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  • Vanessa Gonzalez-Penaloza

5 Tax Saving Strategies Every Real Estate Investor Should Know

Are you a real estate investor? If so, then you know that taxes can be a huge pain.

The more investment properties you have, the more taxes you’re responsible for.

But the fact is, you don’t need to pay more than your fair share in taxes.

Did you know there are some tax saving strategies that can help save you money?

Let’s take a closer look.

TAX SAVINGS STRATEGIES THAT CAN HELP

As a real estate investor, there’s an incredible amount of tax advantages in investment properties.

Here’s some simple tax strategies that can help save you money:


1. The 1031 Exchange: A deferment of capital gains by using profit from the sale of property to invest in a replacement property is an excellent way not only for deferring taxes, but also increasing your overall wealth. The property must be:

  • Similar in nature;

  • In the U.S.;

  • Be an investment or business property;

  • Purchase price/new loan amount must be the same or higher on the replacement property.

2. The Business Tax Deduction: Any expenses big or small incurred from owning the property. Must include both ordinary (common in your business) and necessary (helpful in your business field) expenses.

Expenses include:

  • Home office;

  • Internet bill;

  • Mortgage Interest;

  • Phone;

  • Employees’ pay;

  • Insurance;

  • Gas used to travel to and from rental.

3. Long-Term Capital Gains: Holding on to a property for more than a year can help you with the long-term capital gains tax, which tops out 15%. Selling the property under a year will lead to a short-term capital gains tax which could be up to 35%.

Because the profits are taxed differently based on the duration of the property owned, keeping a property for a longer time can prove to be more beneficial.


4. Depreciation losses: It’s a tax allowance that is based on the wear and tear of the property over time.

5. Self-Directed IRA’s: Is the use of an individual IRA to fund real estate investments. Traditional retirement accounts are penalized from the IRA if there is a withdrawal before 65. But the IRS has made some exceptions to this rule, especially for real estate purchases.

This provides two huge benefits for investors:

  • Provides the money to invest in a rental property; and

  • Any returned money to the IRA gets the same differential tax treatment.

The power of tax saving strategies is instrumental in any wealth-building effort.

But if you're like most people, filing your return and getting the correct refund takes up more time than any other part of doing business with Uncle Sam!

Being prepared is the key to having a successful tax season.

Just remember to:

  • Track your expenses throughout the year;

  • Keep all tax information in a designated spot;

  • Gather any charitable donation receipts;

  • If you missing any tax documents, contact the IRS; and

  • Contact a knowledgeable tax professional

It’s always a good idea to work closely with a tax advisor to make sure that these tax benefits are beneficial to you and your real estate investments.

Have questions? Reach out today!


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