Graham Stephan
@grahamstephan·5.2M subscribers·1.6K videos
Real Estate Revealed: How to AVOID Paying Taxes...(Legally, of course)
Posted
August 20, 2018
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396,682
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August 20, 2018
396,682
21,081
1,245
5.63%
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17:54Now PlayingEver wondered how so many people seem to avoid paying taxes…legally, of course, when investing in real estate? Want to know how YOU can avoid paying taxes, legally? Here’s how - enjoy! Add me on Snapchat/Instagram: GPStephan
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Number 1: The first is that pretty much anything in real estate that relates to your business is a write off against your income. Just about anything you related to the income you make on a rental property is a BUSINESS expense, and that’s subtracted from your total income - and you pay less taxes.
Number 2: Depreciation. This is probably THE best write off in real estate. This is often how people can make thousands of dollars in profit every month, but on PAPER, they’re claiming they LOST money. In some circumstances you can even use this loss to offset other income you made!
Number 3: This is probably the most well known, and probably one of the coolest write offs in real estate… but for those who aren’t familiar with it, this is the 1031 Exchange. One of the benefits of investing in real estate is that you can INDEFINITELY defer paying taxes when you sell a property, and “exchange” it for another property to avoid paying tax on your profit.
Number Four: This would apply to most of you watching, especially if you own your own home, is the capital Gains exclusion. This capital gains exclusion means that you can make $250,000 TAX FREE PROFIT if you’re single, and $500,000 TAX FREE PROFIT if you’re married when you own a primary residence and have lived there for 2 of the last 5 years.
Number 5: There’s no tax on appreciation until you sell. This is similar to owning a stock that goes up in value, you don’t pay taxes on that stock until you actually sell…until then, any profit you’ve made is called an “unrealized gain.” Same thing in real estate. If the property goes up in value 5% annually, your net worth goes up without you owning a dime in taxes.
Number 6: The cash-out refinance and HELOC, which stands for Home Equity Line Of Credit. The benefit of this is that you get access to your money, totally tax free, without technically “making” money. In the eyes of the IRS, you don’t pay tax until you actually sell…and because you don’t sell, you don’t owe any tax. Same principle applies to a HELOC. All of the money you pull out is tax-free since technically it’s a loan and you need to pay it back.
Number 7: Rental income doesn’t pay self employment taxes, which consists of social security and medicare taxes. This means that rental income, right off the top, is taxed 6.2% LESS than that same income you’d make from you job - or 15.3% less if you’re self employed, not even including all the deductions, tax write offs, depreciation…so you can see, real estate is a good way to make some money ;)
Number 8: Mortgage interest deduction. Now this is a great one that not only applies to rental properties, where you simply just use that as an expense against rental income, but this also applies to your personal residence. The IRS says that you can deduct the interest you pay on up to $750,000 of your mortgage against your earned income, lowering the amount of taxes you’d owe.
Finally…number 9…the holy grail for real estate people…is the title called “Real Estate Professional.” Becoming a “real estate professional” opens up a lot of advantages. The biggest advantage of being a real estate professional is that you can use your PAPER LOSSES to OFFSET other earned income!
Remember: this is not financial advice, and CONSULT A CPA for any of your specific tax questions. Everyone is different and it’s important to hire someone for your own specific tax advice and needs.
For business inquiries or paid one-on-one real estate investing/real estate agent consulting or coaching, you can reach me at GrahamStephanBusiness@gmail.com
Suggested reading:
The Millionaire Real Estate Agent
Your money or your life
The Millionaire Real Estate Investor
How to Win Friends and Influence People
Think and grow rich
Awaken the giant within
The Book on Rental Property Investing
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