Real estate has some amazing tax advantages, but when you sell a property, you can still end up paying a lot to the IRS. Owning rental properties allows you to depreciate the structure of the property, but when you sell, you may have to repay that tax savings. 1031 exchanges can be a way to defer the taxes, but they come with many restrictions. 1031 exchanges cannot usually be used when you flip houses either. Bruce Jones, with TaxWealth, is an expert on real estate taxes and joins me on this episode of the InvestFourMore Real Estate Podcast to discuss strategies for reducing taxes on flips and rentals without doing a 1031 exchange.
Click on the green button below to listen to the interview
How did Bruce Jones become an expert on reducing real estate taxes?
Bruce has been in the financial planning industry for 47 years! He started out as a financial planner and adviser, but in the last ten years, he has focused on tax savings for real estate investors. In the past, Bruce would advise his clients on how to maximize their retirement contributions and possibly buy real estate to reduce their taxes. This is what most CPAs and attorneys will advise, but there are many more options when it comes to saving money on taxes. Most CPAs are not trained on how to save money on taxes, but instead, they are trained on how to make your taxes easy and simple. There are many different strategies that real estate investors can use to reduce or even eliminate taxes when they own or sell investment properties.
Remember to always talk to a tax professional for specific tax advice!
How can Bruce help real estate investors save money on their taxes?
Bruce works with clients, their CPAs, and their attorneys to develop a comprehensive tax plan. He offers many strategies to reduce the taxes when owning and selling properties. Bruce can take a look at an investor’s properties and:
- Time owned.
- Type of property.
- Debt on the property.
- Federal and state tax rates for the investor.
- Expected gain.
Bruce can take all of this information and figure out the best strategy for the investor. He will create a report that will show the tax savings using multiple strategies. The best part is that Bruce will do an analysis for free! If you decide to implement any of Bruce’s strategies, he will then charge you to get things set up.
What are some different strategies investors can use to reduce taxes?
Bruce and I discuss many different strategies that he likes and dislikes. Most of these strategies were above my level of comprehension. Most people think a 1031 exchange is the best way to avoid taxes when selling investment properties, but Bruce does not like the 1031 exchange. There are many restrictions, and most people who intend on completing one fail to do so. When you complete a 1031 exchange, you also must buy properties for at least as much as you sell them for, and you have to find replacement properties within 45 days.
There are a number of alternatives when selling properties:
- Charitable tax planning
- Deferred sales trust
- Structured sale
- Installment sale
If you want more information on how these strategies work, listen to the podcast, or you can contact Bruce. These strategies can work for flippers or rental property owners. Bruce tells a couple stories about how he has saved people hundreds of thousands of dollars over simply selling a house and paying the capital gains taxes.
How can you choose the right tax strategy?
As I mentioned earlier, it is not easy to figure out IRS tax laws. I was not aware of many of the strategies Bruce talks about, and my CPA and attorney have never mentioned them to me either. The best way to figure out which strategy to use is to talk to an expert like Bruce. Strategies can also change based on the investors goals, age, and income.
Not only can Bruce help with tax savings, but he can also help with tax savings while you own properties. Many rental property owners are able to change the depreciation schedule on their properties, which can amount to thousands of dollars in savings.
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Transcript coming soon…