5 Ways to Reduce Real Estate Investment Tax
Purchasing a rental property and getting yourself into the world of real estate seems like a great way to earn some passive income easily. However, there’s a lot more to this then it may look at first. After all, you need to be relatively knowledgeable about the tax laws and necessary investments as well as the market rates to achieve proper cash flow.
Investment tax can be a severe problem for many people, but the following tips can help you reduce real estate investment tax effectively.
1. Record Your Deductions
Don’t forget to deduct any costs that are related to running and maintaining your rental property. From marketing, maintenance, utilities, repairs and even mileage, etc. all these expenses can be deducted from your taxes. That said, always record your deductions and keep track of even minor, seemingly insignificant costs.
2. Improvements and Repairs Are Not the Same
Generally speaking, there are two kinds of changes you can make when it comes to your rental property. These are repairs and improvements. Repairs can be deducted from your taxes as they involve repairing something when it gets broken, such as faulty wiring or plumbing. On the other hand, improvements are changes that you make in order to boost the value of your property, such as insulation, energy efficiency, etc. and these changes have to be depreciated.
3. Track the Time You Spend Working on Your Rental Property
The amount of time you invest in your rental property is as significant as the financial investment since this can help you reduce real estate investment tax. Basically, if you spend more than 750 hours annually working on your property, you can add the expenses you’ve had to make to your deduction list.
4. Live at Your Rental Property First
This may come as a surprise, but if you first live at your rental property (two years at least), you can save a lot on taxes. You’ll become eligible for receiving a certain amount as a capital gain and deduct that amount later on when you sell or flip your home. A pretty sweet trick to have in your sleeve, isn’t it?
5. Vacation Home Rules
Vacation homes are different compared to regular rental properties as you actually don’t have to pay any taxes for them – but only if you manage to rent them for less than two weeks on an annual basis. If you want to use this property for your convenience throughout the year, you can save on taxes just by renting it out for half a month. That’s a great deal!
Owning a piece of property surely is a big deal, mainly if your rental property is located in a hip city area close to schools, public transports, and health centers. We don’t doubt it for a second that you’ll manage your property in the best manner possible. Follow the tips above to make sure you stay on the safe side of your real estate investment tax. For more information, you may reach us at info@LLCPM.com