If you want to become a billionaire, invest in real estate. That’s what 90% of the billionaires in the world did to grow wealth.
The tax code is very favorable to people who have real estate. If you’re an investor, you have even more ways to lower your tax bill.
How can you make sure that you’re taking advantage of these opportunities? Read on to learn the top real estate investing tax strategies.
- Defer Capital Gains
You incur capital gains when you sell an asset for a profit. You’re taxed on capital gains if you held the property for over a year. Otherwise, you count the profit as income and pay income taxes.
The capital gains tax rate depends on your income. You can pay anywhere between 0% and 20%.
You can defer the tax payments on capital gains by using a 1031 exchange. This allows you to take the money from the sale of one property and invest it in another property.
This is a detailed process with specific deadlines. You have to sell your property, identify a new property, and close within a certain timeline.
Miss any of these benchmarks, and your deal falls through. That leaves you responsible for capital gains taxes. Make sure you work with a qualified professional to do a 1031 exchange.
- BRRRR Strategy
Buy, repair, rent, refinance, repeat. That’s the BRRRR strategy. If you don’t want to sell your property and go through a 1031 exchange, you can refinance it.
That allows you to maximize your cash flow without the tax consequences. You also don’t have to invest your profits in another property. Look here now to learn the details of this innovative real estate investing strategy.
- Deduct Mortgage Interest
Did you finance your real estate purchase? You can take full advantage of the tax code by deducting mortgage interest.
This is one of the most widely used real estate strategies used by investors and residential homeowners.
There are cases where you can’t deduct mortgage interest. For example, if you have a property and borrow against it to purchase another property.
- Deduct Depreciation
Real estate is an asset, and assets decline in value over time. The IRS refers to that as depreciation for things like wear and tear and deterioration.
The beauty of this definition is that you can write off deprecation of real estate for about 27 years. If you spend $300,000 on a property, you can deduct almost $11,000 from your taxes.
This deduction gets taken even as your real estate investment goes up in value.
The Top Real Estate Investing Tax Strategies
Real estate is unquestionably one of the best investments you can make. It’s a sure way to grow wealth and save money on taxes.
You can use the real estate investing tax strategies in this article to minimize your tax burden. That gives you more money to enjoy or reinvest.
If you want to enjoy your wealth, head over to the Lifestyle section of this site for inspiration and ideas.