Put Uncle Sam to Bed
Tick-tock-tick-tock… Time’s running out. You’re not losing sleep this year though. Adios, panic attacks. See ya, blood pressure medication! Determined to beat Uncle Sam, you hired a real estate law attorney in the off-season to help minimize your tax obligations due April 15th. First cat out of the bag. Review your current inventory. Determine if there are any California real estate law investing loopholes that can be used to reduce your taxes this year. Bingo! You own investment and business properties. Normally, any profit incurred in the sale of these properties is subject to income taxation. One of the most beneficial California real estate law investing loopholes is the 1031 tax deferred exchange. A 1031 allows you to reinvest the profits from the sale of an investment or business property in future “like kind” real property acquisitions tax-free. There’s no limit to how many times a 1031 can be used. This means you can “rollover” proceeds earned on the sale of a business or investment property without ever incurring a capital gain.
You’re on the right path. But a 1031 isn’t the only thing you can do. The following are five additional California real estate law investing loopholes that will help shelter you from the tax storm this year.
Top 5 California Real Estate Law Investing Loopholes
You own a family-run business. Maybe it’s the fear that you’ll lose some control. Or, maybe you simply don’t want things to change. The fact is – the business has grown far beyond what your grandfather’s grandfather envisioned when establishing the sole proprietorship. You will avoid self-employment tax by incorporating the business to a Subchapter S. You’ll feel more insulated as well because co-owners pay taxes relative to their proportionate share in a S corp profits.
Home Office Deduction
The part of the home used as an office can be deducted under current IRS rules. Before 2002, there were no California real estate law investing loopholes to cover this situation. In fact, there were consequences to pursuing a home office deduction. The law provided that the portion of the home used for the office didn’t qualify for the capital gains exclusion when the home was sold. While this rule is no longer applicable, it’s important to remember that you have to recapture any depreciation claimed when you sell the office.
Classify Depreciable Real Estate as Personal Property
You can minimize your business income by classifying a portion of your depreciable real estate as personal property. The reason’s simple. Personal property can be depreciated over 5 to 15 years as opposed to 27.5 to 39 years for real estate. Conclusion. You get a higher deduction and reduce your income greater by classifying real estate as personal property.
Open a Roth 401(k)
A 401(k) is a type of retirement savings account that allows persons of all income levels the ability to contribute up to $17,500 annually and withdraw the fund tax-free on retirement. Funds in a Roth 401(k) can be used to invest in real estate.
Check out Real Estate on Vacation
Thinking about California real estate law investing loopholes during vacation can help you on tax day. You can deduct 100% of your travel and hotel room costs and 50% of your meals a day when you’re looking at real estate investments during your trip. Even better. You don’t have to buy a cent during these real estate investment trips. But keep in mind that you’ll need to provide proof that you’re a serious investor on an IRS audit.