When you invest in real estate, you have to have a long term vision and patience. Unlike buying stock which can be readily purchased and sold, investing in real estate does not afford a quick sale. While it is true that in years past, people were able to flip properties and make fast money in real estate, for most real estate investors the idea is to buy and hold real estate. Some investors in real estate will benefit from federal income tax breaks and other investors in real estate can hold a piece of property and later sell it and buy other property while deferring the payment of any federal income taxes until the real estate is cashed out. Real estate is not a liquid investment and you may need to consider a long term strategy or option even if you are considering a shorter term investment in real estate. Read our articles on investing in real estate and learn about problem tenants and how to handle them. Learn about finding the right team to help you navigate the world of real estate investing. And, finally, learn about how to structure your investments, insure your real estate investments and minimize your federal income taxes.
Decreasing Tax When Selling Investment Property
An investment property owner wants to know if there's a way to sell and pay less tax. He asks about gifting the investment property. A 1031 exchange might be an option for the investment property.
Buying A Home As An Investment
When you're buying a home as an investment you can follow some of the same steps as you would when you're buying a home to live in. You should consider the home's location and whether you can afford the purchase. It's especially important to have enough money saved for a rainy day.
Calculate Capital Gains Taxes Instead Of Inheritance Taxes
When you inherit property and later sell it, you need to calculate capital gains taxes, not estate taxes. Estate taxes are due on estates of a certain value and if the estate's value is less than the government standard, no taxes are due. To figure exactly how much you owe in terms of capital gains taxes, consult with a tax preparer or accountant.
Short Sale Real Estate Investor’s Only Option
A real estate short sale may be the only option for this new real estate investor. Many new real estate investors did not anticipate the down turn in the market and now owe more on a property than it is worth and are being forced to negotiate a short sale. If the mortgage lender accepts the short sale, the real estate investor may still be required to pay out of pocket for other expenses.
Long-Term Capital Gains Tax Rate
Long-term capital gains taxes will be paid on the difference between the purchase price and the sales price, minus the broker's commission, transfer stamps, advertising costs, any other costs of sale and the cost of capital improvements made to the home.
1031 Tax Deferred Exchange
A 1031 tax deferred exchange helps investment property owners sell property and purchase another without paying capital gains tax. The 1031 exchange mechanism allows you 45 days to find and designate a replacement property and, in most cases, 180 days to close on the purchase of the replacement property. There are many companies that act as a 1031 intermediary, but you need to do your research first.
Calculating Capital Gains
A homeowner bought his parents' house for $10 and wants to know what his tax burden will be. The IRS views the profit on the property as the sales price minus the $10 and any costs to sell or improve it, so he will pay taxes on a large profit. Since it is investment property, he'll owe long-term capital gains taxes on the profit.
Tax Deduction On Sale Of Primary Residence
A homeowner is going to rent her house, but plans to sell it within the next two years. She should not have to pay any capital gains taxes, because when a person sells his or her home, and the person has used the property as their primary residence for at least 2 out of the last 5 years, he or she doesn't have to pay any tax to the federal government on the first $250,000 of profit (up to $500,000 if the owners are married).
Investment Property Requires Large Down Payment
In the current real estate market, mortgage lenders are requiring investment property buyers to make a large down payment. To borrow the money for an investment property, buyers will need to have a large amount of cash up front. Even with excellent credit, it will be hard to finance investment property without a big down payment.
Homesteading Vacation Property
A homeowner moved into his vacation home and hopes to avoid capital gains tax when selling the property. If a vacation home has become your primary residence and you want to avoid capital gains, you should wait 24 months after the date you closed on the sale of the primary residence.