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Did you know that paying taxes on the sale of your real estate properties is voluntary? Now of course everyone owes taxes, but when you use the tax codes properly, you could save money on your tax liabilities.
It comes down to understanding how to lower your tax liabilities so you can either eliminate or lower the tax owed on your real estate profits.
If you’re like most of our real estate investor clients, you used Section 1031 when you bought and sold real estate investments. Section 1031 let you defer the taxes owed on any capital gains if you reinvested the profits in another ‘similar’ real estate property.
What if you are done with your real estate investments, though and want to cash out? Most people assume they’ll pay the taxes due, and the liability will be big. It doesn’t have to be, though.
There are 3 ways you can reduce or eliminate your tax liabilities on real estate profits.
- Use a charitable remainder trust and wealth replacement trust. This strategy helps you reduce your tax liability on your real estate profits as well as increase your cash flow, and down the road, increase the amount of money distributed to your children.
- Instead of taking the proceeds as cash out, invest the funds in an REIT (real estate investment trust) to defer (not avoid) taxes. Using IRC Section 721
- Consider an installment sale so you owe taxes in a slower fashion
As you can see, you have options and we’re here to help you decide which is best for you. Whether you pay no tax, some tax, or tax at a slower pace, there are options. Call us today at 714-383-2307 to get help deciding which is right for you.