Renter · Long Beach, CA · Member since 2008 · 78 posts · 2 votes
Hi,
I've heard that real estate is a decent tax shelter because it allows for a lot a tax write-offs: mortgage interest deduction, building depreciation, deferring capital gains through 1031 exchanges etc.
I'm less knowledgeable about small business taxes. If anyone owns a small business, would you consider your business to have tax-shielding benefits as well? How do the tax benefits of the business compare to your RE assets?
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
15y
Tough question Ashan.
I've always had both, but for different reasons. IMO, EVERYONE should own a business, even if it is secondary to a regular job. It is an excellent method to convert regular EXPENSES into taxable DEDUCTIONS. Without a business, you can't use a lot of these expenses as write off.
Real estate is the the main way to create wealth. I"ve never found anything else where a SCHMUCK (lender) will loan you the funds to buy real estate and another SCHMUCK (tenant) will make the payments for you. Years down the road, you'll own real estate worth X amount of dollars free and clear. Do this enough times and you'll be well set up.
They are both important and both very neccessary to create wealth more rapidly. Good luck. Rich
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
15y
Tough question Ashan.
I've always had both, but for different reasons. IMO, EVERYONE should own a business, even if it is secondary to a regular job. It is an excellent method to convert regular EXPENSES into taxable DEDUCTIONS. Without a business, you can't use a lot of these expenses as write off.
Real estate is the the main way to create wealth. I"ve never found anything else where a SCHMUCK (lender) will loan you the funds to buy real estate and another SCHMUCK (tenant) will make the payments for you. Years down the road, you'll own real estate worth X amount of dollars free and clear. Do this enough times and you'll be well set up.
They are both important and both very neccessary to create wealth more rapidly. Good luck. Rich
Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes
15y
Real estate is one of the few legal tax shelters left. A business is not really a tax shelter per se but does allow for many tax benefits that would otherwise be unavailable.
Real Estate Investor · Portage, MI · Member since 2010 · 470 posts · 315 votes
15y
Rich is right...They are a lot alike. For years I have heard about the tax benefits of real estate and business. For years I have owned both! The truth is, that most of the tax benefits cost as much or more than the tax savings! I wish I had a dollar for ever time someone told me that something did not cost me anything since it was a "tax write off"! I'm not against paying taxes...I just want the most $$$ in my pocket at the end of the day! There are some special programs out there, such as the $2,000 tax credit for building an Energy Star qualified home. For the past few years that has saved me lots of tax dollars!
You are also right that 1031's can allow you to reinvest all of your capital into a new property without paying taxes. This assumes that you can find the right exchange. Another school of thought is to pay the 20% tax on your capital gain on the sale and use the cash to buy one of the many deals on the market today.
The bottom line is that a good tax advisor can help maximize your net income and lower your tax burden.
Good luck!
Bill