Real estate has several advantages as an investment strategy to build wealth over the long term, carefully planning your entry and exit strategies and diversifying your portfolio. However, your real estate investment business is just that, a business. Knowing the market comes into play when considering a property’s long-term value and ability to continue earning high returns. While knowing the tax laws can save you money, there is no way to improve the property’s location or the potential earnings it can provide you as an investor. So, in addition to watching real estate trends, knowing your market, building a great team, placing great tenants and managing your properties, you must stay abreast of current tax laws.
The tax breaks that investors realize on their investment properties come in many forms, and many factors can influence how well they serve you as an investor. For example, among the changes in tax laws enacted by Congress in 2021 through the American Rescue Plan Act, landlords must now file 1099 for rental income of more than $600. So, naturally, you should seek the counsel of those with an investors mindset; you need an attorney or accountant who is highly experienced in investment properties to gain the most from these advantageous tax laws. So read on as we explore five of the most common tax questions from real estate investors in Baltimore. Please note that this article is for informational purposes, not financial or legal advice.
If you’re a long-term rental property investor looking to learn how rental income is taxed, there are some key factors to keep in mind. Depending on your status as an investor, the type of taxes you may owe can vary significantly. For example, if you’re an individual who owns and manages one or more rental properties yourself, then your earned income from renting out those properties will be subject to federal and state income taxes.
On the other hand, if you own multiple rental properties that are managed by a professional property manager (such as CR of Maryland LLC), the rental income for those properties may be considered passive income, which means it’s not subject to self-employment tax but still subject to regular Federal and State income taxes.
The next of our tax questions from real estate investors in Baltimore is what are the allowable deductions for rental income? From mortgage interest, property taxes and insurance, there are several, including depreciation. When it comes to repairs, be sure you understand the distinction between repairs vs. improvements in the eyes of the IRS. Again, professional buyers like those at CR of Maryland LLC are highly educated local investors who have built a career investing in the Baltimore real estate market and can help guide investors like you.
Depreciation is another subject that often brings tax questions from real estate investors in Baltimore. Depreciation allows you to deduct the purchase price and improvements and begins when the property is officially a rental property and conventionally depreciates at a rate of 3.636% yearly for 27.5 years. Working with local professional buyers like those at CR of Maryland LLC means working with seasoned pros, allowing you to earn the highest possible returns on your investment dollar while remaining a passive investor.
Capital gains are the portion of appreciation for which you may owe taxes on your rental properties. Compared to the original cost, the rise in the value of your assets is known as appreciation, which is how wise real estate investors in Baltimore build wealth. The professional buyers at CR of Maryland LLC stay on top of their game in the real estate market to help guide investors like you to the best location to purchase your investment properties to realize the highest possible increase in value.
Our next tax question from real estate investors in Baltimore is, what are 1031 exchanges, and how do they work? Reinvesting your funds from selling a rental property into a like property within a specified period can allow you to avoid paying capital gains as an investor. Professional buyers like those at CR of Maryland LLC know the market and can help you identify your next investment property within the given 45-day period. Let the professional buyers at CR of Maryland LLC help you find your exchange property or ask about our current inventory of the best investment property in Baltimore.
The professional buyers at CR of Maryland LLC work with a team passionate about helping others succeed. At CR of Maryland LLC, we are your neighbors, and we are proud of our work to improve our community and property values helping investors like you improve Baltimore one investment at a time. At CR of Maryland LLC, our full-service in-house team of industry specialists serves the needs of our investors, from attorneys to closing, along with the most highly regarded property management team in Baltimore who understand the tax concerns of real estate investors in Baltimore. Talk to the professional buyers at CR of Maryland LLC today about any questions or concerns you may have without any obligation. Call CR of Maryland LLC at (443) 391-7080.