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7 Tips How You Can Save Tax Money from Your Residential Properties

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7 Tips How You Can Save Tax Money from Your Residential Properties

Investing in residential properties is advantageous. As an investor in real estate, you enjoy various deductible expenses and other tax benefits for more information you can contact Quantity Surveyors for Tax. The following are tips to save tax money:

Hold Properties Longer

If you own a particular property for a period of fewer than twelve months and then decide to sell, the profit acquired from the same is taxed at the ordinary income tax rate. Such applies in the restoration of vintage cars alongside selling, flipping real estate, and day trading. In case you sell more than one property within a year, it implies that you are a dealer; hence you must be taxed.

To avoid such tax, you need to own a property for more than one year before selling it. Through this, you will not be classified as a dealer; therefore, your profits will not be taxed as normal income. If you deal with house leasing houses, rent them for one year term before selling.

Own Real Estate through IRA

IRA is considered as a tax-deferred to invest for retirement benefits. As a residential investor, you set up your self-directed IRA and apply it to venture into the real estate business.

Do Not Pay FICA Taxes

IRS makes you be classified as a dealer, not an investor; hence you are considered as self-employed leading to owing double FICA taxes.

FICA taxes are taxes levied on employed people to cater to Medicare and social security, and it is split between employees and employers. If you flip residential properties, you should come up with a strategy to avoid considered as a dealer by the IRS. You can prevent this by demonstrating an investment intent. You have to prove that you do not sell residential properties as a regular business but instead generating capital for other essential investments.

Additionally, to avoid regarded as a dealer by IRS, avoid engaging in buying and selling of properties through individual LLC members. It will help if you create a legal entity to change how you can be taxed as an investor.

Put off Taxes with a 1031 Exchange

Following part 1031 of the tax agreement, property owners are allowed to stop paying taxes indefinitely by purchasing the same property, for instance, residential property’s proceeds should buy another one.

Live in the Residential Property for Two Years

Once you purchase a residential property, you can decide to take possession of the new house and stay there, after some time you make significant improvements and upgrades on the property. In case you stay in the residential property for more than two years, the first gains from it are tax-free for singles. If you are a couple, you receive the full limit, which is $500,000.

Notably, you might desire to stay in residential property for two years without making any home improvements. Through improving the state and condition of the house, you will make profits when selling it and earn tax-free money.

Increase Your Deductions

Real estate investment requires that every actual expense and paper expense are tax-deductible. The following can be deducted, property taxes, insurance, advertising expenses, legal fees, home office expenses, depreciation, mortgage interest, closing costs, travel and mileage expenses, pass-through deduction, software, and other reals estate support expenses and property management fees.

You can also take the standard deduction since it does not need you to break down your deductions. Standard deductions the total amount taxed on your income. Ensure that you calculate and choose wisely the type deduction to reduce your tax bill. Consult with your accountant and discuss any grey areas.

Sell Your Property in Installments

Selling your property in installments ensures that you do not incur taxes and attaining high profits. The profits acquired from selling the property can be spread over the years by providing seller financing. During the year you sell property, you must pay income tax. Over time the buyer will have to pay the amount they owe you. You get to impose some interest on the buyer hence making more profits.

Always qualify the buyer before entering an installment sale to avoid default payments which can force you to take back the mortgaged property.

Gaining profits from residential investment can be very challenging until you understand the rules. As an investor, you have to find strategies to take advantage of various tax advantages given to real estate owners. Manage your residential properties properly for better results.


Eric Reyes is a passionate thought leader having been featured in 50 distinguished online and offline platforms. His passion and knowledge in Finance and Business made him a sought after contributor providing valuable insights to his readers. You can find him reading a book and discussing current events in his spare time.

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