” In this world, nothing can be said to be certain, except death and taxes.” – Benjamin Franklin
The earliest known tax was documented in Mesopotamia approximately 4500 years ago. People used to pay using livestock, which was one of the prominent and acceptable currencies. As we can see, they occur as long as human civilization exists. We don’t doubt that taxes are an essential part of the state. But sometimes paying less money benefits the government budget itself. How?
As an active real estate investor, you can generate more cash flow, and then, benefit the overall economy. The wealthier you are, and the bigger your cash flow is, means you are creating more jobs. Thus, you are helping the economy. The government has left some loopholes in the law to encourage active investors to generate more money. In today’s blog post, we will cover some of the most significant ways to pay little to no taxes while investing in real estate.
1. 1031 exchange
According to the law, you can defer paying taxes indefinitely. To make it more understandable, let’s look at a very basic example: James buys property for $150,000, spends $50,000 on improvements, and sells for $250,000 for $50,000. You have two choices: use the earnings immediately, which means that you will be taxed ordinarily, lose the most significant part of it, or REINVEST in a new property – add another $50,000 to your profit and purchase a new estate. You can continue the cycle indefinitely. Or don’t sell the property at some point, and generate better cash flow. The better property will bring considerably better monthly revenue. Therefore, use this advantageous loophole to gain wealth quickly and make even more money.
2. Self-Directed IRA
It’s an amazing way to save for your retirement. Not everyone has money on hand to invest in real estate. But anyone who has worked for a company that contributes to a retirement plan has money that can be transferred or rolled over to a Self-Directed IRA where they can invest in alternative assets like real estate while keeping the taxes away from the profits. You can buy and hold and the rental income flows back to your IRA and you can sell at a profit that goes right back into your IRA, and use 100% of that to invest in your next deal without having to worry about paying taxes. Keep in mind that you will not be able to withdraw your funds without a penalty before you reach the age of 59 ½.
3. Keep up properties for more than a year
Buying and selling the property at a higher price, brings you a profit. It’s an excellent way to earn money; however, selling it too quickly means you will be taxed at a regular tax income rate. To avoid extra taxes, make sure to hold the property for at least a year. Selling too many times a year puts you at risk of being classified as a dealer. This, you will have to pay double FICA taxes.
Invest Confidently with Shannon Robnett
By reading this blog you’ve began the first step in aligning your investment strategy with your personal financial goals. At Shannon Robnett Industries, we bring decades of experience structuring both types of opportunities, with a proven track record of helping investors build wealth through carefully vetted, tax-advantaged real estate projects.
Whether you’re seeking steady income through debt or long-term growth through equity, our team is here to help you make the right move.