One of the biggest challenges facing real estate investors today is how to minimize taxes.
It is great to make so much money from wholesaling houses, but without some countermeasures you may find your taxes are going up just as fast as your income. With the 2020 extension for filing federal income taxes you may have pushed off this bill for a few more weeks. Here are some tweaks to make sure you pay out less and keep more of your gains this year, and every year.
Income tax Deductions
Make sure you are maximizing the amount of tax deductions you are taking. Don’t just over pay. One of the most obvious this year is taking the home office tax deductions. Others can include mortgage interest, education, health care expenses and charitable contributions.
Max Out Retirement Account Contributions
By now you should absolutely have a self-directed IRA or 401k account. You can also have them for your spouse and children. You may even be eligible to contribute to ESA and HSA accounts. You may still be able to get the deduction for 2019 and 2020 by maxing out deductions for both years. You can then use that money to invest in real estate.
Property Taxes
Property tax authorities are notorious for over charging each year and hoping property owners just don’t notice or bother to challenge them. This year more than ever you could be in a great position to cut these bills. Appeal your property tax bills and save thousands.
Harvesting Losses
Making investments in businesses that may show net losses for the next year or two can help offset any gains. Those paper losses can be used to offset future gains as well.
1031 Exchanges
Real estate wholesalers and flippers with too much cash can also move capital into more buy and hold, new construction and value add property deals, while continuing to defer taxes on capital gains under the protection of 1031 exchanges.
Go Offshore
The US has one of the harshest tax regimes on the planet. Thinking short and long term, this could be a smart moment to diversify into some offshore real estate assets. Especially somewhere you’d like to spend at least six months of the year in better weather, or retire. It could be a path to completely eliminating corporate and personal income taxes.
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