• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

The Sonic Boom

  • Home
  • About
  • Travel
  • Music
  • Business
  • Lifestyle
  • Health
  • Home & Garden
  • Finance
  • News
  • Blog
  • Contact

June 7, 2021 by Eddy

5 Best Tax Strategies for Real Estate Businesses

Most people believe that investing in real estate is a quick and easy way to improve cash flow. Although returns from real estate are a definite possibility, you need to understand the basic tax strategies for real estate agents if you want to avoid unnecessary taxes.

Did you know that deductions are still one of the best tax benefits in the real estate business? These tax write-offs are applicable for rental properties as well. The costs incurred by property tax, business operating expenses, depreciation, and repairs are eligible for tax write-offs. While it makes sense to read the tips provided by the IRS, wTax Strategies for Real Estate Agentsat you need is tips from tax experts.

Here are five tax tips for real estate businesspersons:

Being Well Organized

The key to getting back the tax money rightfully yours this season is to be organized. Suppose your business is booming and you’re making a lot of profits, the IRS will want to inspect your books; and ask for all receipts and other documents related to your business.

Buying, selling, or refinancing any property last year calls for the escrow company to send you a HUD1 settlement statement. This statement is the final closing one itemizing all charges levied on the seller and borrower. This document has to be included in this year’s tax documents.

Hold Properties for One year or More

Although your business instinct dictates that you should sell when you can make a profit, one of the best tax strategies for real estate agents is to hold the property for a year or more. With investment profit considered capital gains by the IRS, taxing is purely based on the income accrued and how long you own the property.

If you sell before the 12 months, you are liable to pay income tax at 35%. Whereas, when you hold it for more than a year, you pay only capital gains tax at around 15%. Hence, you save a substantial amount in tax by keeping the property for more than a year.

Understand Business Taxes

Suppose you get a lucky break, and there’s a string of property transactions. The IRS’s lens focuses on you, and it won’t consider that as an investment strategy. The IRS will more likely consider it business transactions.

When more than half your earnings are from real estate, they are not taxable under ‘capital gains’ but a regular source of income. Such a classification automatically puts you in a higher tax bracket. And to make things worse, you should pay an additional 15.3% as you are self-employed.

Use Depreciation to your Benefit

Depreciation expense on residential property is deductible as per IRS guidelines under the accelerated cost recovery system. Hence, whatever money you spend on property improvements or renovations, including roof replacement and finishing the basement, can be deducted. The formula for computing it is simple: divide the cost by 27.5 years, and deduct the result from your taxable income for the year.

Before you use any of these tax-saving tips, you need to differentiate between your short and long-term investments. Any property held for less than a year is considered short-term, and the rest are classified long-term.

Hire a Team of Professionals

While following the above tips can be beneficial, the best advice is probably hiring a team of professionals, letting you focus on your core competencies. CPAs know how to help you get back the money you deserve from the IRS. Come tax time. It is better to leave it to trained professionals who have enough knowledge and experience in the tax domain. The fees you pay your tax consultant are negligible when compared to your savings on taxes.

Summing it Up

Despite all the tips you get on saving on taxes, it makes better sense to hire a professional to handle the IRS on your behalf. The trick lies in avoiding tax and not in evading it.

Filed Under: Business

Primary Sidebar

About Us

Hi Everyone. My name is Eddy and I'm a 28 year old American guy. I live outside the box and do things on my own terms. I quit my job a few years ago to pursue my writing passion, so here I am sharing this blog with you!

Connect with us

  • Facebook
  • Instagram
  • Twitter

Newsletter

Future Post

Banking Made Easy: Key Aspects for Choosing the Right Banking Service

When starting the process of selecting a banking service, it is important to thoroughly assess different factors to arrive at an educated conclusion. Financial establishments present a wide range of choices, and the appropriateness of each service relies on personal preferences and needs. The majority of banks offer different choices, such as deposit accounts, current […]

The History of the Modern Solitaire

Solitaire, also known as Klondike or Patience, is a popular card game that millions of players worldwide have enjoyed for centuries. Its origins are somewhat uncertain, but its history can be traced back to the 18th century. Here’s a brief overview of the history of Solitaire: Origin The exact origin of Solitaire Turn 3 is […]

A group of people in blue scrubs Description automatically generated with medium confidence

How nurse leadership positively impacts patient recovery

Everyone knows that nurses are under a great deal of pressure. Between intense and long working hours, the high intensity of the role, many patients needing care, and important medical decisions made daily, and occasionally changeable staffing, nursing is not an easy profession. It can, however, be an incredibly rewarding professional calling that requires skill, […]

What to Expect During Your Alabama Uncontested Divorce Mediation

Divorce is a difficult process, and it can be even more complicated when you are navigating the legal system. However, if you and your spouse have decided to pursue an uncontested divorce, the process can be less stressful and more efficient. One crucial part of an Alabama uncontested divorce is mediation. Mediation is a process […]

Organizing Your Book Collection: Creative Ideas for a Beautifully Arranged Library

For book lovers, organizing their cherished collections is both a practical necessity and a delightful endeavor. A well-organized library not only makes it easier to locate and access books but also creates an inviting and aesthetically pleasing space. In this article, we present a variety of creative ideas to help you organize your books effectively, […]

Pre-Vacation Checklist: 8 Must-Do Tasks to Prep Your Condo for Your Next Getaway

Are you counting down the days until your next vacation? Before you pack your bags and head out the door, it’s essential to prep your condo in the Philippines for your absence. Not only will this help you avoid any unpleasant surprises when you return, but it’ll also give you peace of mind while you’re […]

Establishing Clear Parental Boundaries Following Divorce Proceedings

    is a difficult process for everyone involved, but it can be especially hard on children. Establishing clear parental boundaries following a divorce is essential to helping your children adjust to the new family dynamic. It can help them feel secure and provide them with structure and stability during this difficult time. Here are […]

Strategies for nursing professionals to maintain a work-life balance

Nurses deal with medical emergencies and endure long working hours daily. Sometimes, it takes a toll on their health and productivity. Working under pressure means you don’t give the job your utmost concentration. To prevent burnout, nurses are advised to create a work-life balance. This means a harmonious way of integrating your professional and personal […]

Footer

About Us

Hi Everyone. My name is Eddy and I'm a 28 year old American guy. I live outside the box and do things on my own terms. I quit my job a few years ago to pursue my writing passion, so here I am sharing this blog with you!

Latest Post

  • Banking Made Easy: Key Aspects for Choosing the Right Banking Service
  • The History of the Modern Solitaire
  • How nurse leadership positively impacts patient recovery
  • What to Expect During Your Alabama Uncontested Divorce Mediation
  • Organizing Your Book Collection: Creative Ideas for a Beautifully Arranged Library

Connect With Us

  • Facebook
  • Instagram
  • Twitter

Copyright © 2023 · Executive Pro on Genesis Framework · WordPress · Log in