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There are a number of tax benefits that coincide with investment properties. Real estate investors see a lot more tax advantages as well as deductible expenses than the average occupation. As taxes take a good portion of a person’s income, there are a few tricks that investment properties can reduce your tax liability while simultaneously providing a good opportunity for income. 5 of the best ways to save with taxes while investing in properties are:

1. Own Properties in your own Self-Directed IRA

Set up your own self-directed IRA so that you can use it to invest in real estate tax-free. While there are contingencies to this, with the right research in self-directed IRA, you can set up your own.

2. Hold Properties for at Least a Year & Live in them for at Least 2 Years

The IRS can declare you a self employed dealer if you flip more than a couple properties in the span of a year. If this happens, you could potentially be at risk to have your earnings be taxed double by FICA. Additionally, by staying in a home for a minimum of 2 years, your first $250K of capital gains is then tax free for those that are single ($500K for married couples).

3. Defer Taxes With a “1031 Exchange”

The Section 1031 of the tax code states that property owners can defer paying taxes indefinitely by buying a similar property with their proceeds.

4. Maximize Your Deductions

A benefit to real estate investing are the tax deductible expenses such as insurance, property tax, management fees, mortgage, and maintenance costs.

 

5. Depreciate Your Properties

The lifespan of a residential building according to the IRS is 27.5 years, therefore owners are able to deduct approximately 3.6% of the property’s value each year for the first 27.5 years it is owned.