When it comes to investment homes, there are number of estate tax, property tax, and basic tax strategies that can be involved. Let’s take a look at a handful of tips that will take your tax savings and maximize them. You may also gain some insight as to how to best handle owning a second home.
A Tax Rule
The 1031 exchange, as long as you shift the proceeds right into another property investment, allows you to profit from the sale of investment property. It also defers tax liability. Without affecting your capital, you could increase the value of your holdings by paying capital gains tax. In addition, no tax will be due on the original sale as long as the money is kept in holding and is, before closing, untouched.
The Phantom Deduction – Depreciation
Rental property depreciation losses are defined by the IRS as an allowance provided to the owners of those properties. It is for, during normal use of the property, basic wear and tear. Owners and landlords are compensated for the depreciation of their assets by the IRS. But homes appreciate rather than depreciate. That disallows the depreciation consideration by the IRS. So, profit can still be made and money saved on taxes.
If It’s Rental Property – Depreciate It
The IRS expects your rental property to, overtime, depreciate. They view it as a business expense. This benefits you because it means a deduction. For upward of 27.5 years to come, you can deduct some of the cost of the home.
“Safe Harbors” Should Be Taken Advantage Of
While you are not in your second home it’s best to rent it out. Don’t let it sit vacant if you don’t have to. For one thing, that rent you collect is extra income. For another thing, you can deduct mortgage interest, real estate taxes, insurance, repairs, and other related expenses. A policy called ”Safe Harbor” is provided by the IRS. It applies to $2500 of expenses for rental property.
Different tax implications, however, will apply if for more than 14 days per year you are personally using the property. It is best to take a close look at the specifics by consulting with a professional accountant that is familiar with local and federal tax laws as they relate to homes, properties, rentals, and investments.
You simply don’t leave these kinds of things to chance.
Make Your Heirs Happy
The kids are going to love this. The gain inherent in your investment is gone once you pass away. What that means for your heirs is that they will be left with a lower tax basis than the actual value of the real estate you’re leaving them. Those are the tax laws that apply to real estate property of the deceased.
If what you’re looking for from the property is cash, you may be well advised to get a home equity line of credit and refinance it. Because, on debt, there is no tax. So, without having an extra tax expense, it’s easy to get cash flowing with that home equity line of credit.
If you’re considering investing in real estate, and you’re interested in going property hunting in New Jersey, there are lots of opportunities. Take a look at current listings, email Josh@NJLux.com, or call us at 201.568.5668 today!