Sep 20, 2023

The Advanced Tax Guide for Real Estate Investors [Infographic]

Jacob Blackett
The Advanced Tax Guide for Real Estate Investors [Infographic]

The government offers tax benefits to real estate investors because it entices them to stimulate the economy and create wealth. The wealth benefited not only the investors but also others. There are, however, certain tax rules investors need to know about, which they can use to their advantage later on.

Do you want to learn the skills you need to become a successful investor? Here's an advanced guide that will help you improve your taxation skills. Check out this advanced tax guide specifically curated for real estate investors.

Deciphering the Jargon

When it comes to filing taxes, many jargon terms start floating around. These terms can seem confusing and complicated, more than they should be. So, here is a simplified version to understand these common terms better and use them to your advantage.

  • Straight Line Depreciation

As a person with an annual income of $200k, $300k joint income, or a net worth of $1M, excluding their primary residency.

  • Capital Gains

Profit received after the sale of a particular property.

  • Depreciation Recapture

It is the re-addition of the depreciation charged on an investment property in the taxable income.

  • Depreciation

Deduction in the cost or monetary value of the structures or property held for rental, investment, or business purposes.

Taxes Incurred By the Real Estate Investor

There are mainly three types of taxes that you need to factor into your investment.

  • Capital Gains tax

You will likely be taxed on that income when you sell a property and make a profit — usually when you file a tax return. It is paid to the IRS. For real estate investments, the duration of the property being held is a huge factor in calculating taxes. Long-term investments are generally treated favorably, with lower tax rates, depending on income levels.

  • Property Tax

Property taxes are property or real estate taxes determined by local tax assessors where the property is located. It is paid to the State and Municipal Governments. A tax assessor will collect information from the local institutions and registrars to determine property value. Usually, an auditor chooses the right property and real estate tax rate. And, only the auditor can allocate raised money to county agencies, cities, schools, and special districts.

  • Income Tax

The net investment income tax (NIIT) is applicable to the rental income and capital gains from the sale of rental properties. This tax is paid to the IRS. This tax applies a 3.8% fee to investment earnings, together with rental profits and capital gains from a passive investment for a taxpayer.

Tax Deductions and Benefits

Real estate agents and homeowners can claim many deductions, exemptions, and credits. It would be best to take advice from a professional tax lawyer for the latest updates and relevant tax information catered to your situation. A few criteria for eligibility are:

  • Repairs, renovation, and maintenance
  • Depreciation on newly purchased items
  • Travel expenses for out-of-state properties
  • Negative gearing: annual investment cost

Some tax benefits to be considered are:

  • No tax on the appreciation
  • Temporary deferral of capital gain tax by selling a property and reinvesting gains in an opportunity fund
  • Straight-line depreciation
  • Accelerated Depreciation

Summing Up:

Managing different properties and keeping track of relevant tax information for various locations can be complex and time-consuming. Hence, hiring an expert to address those financial concerns would be advisable. Tax laws keep changing, and the real estate tax implications will vary year to year. To stay on top of your Real Estate Investments, try SyndicationPro’s robust and easy-to-use Investor CRM, Investor Portal, and Investment Management Software.

Here is an Infographic for your reference. Save it for later!

Advanced-tax-guide-for-real-estate-investors - Infographic

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