6 Tax Tips to Help Property Investors Prepare and Save

Investing in real estate offers a lot of benefits, but it comes with a few downsides as well. One property can help you get a better return on investment if you invest well, but you have to be careful with your finances. Property ownership comes with more taxes and paperwork to deal with, which means you are going to have to invest more time and money to resolve those issues.

Claim your tax deduction

A tax deduction can lower your taxable income and thus help you reduce the amount of tax you own. As a landlord, you have the right to deduct the income that covers almost all expenses you pay to manage your property.

You have to remember that you can only claim your tax deduction if your property is available for rent or has an occupant already living there. You need to know what deductions are you qualified for, which is why it is advisable to consult an account before you claim the tax reduction.

Hold properties to avoid capital gains tax

Holding onto your property for a certain period will help you avoid capital gains taxes. In other words, to achieve that, you’d have to wait at least for a year before you put your property on the market.

In this case scenario, the money you get form selling your house will count as your income, which will put you into another tax category. If you sell your property after you’ve kept it for a year, you will pay fewer taxes.

Ask for help

Preparing tax returns is not easy, which is why you should talk to a professional in case you are not familiar with the process. Choose a trustworthy person to help you file and pay on time.

A professional can handle the most complex returns with ease for a reasonable price. They will fill all the right forms for you and help you prepare for the forthcoming processes.

Consider a Starker Exchange

A 1031 Exchange(or Starker Exchange) is a powerful tax-deferment strategy used by many real estate investors. However, keep in mind that you can benefit from the starker exchange only if you hold your property for two or more years.

Investors love the 1031 exchange because it allows them to avoid paying taxes when they are selling a property. You can use this tax code to sell a property and use that money to invest in a new one. With this code, you can avoid paying taxes until you sell the next property.

Work out a tax depreciation report

Tax depreciation reduces the amount of taxes a person pays via tax deductions. To be eligible, you need to fill out a proper report. By submitting a tax depreciation report to your accountant, you will be able to save the money that goes for unnecessary property taxes.

Create a tax depreciation schedule that will help you with the process. Good organization may not cut your taxes, but it will help you save a lot of time and effort. Dealing with taxes can be complicated, so do not hesitate to hire someone to help you sort things out.

Also, many people turn to residential quantity surveyors for advice to have a clearer insight into the expenses they would have.

Cash-out refinancing can be useful

You are not getting money for free via the refinance transaction. However, it allows you to take out a new loan with a larger balance which you must pay back over time.

Another benefit is that you will not have to pay income taxes on the money you receive through a cash-out refinance. Of course, you will have to pay taxes once you sell the property, but right now you can use that money with no tax at all.

Conclusion

If you are concerned about preparing your tax return, try to learn as much as possible before you take action. You cannot avoid paying taxes, but you can avoid unnecessary expenses. Tax codes are very complex, which is why you must come up with a strategy to keep away from any legal issues.

Mia Ackerson is a Melbourne-based freelancer who is interested in business, technology, interior design, home improvement, gardening, baking, and cooking! She's also a babysitter!