Real estate investors who are smart would like to make sure that the return of their investments is maximized as much as possible. It is not easy nowadays when there is a market fluctuation and many variables come to play. There is one thing though that you control and this is in the amount of taxes that you pay, without breaking the law and without going to jail for evasion of tax.
One thing to do is look at what are the available real estate investment tax deductions that are legal, and these will aid you in minimizing your tax burden.
You may have purchased your commercial property through financing, where you will have to pay back the bank of the principal and the interest of your loan. Considered as the biggest write off we can get on our taxes is that we can deduct the amount of interest we pay on our tax returns.
For those people who own homes or have invested in foreign places like Europe, it is advisable to know of the tax implications regarding this decision. Depending on how you use the property, like rental or receiving an income out of it, you would want to avoid being taxed two times. For Americans, you can get a tax credit for the returns of taxes you paid to other countries, and at the same time take advantage of the tax code where your house is located.
A tax deduction law was passed called pass-through business that would allow many businessmen to deduct from their income a certain percentage. In this kind of deduction, you can deduct up to 20{fef176cfe070174158fd7b214e43cb102580b177a66861132e9b8746d895dffd} as a line item on your tax return, of which this will be taken from your income from the past year. Take note however that this deduction is a temporary one in the coming years and may expire in 2025 depending on the political condition.
The next thing to remember is you do not write off the whole amount you bought for the property, which means consider the depreciation of the property. It is suggested that you deduct part of the cost of the property from your taxes and spread it out over a period of time like 39 or 27 years.
To defer your capital gains taxes is another way to reduce tax deductions. Buying low and selling high is another action that expert real estate investors would do and that is how they turn nice profits on properties. But of course they need to pay capital gains taxes, which the resort is to defer payment of these taxes using the 1031 exchange.