Things You Must Know About Real Estate Related Tax Planning

When it comes to real estate related tax planning, there are several factors that you need to take into your careful consideration. It can be a little complex process and a little time consuming one also. The sales transactions related to real estate generally involves either a capital loss or a capital gain. Therefore, it is very important for you to have a clear idea about the kind of tax consequences that you may have to face before you go for a real estate sale. In order to ensure the maximum benefits from the purchase or sale of a real estate property, you must do tax planning regarding all such transactions much in advance. Following are some of the most basic things that you must know in this regard.

Capital Gains

Before you start working on real estate related tax planning, you must first have a thorough understanding of what capital gains taxes are and how you can deal with the same. If a property that you have sold had increased in value from the point of purchase, the US tax laws require you to pay taxes on the difference between the ultimate sales price and the original purchase price. In order to save money on capital gain taxes, you will have to work on your strategies in advance and look out for ways on how this tax liability can be deferred to a future date. If you are not aware of those strategies, you may consider hiring an experienced accountant specialized in taxes related to real estate transactions.

Structured Sale Annuity

Structured sale annuity is one of the most strategies that seasoned investors often use when it comes to real estate related tax planning. This strategy can turn out to be very useful, as it can help you perform a real estate sale over time. It means you will be able to pay taxes over time instead of paying the capital gain taxes on the total sale price at one time. This strategy can eventually help you save a substantial amount of money, as you will be liable to pay the capital gain tax only on that specific part of the total sale price that you received during the tax year. For an individual who is selling a real estate property, this can be a huge tax saving.

1031 Real Estate Exchange

1031 real estate exchange is another popular strategy for that seasoned investors use to maximize financial benefits. It is often an integral part of the real estate related tax planning. Here, it is very important fro you to keep in mind that the number “1031” in the term used above actually refers to a particular section of the IRC (Internal Revenue Code). You can use this strategy to avoid the capital gain taxes at the present time. You can perform a real estate sale and invest the money thus received in another real estate venture without worrying about any tax liabilities caused by it for the current year. 1031 exchange is a very common strategy that is used to defer capital gain tax dues into the future.

As you can see, saving taxes on real estate transactions can be a little complex process. Therefore, it might be a nice idea to hire a professional tax expert to help you with real estate related tax planning.