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Ways to Save on Property Taxes

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    In the United States, over 65 million homeowners occupy over 14.3 million households that invest in real estate. The prime reason for investing in property is that you'll hold a tangible asset that you would be able to sell at a later date should any need arise. While this is true, taxes on capital gains and depreciation can be so complex and confusing and could eat up a significant chunk of your investment returns — if not handled correctly. While it is wise to consult a tax professional to review your taxes and provide expert advice, here are ways to save on property taxes:

    Organize Yourself

    It's easy to get disorganized with all the paperwork that is involved with real estate deals. Hide the clutter by using a filing system that works for you and keep everything organized and ready if the IRS ever audits you.

    If you have been buying, selling, or refinancing real estate during the year, you most certainly received a HUD-1 for your final closing statement. This is a standardized settlement statement provided by the government to show all of the transaction details. You must keep these statements around to use as a reference since they contain information you need for your income tax statements. The HUD-1 reports should be filed with your other tax documents so they can be referenced easily whenever you need them for filing.

    Keep Your Properties for More Than a Year

    When flipping houses, your profit is based on the cost to pull the property out of foreclosure. You can save money on your taxes if you don't sell or rent it within a year. You'll also want to buy the property below market value because most people are willing to pay more than what it's worth.

    Capital gains are categorized based on the investment period. For an individual, he would have short-term if the investment was held for less than a year, long-term if for between one to five years, and it's considered as long-term capital gains if the sale occurred more than five years. Based on your income level, you'd need to pay an extra three percent on top of the usual 15% capital gains tax.

    Consult a CPA

    A CPA is an expert in tax law who can advise you on how you can save money. Many people think that they can file their taxes themselves and that tax software will figure it all out for them. Although this can result in a significant amount of money saved, many essential elements may be overlooked. You need a Certified Public Accountant who understands the complexity of real estate investment to ensure that you get all the deductions and benefits for which you qualify.

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    Hall CPA PLLC, real estate CPAs and advisors, helped me save $37,818 on taxes by recommending and assisting with a cost segregation study. With strategic multifamily rehab and the $2,500 de minimus safe harbor plus cost segregation, taxes on my real estate have been non-existent for a few years (and that includes offsetting large capital gains from the sale of property).

    Mike Dymski - Business Owner