Depending on how you are involved with a property, there are different tax forms to consider when filing your income taxes. These forms also arrive at different times of the year. In this article, we discuss three common real estate tax forms.
Clay Schmidt
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Tax season can be a confusing time of year. As a first time Delaware Statutory Trust (DST) investor, you’ll have an extra layer of confusion to deal with. This article is meant to give you a heads up on what to expect at year-end when it comes to DST tax documents.
Here at Realized, we can help you complete a 1031 exchange to defer your capital gains tax bill and create a tax-efficient investment portfolio. One risk that you face when you defer your capital gains tax bill is that the capital gains tax rate may be different than it is now when it does come time to pay the bill.
Capital gains are the result of profit generated from the sale of an asset. Capital gains apply to both equity investments and real estate. When the value of a property rises above its cost basis or adjusted tax basis, the investment experiences a gain. The opposite happens when the value of a property falls below its cost basis or adjusted tax basis. This is called a capital loss.
You could be someone who is respectful of, or has a passion for a particular non-profit organization or charity. Perhaps you donate regularly to this organization, understanding that the money you give can do anything from improving survival rates of diseases, to providing clean drinking water to third-world countries, to supporting homeless animals at the local shelter.
As an investor, you should be consistently on the lookout for issues that might cut into your wealth, as well as those that could increase your tax burden. One such issue that could have an affect on both of these things is known as phantom income.
In previous articles, we discussed risk and its impact on investment decisions. A return on a particular investment might look really great on paper. But, if you can’t deal with the possibility of losing part, or all, of your entire principal, that investment might be better off avoided.
On paper, relying on the Internal Revenue Code (IRC) section 1031 to defer capital gain taxes on a real estate sale seems straightforward. You target the replacement property within 45 days, then close on that property within 180 days. Your Qualified Intermediary handles the exchange, resulting in a new property and a sweet tax deferral.
There is a lot to consider before diving into real estate as an investment. You need to understand your own investment goals, and risk tolerance. You also should have an understanding of the market in which you want to invest, type of property you are eyeing, how much it is valued for – and the asset grade. Much like papers and school work are graded based on quality, real estate assets also come with grades, based on many factors.
In a previous blog, we focused on various types of real estate we dubbed “recession-resistant.” Property types such as student housing are considered to be insulated against recessions, as it succeeds or fails based on fundamentals such as college enrollment rather than economic cycles.
