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Depreciation
: Property value might rise over time, but the IRS lets you act as though it’s falling apart faster than a pudding in a microwave. Each year, you can write off a portion of the property’s value, reducing your tax bill like magic.
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1031 Exchange
: This isn’t about swapping number plates. If you sell a property and invest the proceeds in another, Uncle Sam will pretend he didn’t see it, thus avoiding capital gains tax.
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Real Estate Professional Status
: If you spend more than half your working hours in real estate business, you’re allowed to write off rental losses. You’re basically getting paid to fail—what a concept!
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Real Estate Investment Trusts (REITs)
: These fun little bundles work almost like stocks, but with buildings instead. And the best bit? They don’t pay corporate income tax, effectively reducing your tax liability.
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Mortgage Interest Deduction
: If you have a mortgage on your rental property, the curiosity you pay is tax-deductible. It’s like getting a discount for owing money—the more you owe, the less you pay. Isn’t that just bonkers?
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Cost Segregation
: This is like telling the IRS that certain parts of your property wear out faster than the rest (like that cheap kitchen faucet). You get to write off more depreciation, and they’ll believe you, because who’d lie about a faucet?
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Rental Real Estate Losses
: If your rental property is a money black hole, you can use the losses to offset other income. So, the worse you do, the less tax you pay! Someone call the Nobel Prize committee.
Hot Take:
Imagining real estate as dry, stuffy, and hard to handle? Well, let me serve you some facts hotter than a vegan’s compost pile. Taxation, the big bad wolf in the room, can actually turn into an obedient sheep with some knowledge and planning. Our seven strategies essentially turn you into Harry Houdini, making taxes disappear right before the IRS’s eyes! Astonishing? You bet!
Depreciation, 1031 exchanges, mortgage interest deductions, and more— these are all like cheat codes to help investors step on taxmen instead of Lego bricks (definitely less painful). Remember, it’s all legal and fun, just like monopoly money in a real-life game of Monopoly. Who knew handling tax could be this exhilarating? Next time, don’t scream and run at the mention of tax. Stay, play, and win the game, folks!
Original article: https://www.inman.com/2023/12/19/7-ways-to-avoid-taxes-on-real-estate-investments/
