Real Estate Investor Tax Tips: Don't Let the Tax Man Take a Bite Out of Your Profits
Real estate investing can be a great way to build wealth and generate passive income. But as with any investment, it's important to consider the tax implications. Understanding the tax benefits and strategies available to real estate investors allows you to maximize your returns and minimize your tax bill. Before diving into the tips, we want to clarify that we are not accountants or tax professionals. The information we've shared here is for general educational purposes only and should not be taken as tax advice. For specific tax advice related to your circumstances, please consult a qualified tax professional (or at least someone who knows how to use a calculator). Now, let's explore some real estate investor tax tips: Take advantage of deductions: As a real estate investor, you can deduct expenses related to your investment property, such as repairs, maintenance, property taxes, and mortgage interest. Just make sure not to deduct that trip to Hawaii as a "business expense" (unless you actually did some real estate deals while you were there). Don't forget about depreciation: Depreciation is a tax deduction that allows you to deduct a portion of the cost of your rental property over time. This deduction can significantly reduce your taxable income and save money on your tax bill. Just don't get too depressed about the fact that your property is losing value over time. Consider a 1031 exchange: If you plan to sell your rental property and reinvest the profits into another property, consider a 1031 exchange. This allows you to defer paying taxes on the profits from the sale of your property as long as you reinvest those profits into another property. Think of it as a real estate "swap" – but without all the paperwork. Keep track of your basis: Your basis is the amount of money you have invested in your rental property. It includes the purchase price plus any improvements you have made. Keeping track of your basis is important because it will affect your tax liability when you sell the property. Don't confuse it with your basic instincts – those probably won't help you with your taxes. Consult with a tax professional: While there are many tax benefits to owning rental property, the tax code can be complex. Consulting with a tax professional can help ensure you maximize your deductions and take advantage of all available tax breaks. Plus, they can help you avoid any "tax traps" that could leave you feeling like you're in a "taxing" situation. In conclusion, real estate investing can be a powerful tool for building wealth, but it's important to understand the tax implications. By taking advantage of deductions, depreciation, 1031 exchanges, and keeping track of your basis, you can save money on your tax bill and increase your returns. Just remember to consult with a tax professional (or at least a calculator-savvy friend) for specific advice related to your individual circumstances. And don't forget to keep your sense of humor – it's the best way to survive tax season!
Indoor/Outdoor Entertaining & Relaxation
If you live in the south, you are fully aware that the biggest deterrent to enjoying the outside is the bugs (frogs for me, but that is a story for another day.) One way to combat the pesky bugs is to have a screened-in porch. Up until my parents followed me to Arlington, they always had a screened-in porch. Once they moved to Arlington they bought a house with a front and back porch. They quickly deduced that a screen porch would be needed. After unsuccessfully trying to agree on how to screen in an existing porch, they decided to add a new porch off the kitchen. This had the extra benefit of extending the entertaining space. Unfortunately for them, this idea started during Covid and really was only a paper drawing for a good while. As Covid restrictions eased they decided to go for it. They hit issues finding tradesmen with availability. They started interviewing construction companies, finally settling on one that was more a project manager that brought in the individual contractors through relationships. Fast forward, 6 months, and they finally have a new porch. This porch is an eye-catcher from the street and breathtaking inside with its fireplace and soaring ceiling. The tall screens help the airflow. They are still working on furnishings and landscaping but you can see the space will be a show stopper they will enjoy for years to come. Lessons learned along the way are to actually have an architect draw up the floor plans. Find a contractor to manage the whole process that will be hands-on. Plan on setbacks and delays so that you are not stressed or surprised. Lots of deep breaths. Check out these beautiful photos of the finished product below:
I am retiring, what changes can I make in my home?
We all like to think retirement is full of traveling, new hobbies and hanging out with friends. However, it is true that a lot more time will be spent at home. Listening to my parents, their friends and my friends as they retire, I and hearing lots of concern about how their homew function for them: stairs, slippery floors, handles and wheel chair access. Now that you have retired and have some time on your hands and hopefully some funds saved to make improvements, it is time to look at how your home might need to work better for you. There is a phrase in the real estate world called "age in place." This means that you are choosing to stay where you can as long as you can while living a quality life. What are your possible health, social and emotional needs as you move into the next phase of life? Look at your home with thoughts in mind of how you will be living there as you are older. Below are some tips from PorchLyte to help guide you. 1. Build your life around the first floor If you live in a multi-story home, it’s time to quit the stairs and settle living on the first floor alone. This means relocating all amenities on one level, including the master bedroom, bathroom, and laundry area. Depending on the space, you can either build these rooms from scratch or go the more cost-effective route of converting existing rooms on the first floor. Not only will your knees thank you for this, but limiting traffic on just one level will make your home easier to maintain and clean up. Pro-tip: When relocating your bedroom, choose the quietest area away from traffic noise. This is because as you enter your senior years, it’ll be much harder to sleep deeply. Catch those zzz’s by doing this! 2.Set up a fitness spot Don’t have a personal gym yet? Now’s the time to dedicate an area for fitness equipment such as a treadmill, yoga mat, and senior-friendly dumbbells. You can do this within the first floor or set it up outdoors to catch some sun while working out. 3. Choose a slip-resistant flooring Switching from slippery flooring to slip-resistant is your first step to catching yourself from falling over or tripping in the future. Some options include vinyl, linoleum, cork, and carpet. These are also resilient floors, meaning they were engineered for comfort, giving your legs a break from all the other rigid floor choices. 4. Create an accessible entry point As you age, little things– like climbing two or three steps leading to your front door – suddenly become a daunting task. To ensure that you can step in and out of your house without hassle, you can install a ramp or a gradually-inclined walkway with a handrail. Through this, you will still be able to access your home should you need the help of a wheelchair or walker one day. While you’re at it, you can widen interior doorways by adding in a few extra inches. To fit a wheelchair, set your target doorway width at 32 inches or higher. 5. Make your bathroom senior-friendly A couple of upgrades will help you avoid fall-related incidents in the bath. A common tip would be installing grab bars in the shower, toilet area, sink, or other areas where you’d lean on. Plus, you may want to replace a bathtub with a walk-in shower unit with a handheld shower head. This type of shower head gives you more flexibility while you bathe. 6. Invest in tech & security solutions Does tech freak you out? We sure hope not ‘cause smart home devices would make for valuable upgrades when you retire. If you haven’t heard of the concept, your home becomes a ‘smart home’ when you furnish it with electronic gadgets designed to perform automated tasks when you command it. Lights, heating, door locks, and appliances can be voice-activated. Futuristic, isn’t it? If you don’t have one yet, you may want to consider setting up a CCTV and an alarm system for you and your property’s protection. Also, don’t be shy in plastering signs that say your home is under constant surveillance. This measure shoos away potential criminals who might take advantage of your vulnerability as an elder. 7. Repaint and redecorate to match your style Have you always wanted to paint your house a certain color but never did? Don’t let this turn into another ‘what if’ and do it! While it is recommended to choose a calming palette, the color of your forever home will be solely up to you. You can also perform other mini aesthetic projects such as redecorating the living room with plants, spicing up a bland wall with photo frames, and placing fresh flowers in the kitchen. We hope these tips help you create a home you can enjoy well beyond your retirement years! Thanks to the team at PorchLyte for the great tips!
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