These are simple and perfectly legal ways to structure your investments and cash flow to take advantage of the many built-in advantages that the tax code offers real estate investors.
The bottom line is that the more you can move away from ordinary income and start earning passive or investment income, the lower your tax liability will be — even as you earn more money.
The 1031 exchange is a semi-obscure provision in the tax code that essentially allows real estate investors to “trade” one property for another and defer the capital gains taxes on the sale.
These deductions include:
- Property management fees
- Property repairs and capital improvements
- Marketing and advertising expenses
- Legal or professional fees - Travel
- Mortgage interest
If you decide to use a property management company to look after your rentals, make sure you follow the same playbook: Find out exactly what they charge and how much you’re going to pay.