As a savvy investor, it is important to know about the real estate investment loopholes you can use to maximize returns. Learn more in our latest post!
Loopholes, as defined by Merriam Webster: a loophole is “an ambiguity or omission in the text through which the intent of a statute, contract, or obligation may be evaded.” Or as we are using it in this article, perfectly honest and legal ways to keep more cash in your pocket as a real estate investor. We will discuss quirks in the tax code, which will allow you to lower your overall liability. We will also talk about some tricks to finding the right properties for your needs.
To defer capital gains taxes on your property, you can choose to utilize a 1031 exchange. This allows you to sell one property and reinvest the funds while deferring the capital gains taxes. When taking advantage of a 1031 Exchange, there are a few criteria that need to be met. First off, the property must be of “like-kind.” This isn’t as binding as it sounds. You can exchange a single family home for land, an office for a multi-family dwelling and so on. The value of the new property must be equal to or more than the old property. Any extra profits not reinvested will be taxed. The new property must be identified within 45 days and the process must be completed by a qualified intermediary, who has no relation to you or interest in either property.
Deduct Business Assets
Under the new tax bill, you will now be able to take a 100% bonus depreciation on any asset (think computers or appliances for your business) that was purchased after September 27, 2017. This means you can write the item off right away as opposed to claiming depreciation on it over time. You can also deduct some vehicle expenses with certain limitations.
Real Estate Professional
If you have excess losses on your investment property, you might be able to qualify for the tax benefits available to real estate professionals. These benefits include deducting things like interest, management fees, repairs, advertising, travel, your office and casualty losses. In order to do so, you must first qualify as a real estate professional. No license is needed, rather you must spend 750 hours per year on real estate related activities and spend more time doing this than your other business activities.
Finding The Right Property
Finding the right properties take a fair amount of research. One trick many investors utilize is to simply work with other investors. When you work with another investor, you will share common goals, property standards and will be on the same page overall. Buying from an investment company such as Memphis Investment Houses, LLC will save you the hassle of doing all of the research on your own. We have done the financials, we know what the property brings in as well as the future potential and how to get there. This means you are able to buy without any of the guesswork.
Hire A Pro
There is no better investment than hiring the right CPA to help you meet your financial goals. They will know the ins and out of the tax bill and be able to guide you so you are able to make the right decisions. Before you make an investment decision, it is important to speak with your accountant, financial planner and lawyer to make sure you are making the best decision for your situation. The right CPA is worth their weight in gold.