There are tax strategies available to investors who are looking to own or sell real estate. As an investment, real estate is a tremendously taxed advantage asset class. There are a lot of things you can do to make sure you are optimizing your investment and minimizing the tax consequences of your transactions. Anytime you engage in tax planning or investment strategies, it’s important to be precise and careful in what you do.
The different strategies available for your real estate investments depend on what you want to do and whether your property has been your primary residence or an investment property that you have rented out to tenants. There are associated timelines and paperwork required for each situation. For example, if you are selling a primary residence, that home must have been your primary home for two out of the previous five years. If you decide you want to move out of that home and hold onto it as an investment with the ultimate goal of selling it, make sure you set your time clock five years out. It’s the best way to shield the first $250,000 you earn from the sale of that property.
When you have an investment property that has not been your primary residence for two out of the last five years, you have other options. The best tax advantage in this situation is a 1031 exchange. With this program, you are allowed to exchange one investment property for another and shield the proceeds of your sale from any tax liabilities. As long as you continue to buy new investment properties after selling an old one, you don’t have to worry about the taxes until the final property is sold. There are other details involved in a 1031 exchange, but it generally works out well for investment property owners who want to continue owning investment property. This is a pretty specific and somewhat complicated strategy, and we probably don’t have enough time to go into detail about the requirements and the consequences today.
Contact us at Chatel Real Estate, and we can discuss all of your options and investments a little bit further. We look forward to talking with you.