Customized tax and business capital solutions for real estate investors

Real estate investors can significantly customize their tax situations by leveraging specific strategies within the U.S. tax code, which are essentially incentives built to encourage investment. These methods focus on deferring capital gains, maximizing deductions (like depreciation and mortgage interest), and optimizing income types.

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Key Tax Strategies for Real Estate Investors

Deferring and Reducing Taxes on Sales

• 1031 Like-Kind Exchanges: This powerful tool, under Section 1031 of the IRS Code, allows investors to defer capital gains taxes when they sell an investment property and reinvest the proceeds into another "like-kind" property. The taxes are only due when a final property is sold without a subsequent exchange.

• Installment Sales: Instead of receiving the full sales price upfront, an investor can spread payments over several years, deferring the capital gains tax liability to the years in which the payments are received.

• ‍Opportunity Zones: Investing in a Qualified Opportunity Fund (QOF) in designated economically disadvantaged communities may provide opportunities to reduce or eliminate future capital gains on that investment.

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Maximizing Deductions and Offsets

• Bonus Depreciation: This allows for the immediate expensing of certain new or qualifying used property assets (like appliances or substantial renovations) in the first year they are placed in service.

• Deductible Expenses: A wide range of expenses related to buying, managing, and maintaining real estate can be written off, including mortgage interest, property taxes, maintenance, repairs, and professional fees.

• Qualified Business Income (QBI) Deduction: Eligible real estate investors may be able to deduct up to 20% of their qualified business income, potentially resulting in significant tax savings.

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Strategic Planning and Entity Structures

• Real Estate Professional Status: Qualifying as a "real estate professional" with the IRS, which generally requires spending more than 750 hours annually on real estate activities with material participation, can allow investors to deduct passive losses against active income.

• Entity Structuring: Using LLCs or corporations to hold properties can offer specific tax advantages, though C Corporations may be subject to double taxation issues.

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Estate Planning

• Estate Planning (Step-Up in Basis): Assets passed to beneficiaries upon death receive a "step-up in basis" to the current fair market value, effectively allowing heirs to avoid paying capital gains tax on the appreciation that occurred during the original owner's life.

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