If you are real estate investor there are many ways for you to save on your personal and your investment taxes. It is definitely worth the time to examine some of the different ways to reduce your expenses by paying less in taxes each year to the IRS. Let’s take a look at a few of the things available to investment property owners that can help them to save money.
As with any business endeavor the first thing you should do is find a qualified accountant to work with. This way you can be kept up to date on all the newest rulings when it comes to property taxes and real estate investment taxes. Also they will do a great job of helping you to track all of your expenses and suggest ways that you can maximize your business profit for your own long-term benefit.
The first thing that you will want to do to make sure that you are paying as little as possible to the government is track your income and expenses like a hawk. This means keeping a detailed account of every expense associated with your properties and making sure that each expense is explicitly labeled under which home or investment it occurred on. This will allow you to break down each of your properties income and expense ratios so that you know which one of your rentals is making you money and which one is hurting the bottom line.
By knowing your income and expenses, you will be able to depreciate many aspects of your rental property. For instance if you have a roof repair or need to replace some carpet in one of your properties, that expense can be depreciated over a five-year time line which allows you to pay less in taxes on the rental income that you get that year. It is also worth asking to your accountant about possible accelerated depreciation on the home or the upgrades that you add to the property.
Finally as you buy and sell your investment properties you’ll want to look at the possibility of doing a 1031 exchange. This type of real estate transaction, also called a like kind exchange, will allow you to defer your capital gains taxes when you sell a property and quickly buy a new one with the profit. This is one of the best ways to save on investment real estate taxes over many years, and allows you to build up a lot of equity before ever having to worry about paying taxes on your profit.
By keeping detailed accounts, working with a qualified accountant, and following the IRS rules for depreciation and tax deferral, you can save a significant amount of money on your real estate taxes.
James answers the question of what is a 1031 exchange through his website on 1031 exchange rules.