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How to Pay ZERO Taxes on Real Estate

20 February 2020

Do you own real estate and you want to grow your wealth? To make that happen, we need to limit the amount of taxes you pay. The more taxes you pay, the smaller your margins, and the slower you're able to create long-term wealth. Here we will breakdown some ideas and tips on how to structure your operation to ensure you're tax efficient on your real estate investments...

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As we work through our latest purchase, a $3 million development in beautiful Bogota, Colombia, we are doing some tax planning and preparation for the coming years. This is a critical exercise as the moretaxes your pay, the smaller your margins, and the slower you’re able able to create long-term wealth.

Today we’ll map out some of those optimization strategies and someways you can limit your tax exposure to pay little to no taxes on you real estate investments.



A few quick points on this article:

  • We are going to break this down into 2 types of people, a typical homeowner and kind of a person who owns a rental property.
  • This post will be more focused on the US-based investors, but we will be doing some videos for investors across other markets soon as well…

Ways normal homeowners can lower their tax rate

One of the main things you can do is the homestead exemption. If you're not doing this, you MUST correct that and get it in place immediately! Almost every single state in the US has an exemption where you pay significantly lower taxes if a piece of real estate is your primary residence. While this does not apply to other properties if you own vacation house or have a rental property, it’s an amazing exemption for a normal owner.

Second, writing off any loan interest. If you have a loan from the bank for your home, you can be writing off all of that interest.

The third thing this only applies if you actually have a business, but you can take a portion of your house and write off the space you utilize as your office. For example, if I have a 300 square foot office, I can write off 10% of my real estate price.

Lastly is capital gains on the eventual sale of your home. Let's say that you buy a house for a $250,000 and 10 years later you sell it for a $500,000. In the US, if it's your primary residence, you don't pay taxes on the first $250,000 of gains for an individual or $500,000 of gains if you're married. That really is huge!


...those are some of the main write-offs for homeowners. There's not a ton, but there's quite a bit. You can usually get your homeowner pretty low unless you're in a very high tax state like New York or California. We'll have some more tips about that in future posts...

Ways property investors can lower their tax rate

Rental properties have way more write-offs than a personal home, because it's essentially like running a business. With that, there are lots of expenses involved that can be written off, similar to a business.

When you own a rental property, whether it's Airbnb or it's long-term rentals, you can write off the following:

  • Depreciation. When you own a building not a piece of land the value of the building goes down over time. Each year you can be writing off a portion of that depreciation. The amount to very sizable sums that you'd be writing off. If you're like most of my viewers, you have a high tax rate and can be lowering your tax rate dramatically through depreciation.
  • Many folks will be at least somewhat leveraged. You may have substantial loans, and you can be writing off all of that loan interest.

    Any improvements that you're making on your buildings and the associated costs can be written off. If you're upgrading washer machines, changing out the roof, hiring a handyman, etc. All of that is a write off. Something to consider if you're thinking about maybe doing repairs yourself... if you get somebody else to do it, you can write off their expense and keep your time to allocate elsewhere.

  • The other thing that you can do is if you have a property manager, say like for us, we have 12 units in one of our buildings. We cannot run that ourselves, so have a property manager overseeing the day-to-day, which we can write off.

    The last piece we'll dig into, which is kind of a very misunderstood topic, is 1031 exchanges. If you're in the real estate business, buy buildings, and you want to sell them down the line, you're going to pay huge capital gains at each transaction. But if you do what's called a 1031 exchange, you can funnel your sale proceeds from one deal immediately into another building to avoid paying capital gains. This even applies to if you're buying real estate abroad in a place like Bogota. If we sold one of our properties there and then bought another in Portugal, we can still do the 1031 exchange to reduce capital gains. This is one of the most important topics that tends to elude most people. It is one important tactic to helping people really grow their wealth. Because if you take 30 or 40% of your wealth out to pay taxes, that means you have so much less money to reinvest in the next thing.

Wealth is always about stacking. It's always about cumulative returns and steadily climbing toward that next level. The more capital you have to invest, the faster you're able to grow your wealth. Of course eventually one day you'll have to pay taxes when you start taking some of that money out, but you'll have had a lot larger of a pot to pull from when that time comes.

What about accountants?

One other thing that we wanted to cover is accountants.A lot of people do their own taxes or maybe they'll just send it off to H&R Block. However, if you really are going to dive into this real estate game, having a solid and savvy accountant is going to make a exponential difference.

Sometimes if you're doing investments in multiple countries, you're going to have to structure your investments in somewhat nuanced ways so that the tax flows efficiently across various entities and different markets. In cases like where the US does double taxation on foreign properties — how horrific would it be if you paid 30% taxes in Bogota, and then get slammed for another 20 or 30% taxes in the US? So that's why I think that's a topic for a whole nother video, but I kind of wanted you guys to also just be thinking about that.

I think every single deal I do, I also think about what are the tax implications because I know that I'm going to make money on the deal. I know that it's going to go well. I always go in the mindset of any deal like that. And if I know that it's going to go well, that means that we're going to make money and if we're going to make money, we're going to pay taxes. That's what we always need to be thinking about. How do we structure things? How do we make sure that we're tax efficient? I just wanted to interject that point and now let's go ahead and jump into the conclusion here.

Recap

In conclusion, we see that for personal taxes you can write off things like your homestead exemption and loan interest. For people running rental properties, you can write off an array of things from depreciation to the property management to the upgrades... Then on top of it all, you can do 1031 exchanges to optimize capital gains on various sales proceeds. That is why we're so excited about real estate and believe it is such a phenomenal investment class that everybody should have a piece of!


Remote Ventures is an open investment platform for buying and selling fractionalized real estate all around the world. It gives everyday investors a simple way to access the global real estate market and build a truly diversified, cash flow generating portfolio.

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