Woman sitting down with calculator and papers and working on taxes

Updated: Nov 12, 2021

While reading this piece on tackling real estate and property taxes, you’ll learn:

  • Keeping your gains in tax-deferred accounts lowers your annual income tax expenses
  • Working with a CPA is the best way to ensure you’re getting maximum savings when filing taxes

Every year, tax season comes around and, each year, you likely find some aspect of your taxes to stress over. Taxes can be a complex subject to tackle, even with the most simple filing requirements. Still, for those who own real estate or who need to pay property taxes, the extra burden of providing documentation and figuring out precisely what you can and cannot claim as a deduction can make the entire filing process seem impossible. Short of reading and deciphering the current United States tax code, there’s little you can do to make the process easier, it seems. Unless, of course, you decide to hire a Certified Personal Accountant (CPA) to help you throughout the process.

While having a CPA on your side is certainly a good start to simplifying the process of filing taxes and removing some of the dread and stress from the situation, it is not, in fact, the only thing you can do. Take the time to explore some of these tax strategies that could make those tough to tackle taxes a bit more approachable in the long run.

Choose the Right CPA

You should always have a CPA on your side, but that doesn’t mean you shouldn’t be selective about who that CPA is and what they have to offer. Above all, your CPA should be knowledgeable about the US tax codes and how your real estate investments fit into that code. By ensuring you have a certified personal accountant that knows the tax code inside and out, you’ll be able to have peace of mind knowing you’re receiving as many tax breaks and deductions as you can. This helps with keeping as much of your hard-earned investment money in your pocket as possible.

Focus on Asset Location

If you know anything about taxation, then you know that various assets are taxed differently. For example, money kept in an IRA or 401k is taxed differently than earnings that are held in a personal bank account. IRAs, 401ks, and a few other types of accounts are considered to be “tax-deferred accounts,” meaning that the gains accumulated in the account are not taxed until the account is liquidated. Keeping funds in these types of accounts can keep taxes on your annual income lower overall. However, because there are often early removal fees for these types of accounts as well, it’s not a good idea to keep all of your investments and gains in tax-deferred accounts. Strategize and work with an experienced CPA to determine what sort of asset allocation will be most beneficial for your needs in the long run.

Tax Loss Harvesting

Generally, the point of investing is to buy low and sell high. However, there are still some benefits to selling off investments that have decreased in value. While you may take a loss on the investment, this will allow you to lower your overall taxable income for the year, thus allowing you to “harvest” the loss via your taxes. Furthermore, this then frees up cash for new, more successful investments.

Plan Ahead

Any good investor knows that planning ahead is the key to long-term success. Estate taxes, changing tax brackets, and other challenges can drastically alter how your gains are handled during tax season each year, so it’s always best to have some money set aside to cover any unexpected expenses that might arise when you file. Planning can take other forms, though. For example, investing in good life insurance can help ensure that any estate taxes are taken care of when you pass your investment gains onto your heir. This is particularly important when dealing with inherited assets that are not meant to be liquidated, such as houses. Estate taxes and real estate taxes can be hefty, but life insurance and other proper planning can help reduce the stress these taxes place on your heir after they inherit the asset in question.

Learn More

If you’re a real estate investor who is at a complete loss of how to tackle your taxes this year or you’d simply like to learn more about how you can keep more of your gains each year at tax time, the professionals at Capital Fund 1 are here to guide you through the process. Contact us to learn more about how we make tackling those tough tax questions easier and how we can help support you through your real estate investment journey. Whether you’re a newcomer to the world of real estate or you’ve been tackling the taxes head-on for years on end, our experienced and knowledgeable associates will have valuable information on how you can maximize your wealth.

Featured Image: Natee Meepian/Shutterstock

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