Ahh, tax season, everyone’s favorite time of the year! If you’re a real estate investor, you may be wondering how to save money on your taxes. We’ve got you covered with these five tax strategies below to help you maximize wealth and grow that portfolio.
Take advantage of depreciation deductions
Depreciation is an annual income tax deduction that allows you to deduct the cost of your investment property over time. The IRS considers this an “allowance for the wear and tear, deterioration, or obsolescence of the property.” It can heavily reduce taxable income while increasing cash flow.
Here’s how it works:
Calculate the total value of your property and the costs of improvements you made to your property.
Now, deduct a portion of the above value each year on your tax return.
Be aware that these deductions can only be made on investment properties.
Use a 1031 exchange to defer taxes on property sales
You can defer taxes on the sale of a property by using the profits to buy another investment property. This is a notable way to avoid those pesky capitol gains taxes. This exchange allows for an investor to keep more of their money and re-invest while also postponing payments on taxes.
Be aware: there are strict rules and timelines in place that you must follow to qualify for a 1031 exchange.
Subtract expenses related to your real estate investments
Did you know you can deduct expenses related to your investments? Property taxes, mortgage interest, property management fees, and even repairs can be included in these deductions. When you subtract these expenses, it ends up reducing your taxable income, therefore saving you money on taxes.
Make sure you’re keeping all records of investment-related expenses.
Work with an Investment specialist at Evergreen Investments to help you make sure you’re taking advantage of all possible deductions.
Self-directed IRA? Yes please
A self-directed IRA is simply a retirement account which lets you invest in a wide range of assets, real estate included. The great thing about this tax strategy is it allows for tax deferred growth on your investments. In turn, this can save you money on taxes.
Another tax benefit of self-directed IRAs is is that income you earn from real estate investments in the IRA is tax-free until it’s withdrawn.
Work with an Investment Specialist
Filing taxes can be a confusing process, but trying to figure out how to save on them can be even more distressing. Using the mentioned strategies above, you can maximize your wealth in real estate. As a real estate investor, it’s also important to work with investment specialists at Evergreen Investments. This can ensure that you are on the right path for every investment need you may have.