Real estate investing: put off tax bills with these strategies

For real estate investors, paying taxes is optional. This definitely represents a bold statement, but if you consult a CPA, you will hear the exact same thing. In fact, if you complain about the burden of taxes as a real estate investor, then you are not familiar with the most effective strategies for saving on taxes all year round. In this case, working with an experienced tax advisor becomes fundamental, especially because you must grow your portfolio and in order to earn a living from investing, your income must exceed monthly expenses. Starting with something lighter, do you know all the tax deductions and tax traps for real estate investors? When it comes to tax pitfalls, capitalization of improvements and passive loss limitation are two of them. In what concerns tax deductions, the list is much longer and it includes insurance and interest, home office and employees, travel and legal services, repairs and casualty losses. Diving straight into this subject will help you immensely but joining forces with a reliable accountant while doing it is even more helpful.

1031 exchange and depreciation

If you doubt it, then continue reading the article because you will discover how a specialist can inform you about clever strategies for deferring taxes. These lesser-known strategies refer to 1031 exchange like kind, depreciation, long-term capital gains and no self-employment, among others. Starting with the controversial 1031 exchange, it practically consists in selling a property and using the money earned to purchase a similar one used for business or investment purposes. This apparently simple swap can keep you away from taxes for a long time if you perform it mindfully. This means that you have to become familiar with the restrictions and regulations associated with the 1031 exchange so that you avoid receiving a huge bill from the IRS. Moving on to depreciation, which represents a powerful tax deduction, it applies only to materials that break down. However, you have to be very careful because the IRS knows the depreciation rate of the supplies purchased for business use so you have to act wisely if you want to obtain the much-wanted deduction.

Long-term capital gains and no self-employment

As a real estate investor, you already know what capital gain means. It refers to the profit you make after a property sale and the IRS wants a part of that profit. If you were the owner of the respective property for over the year, then you have to pay long-term capital gains. The tax rate usually depends on your income, but since you do not have a stable income and you have the possibility to use in your advantage the like-kind exchange, you end up paying less than you expect. This leads us to no self-employment because your income is not like the ones of most people so most do not even see it as “earned income”. Even the government thinks that rental real estate is not an actual job meaning that you do not have to pay the standard tax due for everyone else.