Tax Benefits That Every Real Estate Investor Can Enjoy

You’ve worked hard to hone your craft. Real estate is one of the best investments that you can make, especially in today’s market. But did you know there are added tax benefits that you can also get, for being an investor? Here are some tax benefits that every real estate investor can enjoy.

1031 Exchange

There are various types of 1031 exchanges, but at the root of all of them is one property being exchanged, rather than sold, for another. In a 1031 exchange, no taxes are charged. These can be done on a delayed exchange cycle, for example, as long as real estate is involved. However, you can’t have a real estate agent work for you on this project! But, a trusted agent or lawyer can refer you to someone else, an intermediary who is qualified to help you with your exchange.

Pass-Through Deductions

If you have an LLC, pass-through deductions might serve you well. The entity you choose for your real estate portfolio can make or break your business. If using a pass-through, instead of being taxed twice, once as a corporate entity and once when finances get to shareholders, instead the deduction passes through to the business owner’s tax forms deductions. This can be true whether you’re a sole proprietor, a partnership, or an S-Corporation style business. You will want to discuss with your financial advisor to know which business entity would make the best tax sense for your situation.

Don’t Forget Depreciation

It’s only logical to presume that a building, like all other things, has a shelf life or a specific average life span, so each year you own your property, there is a depreciation in the amount which it is worth. This doesn’t mean old buildings aren’t wonderful, but it does mean you might not need to report as much cost in taxes. Generally, a tax loss is used to offset other gains in other properties. There are a couple of exceptions, though, so it’s great to have your financial advisor check on that for you.

Real estate investment can be complicated, but there are ways to make it less expensive as you go along. Learning to use each of the rules as tools in your business is a must. Prepare ahead to take full advantage of tax benefits for your business.

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