As a real estate investor, it is important to be aware of the different tax strategies available to you in order to minimize your tax bill. The passive real estate tax strategies involve taking advantage of certain deductions and exemptions that are available to passive investors. Passive investors are those who do not actively participate in the management or operation of their investment property.
In this article, we will uncover important strategies to better shelter your assets this tax season:
Tax deduction for depreciation: When you purchase a property, the IRS allows you to deduct a percentage of the purchase price each year as a depreciation expense. This deduction lowers your taxable income and can be a valuable tax break.
Tax-free gains on sale: If you sell your property for more than you paid for it, you will generally pay capital gains taxes on the profits. However, if you hold the property for more than one year, the gain will be taxed at a lower rate (long term capital gains) than your ordinary income tax rate.
Tax-free home mortgage interest: If you use your rental property to generate income, the interest on your home mortgage is tax-deductible. This can be a big saving, especially if your rental property is located in a high-tax state.
Tax deduction for repairs and maintenance: You can deduct the cost of any repairs and maintenance you perform on your rental property. This can include things like painting, roof repairs, and replacing appliances.
No self-employment taxes: Unlike income earned from a job, income earned from owning rental property is not subject to self-employment taxes. This can be a big saving if you are earning significant income from your rentals.
As you can see, there are many tax benefits to investing in real estate—especially passive real estate. Because each passive investor’s situation is unique, it’s important to consult with a tax professional to ensure that you’re taking advantage of all the deductions available to you or to read our information about financial leverage facts. By understanding these benefits, you can put yourself in a better position to maximize your profits and implement a passive real estate tax strategy that will help you save money now and in the future!
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