![]() In other words, capital gains taxes are only paid upon a final sale of a property that includes no exchange. This means you can roll over capital gains from one real estate investment to another, avoiding taxes until you sell the property – so long as you hold the asset for at least one year. A qualifying exchange will have either zero or minimal tax liabilities, unlike most asset swaps that are taxable at the point of sale. The act designates nearly 9,000 of these areas as Opportunity Zones, in which investors can put the capital gains earned from selling other investment properties as a means to defer capital gains tax on their original investment.Ī 1031 Exchange is the exchange of one real estate investment property for another similar property. ![]() The Tax Cuts and Job Act of 2017 includes a tax incentive for investing in the country’s most rural and financially distressed areas. Even if you are self-employed, any income relating to a rental property is immune to both the social security and Medicare taxes you would otherwise pay on either a 1099 or W-2. While rental income is taxable as standard income tax, it is not subject to these FICA taxes. However, if you have no employer because you are self-employed, you are responsible for the entire 15.3%. Social security and Medicare income taxes of 15.3% are split evenly between you and your employer. The most commonly used depreciation method is called the modified accelerated cost recovery system, which allows investors to deduct depreciation on a residential property and commercial real estate for 27.5 years and 39 years, respectively. The allowed deduction amount is determined by the property’s market value, the property’s recovery period and the depreciation method used. For tax purposes, depreciation is always considered a net loss on the real estate investment independent of any profits realized on the property. Over time, the real estate will begin breaking down, and the depreciation deduction is in essence a recompense for the “wear and tear” of the property. Five of these strategies are as follows:ĭepreciation is the recovery of costs to maintain investment properties through annual tax deductions. Some of these concepts are well-established and time-tested, while others are relatively recent additions. ![]() The tax code provides for several real estate tax strategies for minimizing tax liabilities or generating refunds. These structures provide for additional business-related deductions, such as:įive Primary Real Estate Investment Strategies For Tax Advantages Real estate investors can take further advantage of available tax benefits by investing in real estate through limited partnerships and limited liability companies.
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