As April 17, 2024, the deadline for individual tax returns approaches, people countrywide are busily compiling receipts, crunching numbers, and navigating the complex world of tax codes and regulations. There are many options available to those who are already real estate investors or who are thinking about getting into the business.
Smart investors realise that real estate may be a great way to generate wealth while also providing considerable tax benefits. Whether you’re a seasoned investor or just starting out, this article will cover some of the best strategies for using real estate to reduce your tax liability and increase your wealth before tax time rolls around. How about we just jump in?
Providing a Six-Month Grace Period for Tax-Reduction Services
When it becomes difficult to file taxes by the due date, preventative actions must be taken. If this is the case, filing for an extension of up to six months can provide you breathing room to complete your taxes thoroughly. To request an extension, contact your tax preparer or use the appropriate programme. Those in need of tax Reduction Services would especially appreciate this extension’s extra time. With this extra time, you can carefully gather all the information you need to file your taxes and claim all the deductions to which you are entitled. Even with the added time, any taxes that are still owed must be paid as soon as possible. Interest and penalties will accrue until the sum is settled in full, highlighting the need of managing your tax obligations even amidst a prolonged deadline.
Put your tax return money into property investments.
Congratulations are in order if you are anticipating a tax rebate services. When you get a large sum of money unexpectedly, you can use it as a down payment on a house. Putting aside a portion of your tax refund in a savings account might help you reach your real estate goals, whether that be buying a first house or investing in rental properties. Money market accounts are similar to savings accounts in terms of their liquidity, but they provide greater interest rates. Think about this investment option if you want to make up to 4.8% (interest rates as of this writing).
Form Partnerships to Save Money on Taxes
Investing in real estate as a partnership might reduce your taxable income. One way to potentially lower one’s tax liability is to pool resources with other investors. Limited partnerships (LPs) and limited liability companies (LLCs) are two common vehicles for accomplishing this.
More than half of your time and more than 750 hours per year must be spent on real estate-related activities for you to qualify for IRS designation as a real estate professional. If you meet these conditions, you can reduce your taxable income by using real estate losses as a tax deduction.
To defer paying taxes on real estate deals, think about using a 1031 exchange.
If you sell an investment property and reinvest the proceeds within a set time frame into another Investment Property of the same type, you can defer capital gains tax on the sale. This is called a 1031 exchange. This tactic can be quite useful in protecting investment funds and decreasing taxable income.
Depreciation Acceleration by Cost Segregation.
Fixtures, appliances, and upgrades can all benefit from cost segregation because it allows them to be depreciated over a shorter period of time on your tax return. You may be able to reduce your taxable income and increase your depreciation deductions according to the findings of this study if you have rental property.
Property Improvement Tax Credits for Historic Buildings
Property owners in designated historic districts may be able to claim historic tax credits for restoring and renovating their homes. By lowering the total tax burden, historic tax credits encourage the restoration and preservation of older buildings. In Louisville, the qualifying historic preservation districts are: West Main St, Cherokee Triangle, Old Louisville, Clifton, Parkland, and Butchertown.
The state of Kentucky provides private investors with tax credits for the rehabilitation of historic sites. When a building meets certain criteria for rehabilitation, the owner may be eligible to get a tax credit equal to a percentage of the amount spent on the project.
Get Tax Advice From Your CPA
Talk to your accountant about ways to defer Tax Payments through investments in real estate if you have a significant tax bill to pay this year. Consider cost segregation on larger real estate purchases to speed up depreciation, forming partnerships, getting the IRS’s real estate professional designation, selling investment real estate through a 1031 exchange, and claiming historic tax credits for property improvements on homes in historic preservation districts, to name just a few.