Accounting Tips for Taxes

<aside> đź’¸ Tax credit of 10k means that you remove 10k from your taxes owed. Taxable income write-off of 10k means that you remove 10k from your taxable income, which is usually less than a tax credit.

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  1. Open a separate bank account for each of your real estate properties (personal checking or business account if you have an LLC) for rental income to come in
  2. Keep a separate debit/credit card specifically for that real estate property expenses to be paid by the new real estate bank account
  3. Keep receipts and write the reason you have a receipt (for example, “business dinner with Nelson L”). Check out Stessa.com on Software
  4. Start your tax time early. Hire a CPA, or use TurboTax.
  5. Maintain records for as long as you keep the property (and 3-5 years after)

Most Common Tax Deductions for Investors

Personal Property Deductions

If you live in your home, you can deduct up to $10,000 of property taxes from your personal income.

You can also deduct mortgage interest up to $750,000 of mortgage debt on your primary residence.

Additionally, you don't have to pay the first $250,000 (if single) or $500,000 (if married let us know if you need help finding the Real Estate wifey or hubby) of capital gains on your property, as long as you have lived in it for two of the last five years.

Depreciation

This is only applicable for investment properties. You basically deduct the costs of buying and renting properties from your income because “the equipment gets used over time”.

Standard Depreciation - Each year you can write off 1/27.5 of cost basis for residential or 1/39 of cost basis for commercial of the useful life of the property. Your cost basis is the value not including the land.

Accelerated Depreciation - 2022 is the last year you can take the full depreciation write-off in your first year (write-offs can be carried forward). It goes down by 20% every year after

Depreciation recapture - A portion of this needs to be paid back if you sell it before it fully depreciates

1031 Exchange

<aside> 💡 Presentation Deep Dive into 1031’s with Weiming Peng, tell them SARE sent you

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This is the biggest life-hack of all of time. A 1031 exchange is a swap of one real estate investment property for another that allows capital gains taxes to be deferred. You pay no capital gains and no depreciation recapture on the sale of a property as long as