The Ultimate Property Tax Planning Guide for Smart Investors

Property Investment Tax: Tips to Minimise

1. Take Advantage of Depreciation

One of the best real estate investment tax breaks available is the option of depreciation. The IRS provide a deduction that is claimable for having the cost of wear and tear to the property that you have purchased during the year and provides the effect of reducing the taxable income to the individual investor.

How it Works: Residential properties may be depreciated over 27.5 years whereas commercial properties could be depreciated over 39 years.

Bonus Depreciation: A few of the property improvements that are normally eligible for bonus depreciation can allow for the deduction of a fairly large amount in the first year of capital expenditure.

2. Deduct Operating Expenses

Due to the many expenses incurred with managing an investment property, there are several tax deductions which may be available to you. These include:

• Mortgage interest
• Property management fees
• Repairs and maintenance
• Property taxes
• Insurance
• Utilities (if you pay them)

You can reduce your tax liability greatly by keeping careful records of these financial expenditures.

3. Hold Properties for Long-Term Capital Gains

When you sell a property within a year of purchasing it you will be subject to the short-term capital gains tax rate which is the same as the normal income tax rate which is used. In comparison, you would be eligible to make a capital gains tax claim of long-term capital gains tax over one year which is normally much lower and is typically figured as between 15 and 20 percent.

4. Utilize the Pass-Through Deduction

Under the qualified business income (QBI) deduction scheme real estate investors of a type which operates as a pass-through entity such as an LLC can qualify for a 20% tax deduction on their rental income.

• Individual real estate investors
• Investors who actively manage rental properties

5. Set Up a Real Estate LLC

Owning your property through an LLC can bring about a great range of tax benefits to the owner of the property as well as protecting personal assets.

• Business expenses can be claimed as a tax deduction to avoid incurring tax liabilities on reported income.
• Potential pass-through tax benefits.
• Limited liability protection for investors.

7. Invest in Opportunity Zones

The Opportunity Zone Program offers tax incentives to investors who invest in areas that are economically difficult by law. For the investor, these benefits will include:

• Deferred capital gains tax.
• Reduced tax liabilities for long-term settled investments.
• Guaranteed tax-free appreciation if it is held for more than 10 years.