Real estate investments make a great tax shelter. Experienced real estate investors will tell you that it’s much less expensive to consult a professional to help you avoid unnecessary headaches, legal expenses, and financial losses. Understanding the nuances of the tax laws designed to benefit real estate investors is essential to help realize the maximum yield from your hard-earned investment dollar to create passive income streams and secure your financial freedom.
Incentives are provided for real estate investors to promote economic growth and development as well as to assist in the need for low-income housing through programs like the low-income housing tax credit (LIHTC) program for disadvantaged rural or urban areas. The maze of rules and regulations can seem overwhelming even to more experienced investors who seek to utilize every tax benefit available to earn the highest possible returns on their investments.
To give you a handle on taking full advantage of these benefits, our team of professional investors has broken it down to the basics with our ultimate tax guide for real estate investors in Omaha.
Please be aware that we are not attorneys or tax consultants. This article is for informational purposes, not financial, legal, or tax advice.
Most residential rentals depreciate at a rate of 3.636 percent per year over 27.5 years, which lowers taxable income for investors. Depreciation allows for the recovery of costs of income-producing property. There are a few ways to realize extra depreciation; the first tip in our tax guide for real estate investors in Omaha. A cost segregation study will identify realty-related costs that investors can write off faster with the additional first-year depreciation deduction. Then, for components with a life of fewer than 20 years, you can use 100 percent bonus depreciation. Investors can also use passive losses to offset their passive income.
Documenting Non-Dealer Status
The next tip in our ultimate tax guide for real estate investors in Omaha is carefully documenting your non-dealer status. The IRS considers many factors in determining if you’re a real estate dealer or passive investor, and the difference could cost you 15.3% of your income in self-employment tax on rental real estate.
Another fundamental is your method of accounting, cash or accrual, in our ultimate tax guide for real estate investors in Omaha. The cash method reports your income in the year earned and expenses in the year paid, while the accrual method reports income or expenses in real-time. Good habits in recordkeeping and a reliable system to track your real estate income and expenses will help ease the process.
Type of Ownership
One more tip from our ultimate tax guide for real estate investors in Omaha is determining the best type of ownership for your holdings which will depend upon your personal preferences financial goals and tax situation. You’ll need to understand the time and effort involved with direct ownership, where you have more control over the outcome and the opportunity to ensure you maximize your profits. REITs or real estate investment trusts allow you to invest without having to wear the hat of a landlord. Or alternatively, owners can pool their money in online investment platforms to purchase properties they might not otherwise afford.
Our final subject in our ultimate tax guide for real estate investors in Omaha is the importance of researching to ensure you take advantage of all deductions available. For example, you can deduct interest, repairs, travel, your home office, employees, casualty losses and not to be overlooked, depreciation. Additionally, you can write off expenses that relate to starting your business, locating properties, limited advertising costs, and even cell phone and internet services. Tax laws are subject to change, and you should discuss them with a real estate attorney, your accountant, or a professional tax advisor. In addition, the rules and regulations of tax laws and how they apply to you can vary depending on the circumstances.
We’re happy to answer any questions about our ultimate tax guide for real estate investors in Omaha; talk to one of the professional investors at Harter Investments today without any obligation. At Harter Investments, our professional investors know the tips and tricks and the latest technology to help make managing your real estate investment business easy. At Harter Investments, you’ll find our professional investors have done the legwork and built community connections that benefit investors like you, bringing skilled tradespeople to handle any job and providing reliable estimates on potential investment properties. Additionally, at Harter Investments, there is added cost and time savings through the efficiency of our full-service in-house team of industry specialists from inspections to closings. You’ll also have access to our top-notch team of property management professionals at Harter Investments to protect your investments and keep your tenants happy. Call Harter Investments at 402-939-6556.