Playing chess is all about making the right moves and thinking up smart strategies to win the game fair and square. The same applies to your taxes thanks to the preferential treatment granted by the IRS.
Taking advantage of this golden opportunity allows you as an investor to save your hard earned money from a storm of taxes. The following strategies will help you achieve that goal using legal loopholes or exceptions:
Making Wise Investments
Nowadays, it is possible to invest in a number of companies, stocks and even real estate properties. Going down the real estate road is an excellent option because it is a source for cash flow and leverage.
Playing the depreciation card also allows you to pay a small amount of the total cost of your investment while receiving a deduction on the entire property purchase price.
Using the 1031 Strategy
If you decide to purchase a new property alongside your first one, then you can use the tax strategy known as the 1031 exchange or the like-kind exchange. This powerful strategy is used by some of the most financially successful investors.
It allows an investor to postpone paying capital gains taxes on an investment property when it is sold, just as long as another similar property is purchased using the profit gained by selling that first property.
Once you are prepared to sell your second property, you can employ this strategy once again to buy your third property.
There is No Shelter Like Home
If you are the proud owner of your very own home, then this lovely house is your shelter from the rain of taxes. Owning a house comes with its tax advantages. First of all, you get to deduct all the real property taxes you pay.
This includes state or local taxes. Second of all, if you decide to sell your house, Uncle Sam will not be able to get his hands on any of the profit you make. Another great slice of information is that the IRS allows you to sell your house without having to pay taxes on up to $250,000 of the profit gained by selling that house.
This rule applies to single people. The amount is doubled for married couples. The only catch here is that you need to have proof that this was your primary home for at least two of the five preceding years. This strategy is ideal for growing your equity as well.
Going Down the Tax Loophole
Your real estate is considered a business when it comes to taxes. This allows you to make use of a lot of tax deductions that are available to businesses.
Tax shelters are in the palm of your hand whether you run a full-time or part-time real estate business. One recommended strategy is to subtract the business-use chunk of your phone, car, equipment or home office for your real estate.
If you are entitled to a home office, then this also allows you to make home repairs and deduct the percentage that is used for your own business.
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