5 Tax Tips for Real Estate Investors

Taxes are a tricky area for many people, especially those who own their own homes or businesses. Being a real estate investor is a self-employed situation that involves multiple transactions with multiple pieces of property, which can get confusing in matters of tax.

Following are several tips concerning taxes that will help keep investors on the right side of the law:

1) Taxes on the sale of a property will be lower if the owner lives in the home for a year or more. The difference between short term vs. long term gain taxes may be an incentive to hold off on short term property flips.

2) According to tax code Section 1031, after selling an investment property, you can delay tax payments by exchanging the property you just sold with another investment property that has similar value.

3) You don’t have to own 100% of a property to gain the tax benefits of being an investor. Taking an ownership share of 10% and working as a property manager instead of a primary owner can still be lucrative and carry great tax exemptions.

4) Keep careful track of any and all payment from renters, because IRS Publication 527 dictates that you include all rent payments as part of your gross income, including defaulted security deposits or work-for-rent trade arrangements you make with your tenants.

5) If, after two years of living in your primary residence, you convert it to a rental property, you still have three years to sell the home before your nontaxable gain from the profit earned in the sale becomes taxable.

As always, our attorneys make us say it… this information is for reference only and you should always pass any tax tips or info you use for your business by a competent attorney and/or accountant in your local area to make sure they jive with all state, federal, and local law.

Stay tuned for even more tax tips tomorrow!