estate tax. Obviously, either of these developments would be very good news for the real estate industry, and should both happen, it will be a happy day indeed. Estate taxes are particularly steep today, and are forcing some owners to sell prematurely, so a break in the tax rate would benefit the industry. It pays to watch the news on this front from Congress closely, paying special attention to any proposed implementation dates, and planning accordingly. For now, the government has also made it easier to avoid cash-flow problems when paying estate taxes, and it is wise to take advantage of these procedures.

Financing Sources

While it's no return to the '80s banks are far more aggressive and open-minded than they were a few years ago. This is due in part to the increasing prevalence of new, alternate funding sources, such as venture capita! funds and brokerage firms taking equity positions, particularly in large, $100 million plus deals. The presence of alternate sources has put pressure on the banks to remain competitive, which has had the effect of lowering interest rates. There's more money around today, and it is available at better terms. The lesson: It pays to shop around carefully.

The upcoming year is shaping up as another strong one. Good planning and sensible tax strategies can enable anyone in the industry to realize more of the strong gains that will be made in the coming 12 months.