So, you have heard a thing or two about real estate tax strategists, but you are still trying to figure out what they do or how they can help you as a real estate investor. Could they help you triple the value of your real estate investments? Or could they make all your real estate tax obligations magically disappear? Well, not quite, but also not so far from the truth. What then? Hang on for another minute, and we will tell you all about it.
Who is a Real Estate Tax Strategist?
A real estate tax strategist is a tax expert who is well-versed in crafting tax strategies for real estate investors and business owners. Their main goal is to develop tax strategies and identify areas of the tax code that help to reduce real estate taxes while maximizing gains legally. In a sense, you could say real estate tax strategists help you get more value out of your real estate investments. You could also argue that they make taxes disappear!
Expertise and Responsibilities
- Tax Planning: real estate tax strategists develop legal strategies to minimize your real estate tax liabilities. They are experts at taking advantage of lawful deductions, credits, and incentives associated with real estate.
- Compliance: A reputable real estate tax strategist prioritizes tax law adherence alongside claiming tax benefits. So, run a million miles away from any real estate tax strategist who encourages you to break the law for more tax savings.
- 1031 Exchanges: Provide expert guidance to help you defer taxes on your capital gains by reinvesting into like-kind properties.
- Entity Structuring: Advise on the best business structures (LLC, S-Corp, Partnership, etc.) for real estate holdings to maximize tax efficiency.
- Legislative Awareness: Stay updated on changes in tax laws that can impact real estate investments.
- Education and Consultation: Provide ongoing education and advice to clients about the tax implications of various real estate investment and management decisions.
Real Estate Tax Strategies for Maximum Returns
Now that we have established the role of a real estate tax strategist, let’s look at some of the strategies that they use. Spoiler alert: many of these strategies have contributed to over $1.47 BILLION in total tax savings for our clients! So, keep your eyes peeled!
- Depreciation
One effective way to save on taxes is through depreciation. You can spread out the cost of buying and improving a rental property over many years. For residential properties, this period is 27.5 years, and for commercial properties, it’s 39 years. By doing this, you reduce your taxable income each year instead of paying all the taxes upfront.
- 1031 Exchange
Another great strategy is the 1031 exchange, which enables you to sell a property and reinvest the proceeds into a new, similar property without paying taxes on the sale right away. Utilizing a 1031 exchange helps you keep growing your real estate portfolio without worrying about big tax bills in between.
- Cost Segregation
Cost segregation is a more advanced technique that helps you get more significant depreciation deductions earlier. By breaking down the property into different parts (like plumbing, wiring, etc.), you can claim higher deductions sooner. This strategy can help you save so much more in taxes, but it requires expert help.
- 750 Hours Rule
If you’re heavily involved in real estate, you might qualify as a real estate professional. This special status allows you to use real estate losses to offset other income, reducing your overall tax bill. To qualify, you need to spend at least 750 hours a year on real estate activities and meet other requirements.
- Home Office Deductions
If you work from home, the home office deduction can be a tax-saving game-changer. You can include any part of your home that you use exclusively for business in your business expenses to lower your taxable income.
- Mortgage Interest Deductions
Mortgage interest on loans for your rental properties is also deductible. Basically, the interest you pay on these loans can reduce your taxable rental income, saving you money on taxes.
- Repairs and Maintenance Deductions
Regular repairs and maintenance on your properties can also save you on taxes. The cost of repairs is deductible, meaning it can lower your taxable income. Just make sure to distinguish between repairs (which you can deduct) and improvements (which you must spread out over time).
- Qualified Opportunity Zones Investments
Investing in Qualified Opportunity Zones is another strategy. These are designated low-income areas where the government wants to encourage investment. By investing in these areas, you can defer and even reduce taxes on your capital gains.
- Pass-Through Deduction
If you have a business entity like an LLC, partnership, or S corporation, you can benefit from the pass-through deduction. With this option, you can reduce your taxable income by deducting up to 20% of your qualified business income.
- The Augusta Rule
The Augusta Rule allows you to rent out your home for up to 14 days a year with zero tax obligations on the rental income. So, as long as you rent your home for fewer than 15 days, you don’t have to report the income, and it’s tax-free!
Need Help With Reducing Your Real Estate Taxes?
We specialize in serving real estate investors and business owners. In fact, real estate clients in our Strategic Tax Coaching (STC) program pay a meager 6.92% annual tax rate! We’ll be happy to hop on a call with you to go over your tax situation and give you a clear picture of how much we can help you save in taxes. Sounds interesting? Feel free to book a FREE consultation with the Tax Goddess Growth Team.
