4 Bulletproof Strategies that Let Real Estate Professionals
Sunday 17 February
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by Chris Bird
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Never Invest a Cent Without Considering the Likely Tax Impact on Yourself
Realtors® and others in the real estate field see first-hand the steady increase in property values. Everyday, you assist both buyers and sellers to profit from it. You can spot the "good buys" and insider opportunities. But when you're the buyer, don't get so caught up in "the deal" that you forget to factor in the tax savings or costs that come with it.
Just as a property with critical easement problems deserves extra scrutiny, the same is true for any investment with tax complications. An investment (a real estate trade, for example) may look very different once the related federal tax consequences are calculated. Title defects shown by the title insurance report must be resolved before the closing. Be as careful to take into account tax scenarios that could diminish your true financial return going in.
I constantly travel the country, conducting 150 seminars a year for Realtors® and financial professionals. As a former IRS employee and tax expert (CFP and Enrolled Agent) I remind audiences that it's not how much you money make, but how much you keep that determines your true earnings. Being savvy about IRS rules helps you size up potential investments wisely, so you'll keep more of what you earn in the long run.
1. Depreciation Saves Money Several Ways
Depreciation is different than all other business expenses, since you don't have to actually spend those depreciation dollars to claim the expense. Yet depreciation gets to be added to the operating expenses, property taxes, and interest on the loan to offset the rental income. Since there's usually a tax "loss" during the first five to seven years a property is owned, that shelters your other income from taxes from the first year you own it.
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