Real estate income in the US is taxable for commercial properties. You also need to know that the real estate property of family-owned businesses also falls under the real estate taxes. That’s why SG INC CPA elaborates the real estate taxable matters into the light by our professional CPAs and accountants.
We get a lot of questions from clients all over the US who are setting up LLCs about property taxes. How will you be taxed on the income the LLC is generating? First, the tax depends on the level of taxation you elect for that limited liability company.
If you need to remember your LLC as a hybrid entity, you can choose to have your LLC set up as a C Corp for federal tax categories. A business owner can establish the LLC as an S Corp for federal tax purposes. You can also establish your company as a partnership for federal tax purposes for your real estate land or building.
Basics of Real Estate Taxation
Our real estate tax professional team makes this blog easy to grasp for everyone. So, we will start with the basics of the real estate land and building taxes. Many new investors think that rental income is taxable. Of course, the rental income is what the IRS categorizes as taxable.
However, it doesn’t mean you must pay taxes on every dollar you earn from your tenants or property. Our mission is to educate you on property tax compliance and guide you in mentioning some exemptions later.
Following financial additions, otherwise said, the incomes are the real estate tax payables.
Rental Income
The property you own and leave on a rental lease generates an income. That’s your rental income. In other words, any payment you make for the lease or occupation of a property lies in rental income.
The rental payouts include payments in the form of rent, upfront rent, and fees paid to a landlord. The security deposits you receive are not taxable because they are a pre-payment of rent.
Real Estate Deductions and Record-Keeping
As a landlord or property owner, you may be looking for what real estate and property tax you can deduct. There are several property tax deductions that you can secure as a rental property owner.
For instance, you can apply for real estate tax deductions against the following factors:
- Repairs and maintenance costs
- Replacements of the Tangible Property
- Advertising and marketing expenses
- Property Insurance
- Cleaning costs
- Utilities Payables
- Property Management Fees.
How to Avail Real Estate Tax Deductions?
The taxes on real estate have some exemptions and deductions. SG INC CPA highlights those deductions according to the rules and regulations of the IRS.
Property Depreciation and Upkeep
You can apply for a deduction based on the depreciation of your property and the interest on your mortgage payments. Our real estate professional for tax will help you explore the real estate professional tax deductions to keep your records maintained.
We help you upkeep the documentation of every dollar and expense, even if you bought a 2-dollar light bulb. Our smart tax and accounting software will record the accounts somewhere in your records. Such factor renders because if your return goes for audit, you may be subject to additional taxes and penalties if you fail to provide evidence to support items reported on your tax returns.
How Real Estate Taxes Increase
You might be surprised that some bollards will increase property taxes alongside property depreciation, leading to real estate tax deductions. It must seem bizarre, but it is true: your taxes on the property also go up with the value of your property. SG INC CPA advises real estate taxpayers to consider the worth of their real estate property for better tax compliance.
Tax on Real Estate Appreciation
On the go to find the tax mystery on the real estate matter, we discuss a few more advanced tax terms that a taxpayer may encounter while preparing for the real estate tax filing and filing. It is obvious that real estate tax increases as the property value goes up. The higher the property value, the higher the real estate taxes. So, one of the great benefits of calculating real estate is that the expected property tax amount goes up with inflation.
Tax on Sale of Property
Federal and state tax bodies also impose taxes on property sales. The property sales taxes apply when you sell a property. The tax payables must be paid against the real estate taxes if the landlord is not reinvesting the profits. Real estate reinvestment may not come under tax obligation because the IRS doesn’t tax real estate appreciation! So, buying and holding is the best way to get the most value and return from your investment property.
Opportunity Zones with Tax Relief
Another area where taxes come into play in real estate is with opportunity zones. Opportunity zones are the sole geographic areas that have been identified as low-income. However, the government incentivizes investors to draw them to needy areas. One invests in opportunity zones through a vehicle called an opportunity fund.
Form 1031 Exchange Tax Deferred Strategy
The last tax term we will cover here is the 1031 exchange. This tax form is the most advanced tax model a property taxpayer finds as a real estate tax deferment. Taxmen have named it after section 1031 of the IRS tax code.
So, section 1031 enables property investors to delay paying taxes when they sell investment properties. The tax strategy works rather simply, thanks to the relief on the property sale. Once you have sold your property, it is your accord to use 100% of the profits from the sale.
Otherwise, you can also reinvest it in the next property. The CPA Tax services here at the SG INC CPA guide how the 1031 exchange empowers you to trade one piece of real estate property for another without paying taxes on real estate.