Buying a home is already complicated enough, but property taxes can add a whole extra layer of headache. When most people hear the term \u2018tax season,\u2019 they immediately go into mental shutdown. Tax law is indeed very in-depth and can be confusing for those who don\u2019t have a lot of experience with it. However, if you own real estate, there are some tax issues that you\u2019ll want to be privy to so you can avoid them at all costs. Here are 4 complicated real estate tax issues you should know about.<\/p>\n
If you\u2019ve spent any time learning about real estate investing, you\u2019ve likely heard of the 1031 Exchange<\/a>. The simple concept behind this tax break is that you can defer paying capital gains tax on a property you sell if you use the proceeds to invest in another property. However, there are many restrictions that apply. Most investors don\u2019t realize that the properties must be considered \u2018like\u2019 by IRS terms. You can\u2019t sell a single-family home and purchase a commercial apartment building without paying capital gains tax. The 1031 Exchange has a lot of limitations.<\/p>\n If you\u2019re fairly new to real estate investing, you may not be aware of the proper protocol for taxes. If you are unsure of the protocol, consider hiring a real estate tax attorney<\/a> so that you can complete and submit the right forms to the IRS. Many people don\u2019t realize that they must fill out the Schedule E Form with their taxes. Most believe they just need to report the rental income on their regular tax forms, and they\u2019re done. That\u2019s not the case. Be sure to seek out tax or accounting help if you need assistance.<\/p>\n The IRS draws a fine line between personal deductions and those related to your real estate business. As an investor, you may find yourself constantly traveling to look at new potential properties. It may be very easy to spend some of that time in new places vacationing. While you may be tempted to notate all of your expenses during your travel as business-related, that could land you in trouble. When you report excessive spending, the IRS may audit your business and discover that you falsely claimed personal expenses as vital business ones.<\/p>\nSchedule E Is A Must<\/h2>\n
Noting Personal Deductions As Business Ones<\/h2>\n
Private Residences Have Capital Gain Exemptions<\/h2>\n