Business Management

Top 10 Tax Advantages of Investing in Real Estate

Expertise: Personal Development, Commercial Real Estate, Real Estate News & Commentary, Landlording & Rental Properties
81 Articles Written
tax forms and calculator on desk taxes written in large font on slip of paper scissors preparing to cut it

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.

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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. 

After graduating with an engineering degree and then an MBA from Ohio State, Paul entered the management development track at Ford Motor Company in Detroit. After five years, he departed to start a...
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    Suly B. Rental Property Investor from Denver, CO
    Replied about 1 year ago
    #3 is my favorite! I am a BIG fan of Cost segregation because it is an excellent strategy for real estate investors to keep more if their own money to reinvest and increase their net worth.
    Paul Moore Investor from Lynchburg, VA
    Replied about 1 year ago
    I agree, Suly! It is certainly one of the great and surprising benefits of commercial real estate investing. Thanks for your comment.
    Jason Ines Rental Property Investor from Ontario, CA
    Replied about 1 year ago
    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 Investor from Lynchburg, VA
    Replied about 1 year ago
    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.
    Yushi Tan from Boston, MA
    Replied about 1 year ago
    Thanks Paul, for the useful video. As a newbie, this helps to understand why real estate investing is so powerful. Keep up the good work!
    Paul Moore Investor from Lynchburg, VA
    Replied about 1 year ago
    Thanks for the kind words, Yushi. Let me know if there is any way I can help.
    Scotty Ball Investor from Gainesville, Georgia
    Replied about 1 year ago
    Paul you are excellent writer, but you might be an even better actor! Great video article chock full of great information. Thanks for the shared wisdom here and I look forward to your next one!
    Paul Moore Investor from Lynchburg, VA
    Replied about 1 year ago
    Wow Scotty, that is such a compliment. Thank you!
    Jay Anderson Rental Property Investor from USA
    Replied about 1 year ago
    Hi Paul, We’re just getting back into real estate investing after 17 years. Trying to set up LLC’s, and find accountants and attorneys that understand the best way to move forward. I was told to set up an LLC in Wyoming because of the protection that Wyoming laws provide. Was also told that when somebody tries to do a search of the LLC, the members names and information aren’t accessible. But, that’s not the case. When I do a search, everything is visible to the public. Can you point us in the right direction? Any help would be greatly appreciated.
    Robert Ruschak from Chicago, IL
    Replied 5 months ago
    I will look back 10 years later and pat myself on the back for becoming a millionaire in real estate! Focus on what matters and chip away at it everyday! Great list Paul Moore!!!
    Paul Moore Investor from Lynchburg, VA
    Replied 5 months ago
    Hey Robert! Thanks for your kind words. I’m with you brother!
    Hein A. Rental Property Investor from Queens, NY
    Replied 3 months ago
    Great article, Paul! Can you elaborate on how you use Whole Life to gain income tax free?
    Paul Moore Investor from Lynchburg, VA
    Replied 3 months ago
    Hi Hein, Thanks for writing. I will refer you to Mark Willis. I was on his podcast and he was on mine as well. You can check out his stuff at http://lakegrowth.com/ I hope that helps!