Tax-Saving Strategies for Real Estate Investors
- Own Properties in a Self-Directed IRA.
- Hold Properties for More Than a Year.
- Avoid Paying Double FICA Taxes.
- Live in the Property for Two Years.
- Defer Taxes With a 1031 Exchange.
- Do an Installment Sale.
- Maximize Your Deductions.
- Take Advantage of the 20% Pass-Through Deduction.
Can a taxpayer be a dealer or investor in real estate?
The ultimate determination as to whether a taxpayer is a dealer or investor in real property is based on all the facts and circumstances—and has serious tax implications. Therefore, it is imperative that the taxpayer document his/her intentions and actions surrounding the purchase and sale of the property.
Are there dealer tax deferrals for real estate?
In addition to facing higher tax rates on dispositions of property, dealers in real property are precluded from using tax-deferral strategies such as installment sale treatment under section 453 and like-kind exchange treatment under section 1031. The issue of dealer versus investor classification has been frequently litigated.
How is real estate investment different from real estate dealer?
In contrast, a real estate investor purchases and holds property over time, typically more than one year, in order to realize appreciation in value. Because investment property is considered a capital asset, proceeds from the disposition of the property is subject to capital gains tax.
When to be an investor in real estate?
Thus, taxpayers prefer to be considered investors in real property when selling real property at a gain and dealers in real property when the property is sold for a loss. The determination of dealer versus investor hinges on many factors, but turns mainly on the intent and activities of the seller at the time of the sale.
