What strategies are you using to minimize taxes?

Question

Ned Carey · Answer

@Sam Tright actually notes are taxed differently that ordinary income you do not pay SS tax on interest. (notes do not generate dividends they generate interest)

The best strategy fo you will depend on yor specific stiation. It sounds like you are in a high or highest tax bracket. So you have some options that those with less capital have.

Some ideas

1) Invest through your IRA or other retirement program. IRA and some other retirement plans allow investment in real estate.

2) Invest in syndications of other investors. They do the work, you get the tax benefits.

3) Invest yourself in large enough assets that 95% of management can be handled by true professional management. I'm talking about $5 million assets plus. The level of management for this size assets is much better.

4) use 1031 exchanges when selling

Don Konipol · Answer

ROTH 401K OR ROTH IRA

TIMING of asset sales

I have found that I am able to achieve a 20% overall effective tax rate. Anything lower is the result of executing strategies which result in sub optimal returns in exchange for tax benefits, a no win proposition. I always find it humorous to hear about people who evade taxes and then “hide” their “non taxes” income in off shore accounts paying 0 interest; if they paid a 20% tax rate and reinvested funds they could earn 12% + . To be the game is t to pay 0 tax; it’s to pay a low effective rate on high earnings and have few or no restrictions on how the money is invested, as well as no restrictions on access to the money if desired. I’m fine with retirement savings restricted to withdrawal restrictions until 59; I’m not too keen on 1031exchanges where my choice of properties is restricted and I’m paying an intermediary charge over other usual fees.

The truth is that the most effective tax avoidance is available when earning high income and possessing high asset values. The guy earning $60k at a W2 job with no other income is probably restricted to an employer matching 401k if lucking, IRA if not. If he lives in a low cost area and is very thrifty, he might be able to scrape together the cash for a down payment on a very small income producing property. The person earning $1 million per year with a q-million net worth has a lot more options, access to competent professionals, and the capital to implement said strategies.

For almost 100 years the very basic and probably best strategy has been to limit regular income and expand capital gains.

David M Trapani · Answer

1031 Tax-Free Exchange. Cash-out refinance. Sometimes incur losses to wash out-gains. Hypothecating ("walking") private money promissory notes. Convert high-equity residences (over $250k / $500k cap gains limit) to investment property & 1031 max equity.

Bruce Lynn · Answer

Well on the NNN funds, hopefully your sponsor can provide accelerated depreciation while it lasts.

If you're lucky at the end of the hold term you can 1031 into the next investment.

If you hold in a ROTH or IRA, potentially you pay no taxes or only when you withdraw the money.

Those are a couple of options.

Look at some of the Quest IRA webinars. You might also look at any kind of syndications like apartments, self storage, NNN funds, MHP, etc, to see if that would help you with your strategy. Potentially you could also speak with your CPA, but I think that is often hit and miss. They probably don't see on average a whole lot of clients using great strategies. They may know a few more than they see.

Maybe another resource is your local REIA. Occasionally the ones around me have some speakers on how to manage/defer/avoid taxes.

Dave Van Horn · Answer

What's worked best for me in recent years has been owning notes or investing in note funds with a qualified plan. Though if you're active (i.e. if the note is not with a servicer) than you could likely encounter UBTI.

I utilize investment capital from earned income almost exclusively into investments with some depreciation component.

John M. · Answer

Real Estate is a great way to minimize your tax. The interest write off on the loan along with the depreciation are the main reasons why real estate is attractive and yes is you choose NNN then there is no hassle. Most people in this asset class aren't chasing yields or IRR but building wealth slowly with less headaches.

Chris Seveney · Answer

@Sam Tright

We structured our note fund as a corporation so investors should benefit on the tax consequences since they own shares and receive a 1099-div.

What strategies are you using to minimize taxes?

What strategies are you using to minimize taxes?

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