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Tax Strategies: Residential Real Estate Investors

Tax Strategies for Residential Real Estate Investors 

Real estate investing is the number 1 way to build wealth. It offers many tax-saving opportunities, which when fully maximized, investors get to reap the rewards of their investments much faster. Therefore, it is important for residential real estate investors to understand what works for them. Let us look at some of the strategies investors can utilize to save more on taxes.

1. 1031 Exchange Benefits on New Investment Properties

A 1031 exchange allows an investor to swap an investment property with another and defer capital gains taxes that you otherwise would have to pay at the time of sale. As a seller, you can delay capital gains tax by selling and reinvesting in similar property.

2. Long term capital gains

The government levies capital gains tax on the profits an investor realizes after selling their asset for more than the original purchase price. Property sold for profit within a year has short-term capital gains levied. 

However, if homeowners sell properties for a profit after owning them for a year, they will face taxation under long-term capital gains. This is more affordable. As a result, it may prove beneficial for an investor to hold onto their assets for at least a year under the right circumstance.

3. Self  Directed IRA

Typically, retirement account holders are penalized for withdrawing funds from their IRA before they turn 65. However, the IRS has made some exceptions which involve purchasing of real estate. IRA holders can invest in real estate using IRA funds, avoiding penalties by reinvesting profits.

The benefits that come with this are; investors get the funds they need for a property. Secondly, the money returned to the IRA gets the same tax differential treatment that has become synonymous with IRAs.

4 .Opportunity Zones Tax Incentives For Investment Property

Residential real estate investors have the opportunity to delay payment of real estate taxes on capital gains, dividends, rental income, and S-Corp distributions. They can achieve this by either contributing to a designated Opportunity Zone fund or directly investing in a property situated within a state-established geographical Opportunity Zone.

5. Depreciation

Rental property owners use depreciation to offset the inherent loss in value of a property over time. According to the IRS, “You begin to depreciate your rental property when you place it in service.’ 

Depreciation is calculated using only the cost of property and not the cost of the land. The IRS considers residential property lifetime to be 27.5 years while that of commercial property as 39 years. Buildings, furniture, equipment and machinery are among the properties that can be depreciated

Tax saving strategies are very instrumental in any course of wealth creation. Reducing one’s tax liability awards inventors the ability to not only make more money but also save more; these are very important in wealth creation. 

Gold Accounting Tax offers real estate accounting expertise necessary for real estate investors in real estate in South East Florida and its environs. Talk to us today!

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At Gold Accounting Tax, we know you want to be successful in real estate.

In order to do that, you need an in-depth understanding of your financials at any given time.

We understand because we are real estate investors ourselves and understand the specific challenges real estate businesses experience.

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