Investing in Real Estate: 4 Incredible Things You Need to Know
Real Estate Tax Shelters
As Benjamin Franklin so accurately said
“In this world nothing can be said to be certain, except death and taxes.”
Death is not something enjoyable to talk about. So let’s focus on taxes, and more importantly, how much we all dislike paying them.
What would you say if I told you there is an investment asset class out there that, when done properly, can reduce your taxes, or even allow your earnings to be tax free? Yes, that’s right. Tax free!! If you are interested in making money tax free then keep reading about the advantages of investing in real estate.
Please keep in mind that the information provided herein is for educational purposes only. It is not to be considered as accounting advice. Simple Acquisitions always consults and works with accounting professionals. We recommend potential lender partners to do the same.
So, let’s get back to investing in real estate and how to make money through tax advantages.
There are 4 Great Tax Advantages of Investing in Real Estate
The disposition of a property is taxable in the year it is sold. There is a tax deferral technique known as a 1031 Exchange. It allows the taxes to be deferred when capital is reinvested into a like-kind property. This defers the taxes from not only the income generated from the property but also from capital gains and depreciation.
Simple Acquisitions makes using 1031 exchanges on properties part of our strategy. It can be a great option when investors want to keep their funds in play and continue to receive passive income.
With real estate you are able to cash out a portion of the profits without taxes being applied. What allows you to do this is refinancing the property with a new mortgage. Then the tax-free profits can be re-invested. Investing in real estate through refinancing is a smart strategy.
We here at Simple Acquisitions use the refinancing strategy. We acquire properties that are well below market value. Then we take the necessary steps to perform improvements and improve occupancy. We are then able to force appreciate the property. This in turn increases its value. Through refinancing, our goal is then to be able to return our lender partners’ original investment while still providing them the cash flow from the income generating property. This gives them an infinite return until such time as the property is sold. How is that for making money by investing in real estate!
Depreciation is the holy grail of all investment deductions. Because it is taken even though it is a non-cash expense (meaning we didn’t spend any money), it is simply calculated from the value of the portions of the property that are deemed to be dropping over time. For example, the physical structure on your land, brick and mortar are being used up. Hence they are worth less each and every year. So the type of property it is (i.e. Commercial, residential, industrial) and the length of time you are allowed to depreciate those parts of the property, will determine the amount your allowed to apply against the income generated. Often times this eliminate the entire amount of taxes owed. Simple Acquisitions structures its partnerships in such a way that all partners get to share not only in the profits, the appreciation, but also the depreciation making your investment that much more appealing.
- Tax Deductions
The financial (mortgage & interest) and operational costs (property management fees, maintenance, property tax, etc.) and insurance premiums on a rental income property can all be claimed as deductions from the revenue generated.
As you can see there are many tax advantages of investing in real estate that other investment options do not offer. That is why diversifying your investment portfolio to include real estate might be a great idea for you. Talk to your accountant and see if it would work for you!
To get more details about how taxes affect real estate investing and how it can benefit you with your current investments, contact us, we’d be happy to have a discussion regarding this topic with you.Contact us
Remember, real estate doesn’t have to be complicated. With Simple Acquisitions it’s smart, and simple!