Real Estate Tax Considerations for Investors & How to Do It Right

As a real estate investor, provided that you’ve been one for a while already, you understand that there are far more costs involved in the process than the actual costs of buying a property. I’m talking about fees and taxes, of course. If you’re new to this world, you may not be sure about what tax considerations to make, or how to save in the taxation process, if possible. If you go here, you’ll get a clearer idea on some of the things you should know about taxes when investing in real estate.

If you’re looking to do everything the right way, and you most certainly are, you’ll need to make all the right tax considerations in the process, for one thing. And then, there’s one more thing you’ll absolutely have to do so as to ensure a successful and favorable taxation process. We’ll get to that a bit later, though. First, let’s talk about those considerations to make and keep in mind.

Real Estate Tax Considerations to Keep In Mind

The annual taxes applied to your property and assessed by a community assessor, or a local county are known as real estate taxes. In addition to the county and those other local agencies, the state can also impose a property tax. Those are used to fund county upkeep and improvements, as well as schools and libraries. Understanding the different things that have to be paid for before investing in real estate will help you get a clear idea of the actual cost of your investment, that goes beyond the price of the property.

Capital Gains

Selling something for a profit lead to being taxed for that income. When it comes to real estate, if you sell for a profit, that will be known as a capital gain, and if you sell it at a loss, it will be known as a capital loss. The length of time you will have held the property before selling also plays a crucial role in taxation. Usually, long-term investments are treated more favorably, and tax rates range from 0% to 20%, depending on the income level. Short-term capital gains, on the other hand, are taxed at a rate between 10% and 37%.

Read about some of the tax benefits of investing in real estate: https://www.forbes.com/sites/forbesbusinesscouncil/2021/05/24/exploring-the-tax-benefits-of-real-estate-investing/?sh=521571d953ff 

County Property Taxes

Gathering info from the local agencies and registrars, tax assessors will determine the value of the property. Furthermore, the local authorities will have the right to set property taxes in their jurisdiction, in accordance with that value. The entire process is complicated, given that the rates can change every year. And, if you don’t agree with the appraised value of the property, you can dispute it.

Transfer Tax

A transfer tax is charged when the ownership of the property changes. Of course, there are some exceptions, including transfers due to death, divorce, gift, foreclosure, and a few others. When you buy a property, though, you’ll be charged a transfer tax.

Net Investment Income Tax

The NIIT refers to the rental income and capital gains after making a sale. It stands at 3.8%. Knowing how to navigate all of those charges and how to file everything the right way could result in you saving some money on them and thus not dreading the taxation season every time it comes around.

How to Do Everything the Right Way

How can you, however, navigate everything and be happy during the taxation process, instead of dreading it? Well, you’ll need professional help, of course. Checking out what Advise RE and other professionals can do for you in this stage will help you get a clearer understanding of how they can actually help.

The only thing is, of course, you’ll need to find the right advisors to help you during the process, meaning you’ll need to be quite careful when deciding which one of those to hire. Take your time to research different professionals, aiming at checking their experience level, their reputation and the fees they are charging for their services as well. By comparing all of the information, you’ll know how to make the best choice and thus go through the whole process the right way, winding up happy with the outcomes on your tax filing papers.