{"id":5099,"date":"2022-10-22T10:41:42","date_gmt":"2022-10-22T10:41:42","guid":{"rendered":"https:\/\/www.adaptmywebsite.com\/clive\/?p=5099"},"modified":"2025-01-08T08:18:12","modified_gmt":"2025-01-08T08:18:12","slug":"5-smart-ways-to-save-on-real-estate-taxes","status":"publish","type":"post","link":"https:\/\/www.adaptmywebsite.com\/clive\/5-smart-ways-to-save-on-real-estate-taxes\/","title":{"rendered":"5 Smart Ways to Save on Real Estate Taxes"},"content":{"rendered":"
\n

When it comes to investing in real estate, taxes are among the most important criteria to consider as it constitutes a significant portion of the return-on-investment (ROI) calculation.<\/span><\/p>\n

Because real estate is such a valuable asset, the government taxes it heavily. If you’re not careful, your real estate investment could end up costing you more in taxes than it makes you in profits.<\/span><\/p>\n<\/div>\n

However, there are five ways to minimize your tax liability and help you save more money which we have outlined below:<\/span><\/div>\n
<\/div>\n
\n

\u00a0<\/span>1. Deduct a portion of the cost of the property as depreciation<\/strong><\/h2>\n<\/div>\n
If you own income-producing rental property, you can deduct a portion of the cost of the property each year as depreciation. This can help to offset any other income you may have from the property, and reduce your overall tax bill.<\/span><\/div>\n
Various methods of depreciation are popular for accounting purposes in the real estate industry, with the two most popular being MACRS and cost-segregation. The Modified Accelerated Cost Recovery System (MACRS) approach allows residential rental properties and structural improvements to be depreciated over 27.5 years and 15 years for appliances and fixtures. Cost segregation is another approach which utilizes accelerated depreciation deductions by classifying certain interior and exterior components of a building\u2013which are typically depreciated over 39 or 27.5 years for commercial and residential properties, respectfully\u2013to personal property or land improvements that are depreciated over 5, 7, or 15 years. (We\u2019ll do another posting on cost segregation as it deserves more discussion.)<\/span><\/div>\n
This loss, together with other expenses like utilities and insurance, are reported on Schedule E, federal income tax Form 1040, and deducted from ordinary income.<\/span><\/div>\n
<\/div>\n
\n

\u00a0<\/span>2. Take Out A Loan Against Your Home Equity<\/strong><\/h2>\n

If you have a sizable equity in your home, you can take out a loan against it and use the proceeds for anything you want. This can be a handy way to access cash without having to sell your property. Regulations will vary from state to state and the ability to borrow against your home equity will also depend on your credit score.<\/span><\/p>\n<\/div>\n

<\/div>\n
\n

\u00a0<\/span>3. Apply for 1031 Exchanges<\/strong><\/h2>\n<\/div>\n
If you sell an investment property, you may be able to defer paying taxes on the sale by reinvesting the proceeds into another piece of investment property. This is done through a 1031 exchange in accordance with Section 1031 of the Internal Revenue Code. This can be a smart way to defer taxes while still growing your real estate portfolio.<\/span><\/div>\n
<\/div>\n
\n
\u00a0<\/span>To qualify for 1031 exchanges, the properties must meet the following requirements:<\/span><\/div>\n<\/div>\n
<\/div>\n
\n