5 Real Estate Tax Strategies of the Wealthy.

According to Realtor.com the wealthy know a few financial real estate tactics that they typically don’t share with others. I thought I would share their article with you here.

Let me know what you think.

Real Estate Tax Strategies

Strategy No. 1: Take advantage of ‘safe harbors’

Investors don’t let second homes lie vacant for very long. They want them occupied quickly. Not only will you make extra cash, you can deduct expenses such as repairs, insurance, real estate taxes and mortgage interest, says broker and attorney Bruce Ailion  of RE/MAX Town and Country Commercial in Atlanta, GA.

Strategy No. 2: Depreciate your rental property

The IRS views a rental property as a business expense and expects it to depreciate over time. Ka-ching! You can deduct a portion of the cost of the home—what are called deprecation losses—for upward of 27.5 years (the amount of time the IRS thinks is the deductible life of a single-family home).

Strategy No. 3: Depreciation is actually a ‘phantom deduction’

Phantom because, as Than Merrill, CEO and founder of FortuneBuilders.com, points out, while the IRS compensates landlords for the depreciation of their assets, homes tend to do the opposite and appreciate in value. And therein lies the true value of depreciation losses: If the value of your property rises, the loss the IRS allows never actually takes place. So you save money on taxes and make a profit at the same time.

Strategy No. 4: The 1031 exchange

When it comes time to sell an investment property, you should be aware of the 1031 exchange. This tax rule allows people to sell an investment property for a profit and move the proceeds directly into another investment property while deferring the tax liability.

Strategy No. 5: Leave more money to your heirs

If you use the 1031, your heirs will be left with real estate that has a much lower tax basis than its actual value when you die. This is because the tax law specifies that when someone passes away, the gain inherent in their investments disappears, says Wheelwright.

Want to take some cash out of the property while you’re alive and kicking? Simply refinance the property and take out a home equity line of credit (HELOC). The rich also know there is no tax on debt, so a HELOC is an easy way to get cash flowing without having to pay up (at least to Uncle Sam).