One of the reasons that real estate is a great asset to invest in is that if you know what you’re doing, there are plenty of small tips that can help you earn big. Plenty of tax laws encourage investment in real estate of all scales. They’re always changing, and recently the government has added to this list of benefits.
1031 Tax Deferred Exchange
One of the most popular tax laws that real estate investors use is the 1031 exchange. This law encourages the purchase of larger properties from the sale of smaller ones. The law allows an investor to defer paying off capital gains of a property after it’s sold, as long as the profit from the sale is used to buy a similar property.
New to 2019 is the 199A- this law allows for a 20% reduction in taxes to passive income when your income is less than $157,500 as single individual, or $315,00 when filing as a married / joint return. This is great news for investors who receive passive income from rental property, as they will be getting a higher percentage of their gains.
First Year Depreciation
First year “bonus” depreciation is a new tax law that allows new buyers to increase the amount of expense they write off in their taxes. In this case, if an item bought, such as a car, will depreciate within the next 20 years, you can write off the total amount this year. This is a smaller tax break but it can still help those who just made a large purchase.
Section 121 exclusion allows a taxpayer to exclude up to $250,000 of the total gain from a sale or exchange of an owner property, so long as it is used as a principal residence for at least two of the five years before the sale.