No matter what your financial situation is, it’s always a good idea to try and legally lower your taxes when you can. And one way to do that is through real estate. By taking advantage of some of the tax breaks available to property owners, you can save yourself a significant amount of money each year.
In this blog post, we’ll explore some of the ways you can legally lower your taxes through real estate. So if you’re looking for ways to keep more of your hard-earned money in your pocket, read on!
Defer your tax bill through 1031 exchanges
1031 exchanges are a great way for those who own real estate to save on their taxes. By taking advantage of the 1031 exchange provisions, you can defer your taxes when selling an investment property until you reinvest the proceeds in another like-kind property.
That means that instead of paying a large tax bill, you have longer to invest that money in another income-producing property and can gain more profit over time.
This strategy makes it easier for investors to accumulate wealth while also providing them with significant tax savings.
Additionally, 1031 exchanges help investors avoid capital gains taxes and depreciation recapture by allowing them to defer those costs into future years–potentially indefinitely. With such an attractive option on the table, why not explore 1031 exchanges and see how they could benefit your real estate investments?
Get a deduction for the mortgage interest you pay
Investing in real estate can lower your tax obligations significantly. Through claiming the mortgage interest you pay on your taxes, you can be eligible to receive deductions and lower your total taxable income; meaning lower tax payments for you.
Make sure to keep an accurate financial record of all your mortgage interest payments and discuss it with your accountant or tax adviser; they will help guide you through what deductions you will be able to claim from owning a property and how much of that money can end up back in your pocket.
Deduct your property taxes
Claiming your property taxes on your annual tax returns is a great way to save money and reduce the amount of income tax you have to pay.
In many cases, homeowners can lower their total tax liability by deducting their property taxes from their income taxes. This means that for every dollar of property taxes you pay, you may be able to reduce your income taxes by the same amount.
Although claiming this deduction requires some effort, it can definitely be worth it in the long run. After all, reducing your taxable income also reduces your effective tax rate. With just a minimal investment of time and energy, you could potentially see some impressive savings come April!
Deduct maintenance expenses on real estate investment properties to lower your taxes
If you are looking for a way to lower your taxes, investing in real estate may be the answer. When you own rental properties, you can often deduct expenses associated with the upkeep, such as repairs and maintenance.
This includes routine items like mowing the lawn or painting the trim, major replacements like roofing and siding, and even utilities if they are paid by landlord. By taking these deductions it can lower your tax liability significantly, offering an added benefit to those who invest in rental properties.
Invest in energy-efficient improvements to your home
Investing in energy-efficient improvements for your home is an excellent way to lower your taxes and help out both the environment and your wallet.
Easy upgrades like adding additional insulation, weatherstripping, and efficient lighting can all lower energy costs significantly. Larger projects, such as replacing an old HVAC unit or changing out outdated appliances for more energy-efficient models, cost more upfront but will pay off in lower utility bills.
For those looking for a lower-cost option, simply switching to LED bulbs throughout the house is a great step to reduce electricity consumption. In addition to being eco-friendly, many of these improvements are eligible for tax credits or deductions during filing season that can really help lower what you owe at the end of the year.
Investing in energy-efficiency is beneficial not only when preparing one’s taxes but also saves money over the long-term!
How investment real estate can act as a tax shelter
Investment real estate offers a great opportunity to lower your taxes and increase overall financial returns. Financial benefits of owning an investment property include the ability to leverage depreciation deductions and potentially lower the rate of capital gains tax.
It also allows for potential income from tenants, giving you a steady stream of additional funds beyond the property’s appreciation in value.
Additionally, any expenses from homeownership – such as mortgage interest, property tax, insurance and maintenance – are deductible against rental income if you decide to rent out your investment property. Investing in real estate is thus one way to be both financially savvy and minimize what you owe in taxes at the end of each year.
If you’re looking for ways to defer your tax bill and get some deductions, 1031 exchanges and energy-efficient improvements are a great way to do it.
You can also deduct your mortgage interest and property taxes. These are just a few of the many ways you can save money on your taxes by investing in real estate.
Erika Finn, founder of Stacking Acorns, is an attorney who graduated from law school at University of California, Berkeley. She was a member and editor of the California Law Review and won the Prosser Prize for Legal Accounting. She holds a Master’s Degree from the University of Southern California (USC) and a Bachelor’s degree from Indiana University- Bloomington. Stacking Acorns is a personal finance website for women by women. We help mid-life women achieve financial freedom through real estate investing and other streams of passive income.