Real Estate Expenses and Tax Options
You should always know local state and federal laws before you enter a home flipping adventure. Capital Gaines taxes are one of your biggest expenses when flipping a home. If you make the property your personal residence some of the taxes can be avoided, but if you are doing multiple flips in a year this is not always an option.
Here are a few ways you can save on your taxes.
1. Hold Properties for One Year – Holding the property for at least one year can also reduce your taxes liabilities. Properties held for more than a year are taxed at Capital Gaines rates instead of personal income tax rates. While this is a great way to save on your taxes you must weigh the cost of holding properties for that length of time and consider your cash will be tied up and could prohibit you from investing in other properties. All of these factors must be considered.
2. Tracking Expenses – This is the best way to offset your tax payment. This includes meals, office supplies, travel expenses to and from the job site. Are you using a room in your home to conduct business? If so, that room and a portion of your utilities can be written off as an expense. No expense is too small or too large and all will help with your taxes. So, keep all of those reciepts, you will be amazed at how much money they can save you.
3. 1031 Exchange – Have you heard of the 1031 tax exchange? This federal tax law is great but has many rules and timelines. These timelines must be followed, or the exchange is forfeited, and taxes are due immediately. You only have 45 days after the current asset is sold to identify a replacement property and only 180 days to complete the purchase. There are no appeals or option if you miss the deadline. There are company’s that will walk you through this process and handle the paperwork for you. This expense could also be deducted as a business expense.
4. Profession Advice – It is always a great rule of thumb to have a bookkeeper or Accountant that is familiar with the Real Estate industry on speed dial. The cost of either will be far less than a tax issue with the IRS. Consider making a personal connection with your professional and take them to lunch or dinner. The cost of a meal could provide you with valuable free advice.
Solid Capital Growth has always sought the help of the professionals when it come to expenses and taxes. Our 30 plus years of experience in the industry has taught us that lesson, as the taxes laws are ever changing. Let SCG help you with your next Real Estate flipping adventure and you will have all our knowledge on your team.
