Tax Saving Strategies for Real Estate Investors

When it comes to saving money on your taxes, you don’t need to open a Swiss bank account and start funneling your money overseas. You can save money without becoming a criminal mastermind, believe it or not. In fact, there are many loopholes and tax strategies that will allow you to save a little money without having to walk on the wrong side of the law.

Here are some tips to help you stay an honest tax payer without breaking the bank.

Interest Rates Can Be Your Best Friend at Tax Time

Did you know that you can actually claim the expense of your mortgage interest rates on your taxes? When you borrow money from a lender to buy, build, or renovate, there is a mortgage interest deduction that will prevent you from paying taxes on the interest you will be paying. The only catch to this tax benefit is the number of homes this applies to—usually only a personal home and a secondary home.

Maintenance Fees are Deductible

The IRS will actually allow you to deduct up to $25,000 in losses occurred on a rental property. Any money spent on repairs on a rented property can be deducted at tax time, lessening the hit on your wallet. It’s important to keep all receipts and invoices for projects completed or work hired out in order to capitalize on this benefit.

1031 is More Than Just a Number

A simple tax loophole, the 1031 is a process of using the gain from one investment home to purchase another investment property without paying taxes on the capital gain from the first. It allows you to use the like-kind exchange concept—as long as you roll the acquired money into another investment, you can delay paying taxes on said gain. This allows you to essentially “trade-up” or use the gain from one property to fund the purchase of a nicer property.

Business Expenses

Real estate may not sound like a business, but it is...which means all of the business expenses and deductions apply. This includes a portion of your car, phone, equipment, and home office. A good tax accountant will know what can and cannot be expensed. Keep all receipts for anything you use to care for this investment—this includes paper, envelopes, stamps, invoice books, receipt books, etc.

Social Security Taxes Non-Applicable

Be cautious when filing your taxes. A seemingly unknown fact is that rental property income is not subject to the self-employment tax, also known as the Social Security tax. Regardless of how many properties you own, rental property—residential or commercial—is not taxed in the same manner as other self-employment businesses. This is perhaps one of the most common mistakes made on real estate investment taxes, so always double check your CPA to ensure you aren’t being taxed the additional 15%.

While these are helpful tips and tricks to help save you money on your real estate investment taxes, they’re only the tip of the iceberg. Each situation is different and each CPA will provide you with a different tax strategy to help keep costs down. Always ensure you talk over your tax plan with your CPA prior to the beginning of tax season to avoid any unnecessary costs.

Questions!!!

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