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How to (Legally) Reduce Taxes with Real Estate + Crucial New Trump Tax Plans

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January 29, 2025

TLDR: In this episode, Amanda Han, a CPA and real estate investor, provides tips for real estate investors to reduce taxes, including using depreciation write-offs, investing with retirement accounts, and SALT deductions. Trump's tax plan and its potential benefits for real estate investors are also discussed.

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In this engaging podcast episode hosted by Dave, we dive into the crucial tax-saving strategies for real estate investors, featuring insights from CPA and real estate investor, Amanda Han. As tax day approaches, Amanda highlights how property owners can leverage real estate investments to significantly reduce their tax liability, while also discussing potential changes under President Trump's tax policy.

Key Insights into Real Estate Tax Benefits

Owning real estate can offer numerous tax advantages. Amanda emphasizes several critical write-offs:

  • Depreciation: A powerful yet often misunderstood tool, depreciation allows investors to deduct the costs of their properties over time without actually losing money. This non-cash expense can offset rental income and lower taxable income.
  • Business Deductions: Real estate investors should remember they are considered business owners by the IRS, opening up a suite of deductibles similar to other businesses.
  • Investment with Retirement Accounts: Amanda touches on the idea of using retirement funds, such as IRAs and 401(k)s, to invest in real estate tax-deferred or tax-free through a self-directed account.

The Importance of Planning Ahead

Amanda advises that proactive tax planning is critical for real estate investors:

  • By understanding tax deductions and investing appropriately, investors can potentially save tens of thousands of dollars on taxes.
  • It’s advised to consult a tax professional, especially for complex strategies like accelerated depreciation or cost segregation.

Insights on Trump’s Tax Policies

Amanda sheds light on prospective changes in tax laws under President Trump, specifically:

  • 100% Bonus Depreciation: Trump may reinstate this significant tax deduction which allows investors to write off property purchases in the year they are made, instead of over time.
  • SALT Deductions: State and Local Tax deductions, currently capped at $10,000, could potentially be uncapped, allowing property owners in high-tax states to deduct more, thus lowering their federal tax burden and possibly impacting housing market dynamics.
  • Qualified Business Income Deduction: This provision, if reinstated, could allow real estate investors to exempt a portion of their income from federal taxes.

Practical Tax Strategies

Amanda provides practical applications for immediate tax advantages:

  • All investors should be utilizing depreciation as a primary write-off.
  • Knowledge of the limits on losses can guide investors in offsetting W2 income, which is especially beneficial for those falling under certain income thresholds.
  • Investors should explore self-directed retirement accounts to access funds for purchasing real estate without triggering immediate tax liabilities.

Common Misconceptions Debunked

Throughout the discussion, Amanda refutes common myths:

  • Many believe they need a CPA to take advantage of tax benefits, but with adequate knowledge, some aspects are manageable independently.
  • Real estate losses do not equate to losing money in investments; instead, they serve as valuable tax shields.

Conclusion: Educate and Empower Yourself

Overall, the conversation stresses the importance of education and staying informed about tax strategies as laws evolve. Amanda encourages investors to:

  • Stay Informed: Follow updates on potential tax policy changes, especially as they relate to real estate investments.
  • Utilize Professional Guidance: Engage with tax professionals to optimize tax strategies while minimizing risks associated with tax law changes.
  • Plan for the Future: Continually evaluate investment strategies in light of current tax laws to maximize benefits and minimize tax liabilities.

This episode of the BiggerPockets podcast serves as an essential guide for real estate investors looking to enhance their tax strategies in anticipation of the upcoming tax season and potential political changes.

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