Investing in real estate can be a terrific way to increase wealth, but there may be a lot of taxes involved. Large real estate investors, meanwhile, appear to never have to pay taxes on their holdings. How is this possible?
Borrowing against their investment properties is one-way big real estate investors reduce their tax obligations. As long as the money is invested, this is tax-free. In addition, a sizable portion of the cash flow from these properties is tax-free. Deductions like depreciation, which can help offset the property's income, are to blame for this.
When real estate investors sell their investment properties, they can also avoid paying taxes by performing a 1031 exchange. For example, an investor can postpone paying taxes on the sale of a property by using the proceeds to buy another similar property in a 1031 exchange, sometimes referred to as an exchange.
It is crucial to remember that before making any decisions, these methods for avoiding taxes on real estate investments should be addressed with a tax expert and a 1031 exchange intermediary.
