How to Pay Little or No Taxes on Your Real Estate Investments: What Smart Investors Need to Know–Explained Simply
Many investors today are making huge profits on real estate investments. The key, however, in investing is not the profit, but what you actually get to keep after taxes. This new book will provide a road map with hundreds of methods and insider tax secrets to help you keep more of what you earn.
Real estate investors face unique tax problems from the sale of real estate. You will learn how to implement tax savings programs successfully to reduce or eliminate the resulting income tax from the sale of real estate. You will learn how to use the IRS tax code to your advantage through depreciation, 1031 exchanges, shielding income, deferring income taxes, handling capital gains taxes, building wealth, creating a self-directed IRA, making installment sales, setting up annuity trusts and charitable remainder tax-advantaged trusts. You will learn about exemptions, exchange rules, tax shelters, tax-exclusion credits, sheltering your assets from creditors, and ultimately you will learn how you can retire rich and early with tax-free real estate investments.
Real Estate Investing – Profits Are Only Half of It
Entrepreneurialism is alive and well in America. The dynamic forces of technology, better access to higher education, ease of obtaining credit, and the desire for financial independence enable more and more people to profit handsomely from their entrepreneurial efforts. The real estate industry has grown consistently since before Lewis and Clark explored the vast landscape that became The United States. U.S. Department of Labor data shows approximately 484,600 people with careers related to real estate activities in 2004.
What many or even the vast majority do not know is the many ways to earn more from real estate investments without taking extra risk. There are also innovative but safe ways to finance real estate investments. The book How to Pay Little or No Taxes on Your Real Estate Investments: What Smart Investors Need to Know—Explained Simply provides details about the many available methods using easy to understand terminology that cuts through the bureaucratic language of the Internal Revenue Service and financial accounting.
1031 Exchanges
One of the best ways to profit from real estate investing is to use other people’s money. The concept is so prevalent in real estate investing that professionals simply abbreviate it as OPM. All it really means is taking out a mortgage on a property (bank money) and having renters or lessees provide the income stream to repay the mortgage. Business owners do the same thing with retail sales, manufacturing, and other business endeavors. The result is the same; in the end, money paid by others enables the real estate investor to own the property.
Once investors get the hang of this it becomes obvious they can increase business profits by upgrading their real estate investment; for example, selling a duplex rental and buying a four-plex or small apartment building once equity is established. The drawback has been that capital gains tax and depreciation recapture tax (fully explained in the book) used to be paid on the sale of the original purchase. Known to some but not all is the IRS 1031 tax code, which has provided a way to indefinitely defer these taxes since 1921.
Safe Harbor
Until 1979, the process required one investor to find another investor willing to exchange titles between properties in what is called a like-kind exchange. The theory is that both investors were trading business investments and no capital gain occurred. The landmark Starker court case went against the IRS and established what is known as a 1031 delayed exchange that greatly simplified these exchanges. Now, an entrepreneurial investor can sell an investment at a profit and parks the money in an escrow account until a replacement property is found. As long as the investor does not have control of the funds and they are reinvested in business real estate, a 1031 exchange occurs that does not require capital gains or depreciation recapture taxes to be paid.
This lets investors find a better property and take out a larger mortgage if necessary. In the example they would have income from four rental units and title to a more valuable property. The process can be repeated indefinitely without paying the taxes. There are a few more details to the process explained in the book, but it is really a quite simple process.
In fact, in 1984 the IRS changed the 1031 tax code to document what is known as a “safe harbor” process. While investors are not required to exactly follow the process, by doing so, the IRS agrees not to challenge that an exchanged has occurred.
What is even better than not paying the taxes? The investor is able to use the tax savings when financing the investment upgrade – another type of OPM.
To learn more about leveraging real estate investing, see the article Self- Directed IRA Investing as a source for financing a first investment or upgrading an existing investment.
About the Author
Brian Kline has been a senior manager with a Dow Jones Industrial top 30 corporation and currently does business consulting with small businesses, as well as write about business subjects. He has been investing in residential and water front development properties in the Seattle vicinity since 1980. Learn more about the author and his book, How to Pay Little or No Taxes on Your Real Estate Investments: What Smart Investors Need to Know—Explained Simply, by visiting http://astralservices.net/pub.aspx.
Comment by Brian Kline — September 25, 2007 @ 2:44 pm
Tax codes don’t have to be your enemy — especially when explained in Brian Kline’s “How to Pay Little or No Taxes on Real Estate Investments,” which serves as a guide to using existing tax codes to increase profits. The task doesn’t have to be difficult either, with Kline’s thorough analysis of multiple methods for deferring or eliminating taxes that fit your needs and situations.
The book is heavy with acronyms and financial terms that may confuse the novice investor, but it’s the numbers that matter the most — and make it a worthy read for anyone interested in real estate. Kline translates complex IRS code into ideas that seem as simple as basic arithmetic: an investment + working tax laws to your advantage = profit. Besides outlining and detailing concepts, he also guides the reader through the thorough planning needed to capitalize on them. Useful charts further explain the concepts and examples help guide decision-making, but the case studies have the biggest impact, showing how real people utilized these methods. From Individual Retirement Arrangements to Qualified Retirement Plans to Charitable Remainder Trusts, Kline explains how to maximize capital gains — and how others did it as well.
Seasoned investors may already be familiar with some of the subject matter, but for first-time investors, the book can be an extremely valuable asset.
Rating: 5
Comment by Erin Petrie — October 24, 2007 @ 3:31 pm
Rating: 5 out of 5 stars
When it comes to taking a “nuts and bolts” subject in real estate investing from involving a bunch of technical jargon to making it easy to understand and apply…Brian Kline does it extremely well in this book.
Brian does an excellent job of first laying the foundation for a technical book with a solid education on understanding taxes and applying them to the real estate investing business. I had the “feel” that he built up to the infamous 1031 exchange rather well.
As an added bonus, he goes into great detail on the 1031 exchange…a topic that most real estate books shy away from. Brian takes the 1031 head on, and gives a thorough course on the subject. You will know much more than expected of the various aspects of this real estate tax advantage after reading this book.
Finally, a real estate investing book that covers the tax advantages and doesn’t bore me to death. You get 5 stars Brian!
Comment by Joseph Ratliff — October 29, 2007 @ 1:32 pm
The first impression is that this book has to be in every decent family, like an encyclopedia, children’s photos, and perhaps cable TV. However, like almost every book it has to be studied carefully before we really can decide on placing it among our favorites.
The book definitely has a plan! It covers all major points concerning profits increase. Brian Kline does not make his book easy: he made a formidable research in the area of real estate taxes, retirement plans, charity, trusts and 1031 exchanges. This work is a must-have for those who do not want to play children games selling and buying sand castles. If you play big, you read and work big. There is no escape from that. Like a secret agent, Brian Kline makes a serious analysis and deciphers the tax code. The author helps you make decisive steps to the future profits and welfare. I am sure this book should have fans among professionals and freshmen.
Despite the complexity of the material, the structure of the book is quite simple, so you can navigate easily through the pages. The chapters follow each other in a logical order, providing complete information and connecting the previous chapters, charts, useful hints (case studies) with the following ones. In general, if you want to have your money work for you to its fullest, How to Pay
Little or No Taxes on Your Real Estate Investments will surely be one of your/your family’s favorite books.
Frankly, there is one obscure point I would like to dwell upon. As a novice in the trade, I would like this kind of book to be more like a guide, with precise instructions on what I should/must and should not/ must not do to increase profits without any violation of the law. I would like the author to concentrate on what the possible mistakes and problems of the business are and how to escape them or tackle, once they occur. So, the subtitle What Smart Investors Need to Know — Explained Simply does not truly respond to the need of a novice. If I am Smart, I will not need that huge a book, because I already know how the business works. If I were just a beginner, I’d rather have something really Simple, like a guide that would trail a blaze for me in the world of real estate.
However, from the professional standpoint, Brian Kline’s work is great! I would recommend the book to study carefully. I am glad to have read it.
Comment by Artem Chobanian — November 12, 2007 @ 1:07 pm
5 out of 5 stars
With the current state of our unsteady economy, investing can be a daunting and downright frightening prospect. The average person wants the security of knowing that their investments are working for them in the best possible way. Many people are intimidated by the idea of investing in real estate, but by doing some research, those fears can be alleviated. In fact, by gaining some basic knowledge of tax codes, you will discover that there are many financial opportunities for a savvy investor who knows how to use them to their advantage.
Brian Kline’s book provides average people with expert advice and know-how to reap greater profits in real estate investments. Kline delves into the often-confusing world of taxes and fishes out the good stuff – giving readers little known “secrets” to maximize their investments. Essential topics such as depreciation, 1031 exchanges, and capital gains tax are explained in a reader-friendly manner, with plenty of case study examples. The book is also chock-full of charts and portions of the IRS tax codes that provide the beginning investor with practical information and handy references.
This book also has a lot to offer the intermediate investor. The wealth of information devoted to 1031 exchanges alone gives the seasoned investor plenty of new avenues by which to increase their income. The material presented is also up-to-date, with a majority of the tax codes as recent as 2006, which makes this a useful refresher for the advanced investor to skim through for any changes and updates.
Overall, this book serves the needs of the novice and advanced investor alike, who are both looking for ways to use the many real estate tax advantages available to them to accumulate their wealth. This is a book you will refer to over and over again for practical information and deserves a spot on any serious investor’s bookshelf.
Comment by Lisa Rufle — December 3, 2007 @ 11:36 am
I’ve been looking into the possibility of real estate investment, but I got concerned about a number of things, including capital gains taxes. When I first saw the title, I was afraid that it was another “get-rich-quick” book. I was delighted to see that it wasn’t. The book focuses on how to reduce your taxes legally and how to plan your real estate investments. I appreciated both emphases.
I had never realized that my retirement account could be a source for funds for investing. The book provides careful and detailed advice about the possibilities, limitations, and the pitfalls of doing that. I’m also new enough to real estate that I’d never heard of 1031 exchanges or installment sales before, but those sections were especially clear and in depth. I’d heard of trusts, of course, and was impressed by the wealth of material provided. Another helpful feature was the numerous case studies. I learned a lot from this book.
This isn’t a book that you’d pick up for an evening’s casual reading, but it is clear and detailed. If you’re looking into the possibility of real estate investment, I’d recommend it.
Comment by Sandra Hutchinson — January 17, 2008 @ 9:40 am
This book was well written, straightforward, and easy for the layperson to understand, as well as someone familiar with the real estate industry. It introduces the reader to real estate terminology and outlines a number of strategies to legitimately increase wealth through real estate. It gives in-depth information on the 1031 exchange, charitable trusts, etc. The author takes excerpts of the tax law to supplement the strategies he outlines, which is helpful and indicates the validity of his suggestions. The case examples give the reader an understanding of how they can make wise choices at various stages of real estate acquisition, ownership, improvement and sales. The author lists conditions necessary to take advantage of the various strategies and plans available, and also includes information on prohibited transactions. He uses tables to illustrate the gains to be made using the strategies, and includes a chapter that takes the reader step-by-step through the process of preparing a wealth strategy. The final chapter is an account of a fictional couple, and their experience in real estate investment, utilizing the strategies provided by the author. I would recommend this to anyone considering an investment in real estate, and also to realtors and other professionals in the industry.
Comment by J. South — January 30, 2008 @ 11:33 pm