Most people have at least some level of anxiety when it comes to taxes. Would you believe that there are several tax advantages to holding real estate? That’s right, you can benefit from acquiring real estate property. Read on for details on just how it works.
Capital Gains Tax
Capital gains have to do with building on your real estate investing business. You should employ a strategy to sell your real estate for living expenses or growth. Low capital gains rates are better for this purpose.
Since 2016, the tax rates for capital gains are lower than the typical income tax rates. The exact rate depends on the tax bracket under which you fall. If you have several properties that you sell, your long-term capital gain tax rate even may fall as low as 0%. There are some advantages for individuals who are in higher tax brackets, as the capital gains tax is better at this level than the equivalent income tax for ordinary income.
Live in Your Flipped House
You can avoid having to pay capital gains tax by living in the house you buy right away, making it your principal residence. You have to live there for 2 out of the 5 years after purchasing it so you earn a tax-free profit on the property. Build a large amount of wealth when you buy several flip houses in order to take advantage of the tax exemption. If you would prefer not to remain in the property, you can reinvest these earnings and try out other strategies.
Self-Directed IRA Real Estate Investing
You can build on your wealth with 401k’s and IRA’s. They allow you to minimize the taxes you pay. A non-traditional investment you can put them towards is actually real estate. You want to make sure that you find a retirement account manager who will give you this opportunity. Most of the larger custodians do not offer the possibility to do so. Adequate research will provide you with many options for specialized retirement account custodians who will help you in this manner.
Buy and Hold
An incredibly tax-efficient method to help you build wealth is to avoid selling completely. Once you sell, you need to pay not only taxes on what you are paid, but also transaction fees and commissions. This makes it so the value does not compound and grow. Appreciation (increased value on a property) does not get taxed. Your net worth can grow and your tax exposure will be minimal over the years.