4 Tips Real Estate Investors Should Know to Pay Less Taxes

THIS MIGHT NOT COME AS A SURPRISE, BUT AS A REAL ESTATE INVESTOR, TAXES ARE PROBABLY YOUR SINGLE BIGGEST EXPENSE.

Isn’t that crazy?

But just think about it…

You have to pay taxes on income, taxes on property, and taxes on goods and services.

What percentage of your income do all those taxes eat up?

We could all stand to pay less in taxes, right?

Fortunately, the new tax law has given law firms plenty of opportunities.

In fact, there are 4 major ways that you can use to slash their taxes and keep more of your hard-earned money to put in the bank each year.

1. Special Tax Benefits

🏠 Real Estate investing comes with numerous benefits that you won’t find in other investments.

🏠 Some well known tax benefits include depreciation and 1031 exchange. 

🏠 REIT investors will reap more benefits from the new tax laws.

🏠 Make use of the 20 Percent rule: the new tax law that allows you to deduct 20% of your net rental income from your taxable income.

2. Know these Tax forms

🏠 The three main forms you should know are: Schedule E, B and D.

🏠 Schedule E is used to report any supplemental income and loss from rental properties.

🏠 Schedule B and D are used to report any investments.

🏠 If you plan to do your own taxes, a higher level software will be required – however they don’t always cover everything.

🏠 The easiest way for landlords to track rental income and expenses is through Quickbooks.

3. Passive Income benefits

🏠 Real estate loopholes can be extremely beneficial as investing is considered passive income.

🏠 A big non-cash expense when calculating profit and loss is depreciation.

🏠 If you actively participate with your rental properties you are eligible to deduct $25,000 of rental real estate losses.

🏠 In order to benefit from this exception you must spend more than half your total working hours in real estate activities and spend more than 750 hours “materially participating”.

4. Selling your property

🏠 There are three ways to reduce the amount you pay in taxes when selling:

– Sell off losing assets to offset your gain.

– 1031 exchange: selling your old property and buying a new one.

– Convert the property into your primary residence for a few years before selling: if you have owned the property for at least 5 years and live in it for 2 years, your property is a residence instead of an investment.

🏠 If you’re flipping properties as an investor you’ll be taxes using capital gains tax rates.

The truth is, you could save 5 or 6 figures on your tax bill every year by implementing a tax savings plan…And whether you’re able to take advantage of one, two, or all 4 of these strategies, it’s well worth your time and effort to implement them.