It is true that investing in real estate can provide far more security, consistency, and superior returns compared to other asset classes. Even better than that, it also comes with a variety of tax benefits that enable investors to legally pay less tax, even though they are making more money.
Here are just a few of them…
Self-Directed Investment Accounts
For years, workers have been fooled into using traditional 401ks and IRAs which abdicate control over their investments, returns, and protection of capital. The promise of tax deferred or tax free returns is appealing. Yet, it means little if your money is being put into losing investments that set you up to fail at the worst moments.
Instead, rollover those accounts to self-directed versions. These vehicles provide all the same tax benefits, yet allow you to choose from a much wider range of investments, like real estate.
A 1031 exchange enables investors to continue to roll over their gains from acquiring and exiting real estate investments. All while continuously deferring taxes. This allows you to compound and supersize your passive income and wealth building.
You can take your proceeds from a recent investment sale to buy and renovate new property, to restructure your portfolio, or diversify into assets with a more promising outlook.
Depreciation is one of the biggest staple tax write offs available to real estate investors. If you’ve owned property or even just rented before, you know that everything breaks down over time. Appliances, roofs, etc. This tax break pays you back for any capital expense needs to cover these items. Certain types of property will also allow investors to use accelerated depreciation to gain more breaks earlier in investments.
Business Tax Deductions
You may also choose to incorporate and run your investments through a LLC, S Corp, or C corporation. This not only adds an extra layer of liability and asset protection, but can provide another whole level of tax deductions and write offs.
Lower Tax Rates
Real estate investors can enjoy both passive income investment returns and long term capital gains. These are typically taxed at far lower tax rates than earned income. It is especially important for building up funds for retirement. Even more so as more large corporations like GE begin freezing pension account benefits again.