Tax Tips for Real Estate Investors

As a real estate investor, you certainly want to take advantage of all of the tax tips that you can to help reduce your financial burden and make as great of a profit as possible. Thankfully, there are a number of write offs and other tax codes that you can take full advantage of using as a real estate investor. Here is a look at a few.

Business Write Offs

First, there are several general business write offs that you are entitled to use as an investor. Some of these include:

  • Depreciation: You can potentially decrease your tax burden based on a formula to calculate the depreciative value of your property. 
  • Home Office Space: If you have a dedicated part of your home that is used as your office space, you can write this off as an expense. 
  • Interest The interest that you pay on the loans that you used to purchase the property can be written off. This includes mortgage interest as well as points and mortgage insurance premiums. 
  • Mileage: Every time you drive from one property to the next or drive out to check on a property, you can write off the mileage for this expense.
  • Professional Services: If you hire a lawyer, property manager, accountant or any other professional service provider for your business, the cost of hiring that individual can be written off. 
  • Travel: Travel costs associated with your business, including airfare, meals and accommodations, can all be written off as business expenses.

Avoid Hefty Tax Rates

Flipping homes quickly can be a great way to generate profit, but you will also get hit with a hefty tax rate if you buy and sell the home within a one-year period. This is because the property will then be subject to a short-term capital gains tax. You can reduce your tax burden by holding on to the home for more than a year, at which point it will be taxed at 0%, 15% 0r 20% depending upon your bracket. 

Utilize 1031 Exchanges

Also referred to as a “like-kind” exchange, a 1031 exchange allows you to defer taxes on the income that you received from a property that you sold, so long as you use that money to purchase another property. This gives you a great deal of flexibility to buy and sell assets without worrying about being taxed at every sale. As a result, you can build a bigger portfolio while deferring taxes. 

Buy with Tax-Free Refinancing

If you need some cash to invest in another property, you can refinance a current property in order to free up some cash. This will help you avoid taxes because the IRS does not consider this to be taxable income. With the equity you have built from other properties, you can obtain the cash flow you need to invest in additional properties. Even better, the interest from the new loan will be eligible for a tax write-off. It is certainly a win-win that will help you generate the greatest amount of profit possible!

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