Top 10 Tax Advantages of Investing in Real Estate

by | BiggerPockets.com

The tax savings of real estate investing are pretty incredible. In fact, tax laws are set up for real estate investors to avoid taxes if we arrange our affairs appropriately.

Here are some of the most important benefits and strategies to note.

Related: The Ultimate Guide to Real Estate Taxes & Deductions

Key Tax Benefits & Strategies for Real Estate Investors

  1. Hire a tax strategist or real estate-focused CPA, who can help save you up to hundreds of thousands of dollars by taking advantage of a host of tax-filing approaches you might not know exist.
  2. Be a direct investor in real estate, in which case you’ll receive a K-1, allowing you to maximize your deductions and maximize your income.
  3. Utilize cost segregation studies to assist in accelerating your depreciation, enabling you to write off more in a shorter timeframe.
  4. Correctly classify deductible expenses in order to maximize your write-off.
  5. Consider returning capital to you and your investors rather than distributing income in order to avoid taxes and increase deductions.
  6.  Refinance tax-free and reinvest the proceeds somewhere else to maximize your income and continue to grow your wealth.
  7.  Take advantage of the 1031 exchange, which means exchanging a property for a like-kind property and deferring capital gains tax.
  8. Avoid passive loss limitations by becoming a qualified real estate professional (QREP), allowing you to maximize your passive losses in the current year as opposed to carrying them forward.
  9. Use retirement options, including self-directed IRAs, self-directed Roth IRAs, solo 401(k)s, and whole life policies to operate and gain income tax-free.
  10. Reset basis at death, meaning passing real estate to your heirs at your death. By doing so, they may pay zero capital gains tax.

Check out my video above, where I delve further into the ways in which recent changes in tax laws have positively benefited real estate investors.

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Want to learn how you could be saving more on your real estate taxes using loopholes, deductions, and more? Get the inside scoop from Amanda Han and Matthew MacFarland, real estate investors and CPAs, in Tax Strategies for the Savvy Real Estate Investor. Pick up your copy from the BiggerPockets bookstore today!

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Do you have a tax strategist or CPA who is knowledgeable about real estate? Are you getting the most out of the tax benefits available to investors?

Let’s discuss in the comment section below. 

About Author

Paul Moore

After graduating with an engineering degree and then an MBA from Ohio State, Paul started on the management development track at Ford Motor Company in Detroit. After five years, he departed to start a staffing company with a partner. They sold it to a publicly traded firm for $2.9 million five years later. Along the way, Paul was Finalist for Ernst & Young's Michigan Entrepreneur of the Year two years straight. Paul later entered the real estate sector, where he completed 85 real estate investments and exits, appeared on an HGTV Special, rehabbed and managed dozens of rental properties, developed a waterfront subdivision, and started two successful online real estate marketing firms. Three successful developments, including assisting with development of a Hyatt hotel and a multifamily housing project, led him into the multifamily investment arena. Paul co-hosts a wealth-building podcast called How to Lose Money and is a frequent contributor to BiggerPockets, producing live video and blog content on a weekly basis. Paul is the author of The Perfect Investment—Create Enduring Wealth from the Historic Shift to Multifamily Housing (2016) and is the Managing Director of two commercial real estate funds at Wellings Capital.

8 Comments

  1. Jason Ines

    This information will make an impact on anyone who uses it. Is there anyone who is a subject matter expert on this type of information and can help navigate me to my real estate goals? I know where I want to be and the direction I want to go, but not sure on how to set up my structuring. Great Article!

    • Paul Moore

      Jason,

      I will be glad to steer you toward an expert in the arena that you are looking to move into. Can you tell me specifically what help you want, or what type of subject matter you are looking for advice in?

      Let me know on here or reach out to me privately.

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