Reducing Taxes Through Real Estate Investment

Real estate investment is one of the most effective methods of building wealth, but it only works when you can keep your tax liability under control. Fortunately, owning property gives you a variety of strategies for reducing your tax bill.

Three Reasons to Invest in Real Estate Now

Real estate always has its ups and downs, but the last two decades have been more of a roller coaster than usual. Real estate prices rose to dizzying heights just after the turn of the century, but a few years later they plunged. Plenty of property owners were trapped in a situation where they were underwater on investment property, and many of these individuals left the market altogether. The first reason for investing now: Prices have normalized, so it is easier to identify true real estate bargains – and there is far less competition when you make an offer.

Millennials are waiting much longer to purchase a home as compared to previous generations, which means rental properties are in high demand. The second reason for investing now: Quality rental units can fetch premium prices.

Finally, real estate generally appreciates in value, and along the way you can collect income from rental payments. This is a reliable method of building wealth over time. The third reason for investing now: The earlier you enter the market, the more time your property has to appreciate.

Tax Advantages for Property Investors

There are nuances to the amount and type of taxes you pay on rental income, and the specific tax advantages you are eligible for depend on specific features of the property.

Your Certified Tax Coach can assist with determining whether you would benefit more from active rental income or passive rental income. Since losses from passive income cannot be used to offset other income, some taxpayers find there is a significant potential for savings by transitioning to active income.

As the value of your property increases, you build real estate equity. It can be tempting to cash some of that out for reinvestment or personal expenditures. When and how you pull equity out of the property, as well as the way you choose to utilize those funds, will determine whether you are responsible for capital gains taxes.

Keeping your real estate holdings in excellent condition is a requirement if you want to get top dollar from tenants. Therefore, the money you put into the property for repairs and maintenance can often be deducted from your taxable income. However, you can only claim these deductions if you have been meticulous about your record-keeping. Keep receipts, notes, and even photographs of the work you do on the property, so that you can save on taxes when the time comes to file your returns.

Real estate investment is one of the most common methods of building wealth, because it has been proven effective again and again. Don’t miss out on your opportunity to increase your assets and decrease your taxes - work with a Certified Tax Coach