Tax Tips for Owners:
- Real estate can be one of the most effective ways of mitigating high tax burdens. Depreciation and Section 1031 exchanges are two major ways that this can be accomplished. Depreciation is the reduction of the book value of an asset over time. Annual depreciation reduces net income, and can create “paper losses” while still producing positive cash flow. The Internal Revenue Code Section 1031 (commonly referred to as a 1031 Exchange) allows the taxpayer to defer paying capital gains tax under certain circumstances. The original asset is “exchanged” for a like-kind asset within a pre-determined time period. This may allow a property owner to reap the benefits of owning a more expensive property (higher rental income) without having to pay capital gains tax on the sale of the first property.
- If you see a substantial increase in your property taxes, consider protesting the increase with the city. If you are considering protesting your property taxes, give your broker a call to explore the best strategy to approach. It may be as simple as getting an appraisal but there may be additional steps necessary for a successful outcome.
Tax Tips for Tenants:
- If your lease doesn’t allow for you to appeal the property taxes yourself, contact your landlord and see if they are considering a tax appeal. Some leases allow you to file an appeal on your own if you occupy 100% of the building. There are a number of professionals in the area that specialize in this type of work. Be sure to choose an advisor that you are comfortable working with to accomplish your goal.
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