What if any are the tax advantages to buying income properties?
Tax questions are best answered by a CPA or a CFA (Certified Financial Advisor).. Setting that caveat aside, I can speak from more of a personal experience, as well from years of advising & transacting with Clients of a Real Estate Brokerage..
The biggest advantage to owning rental income properties comes from the tax treatment if you own them for at least 2 years and it has been rented out (not your residence).
You are allowed to roll any profits from the transaction into a tax-deferred account, from which, if you re-invest the same amount or higher, you can get by without any immediate tax hit on your profits. This is officially called a 1031 exchange.. I’ll have more to say on this in a later blog, will try to get a specialist to cover this in detail. There are several fine-prints and gotchas of course!
But, this tax deferred exchange, along with a long term investment plan, can help build a steadily growing ‘wealth fund’ that increases in magnitude every time you re-invest, to take advantage of market highs and lows.
There are other advantages to rental income properties if titled under a company or a trust, as they can be used as POFs (proof of funds), can come handy for tax write-offs on expenses.. These are definitely topics for your good CPA to be actively involved in.
Let me know if you need recommendations for good CPAs & CFAs in Northern California?
Happy to chat more.. call/txt me @510.676.1940
Till next time… I will answer another question: Do I Buy Cash or Finance my investment property? How do I finance my investment? What rates can I expect?