Taxes and Rental Properties | 7 tax benefits of investing in real estate
Filing Taxes for Rental Properties
Filing taxes for rental properties can be complex. Here is everything you need to know about 1099 forms and the benefits of investing in real estate.
What are 1099 Tax Forms
A 1099 tax form states that someone has paid you, whether that person be an individual or an entity. You might get a 1099 from the bank if they pay you interest or from a client if you're a freelancer. This is to make sure that the IRS knows you have received money and they can make sure that you have stated this on your income for the year. There are different kinds of 1099 forms, but the most important one to know for real estate transactions is 1099-S.
1099-S Forms
1099-S forms are needed when you close a real estate transaction. This form ensures that the seller is stating how much they gained from the sale of their house to make sure they are paying the correct taxes. You're going to have to submit a 1099-S form unless you go through a title insurance company or a lawyer (which is very common) or the sale of the property was less than $250k for a principal residence.
Benefits of Real Estate Investing
Tax season is always a reminder to get my financial plan organized. The US tax code is complex but provides quite a few benefits for my real estate investment wallet:
- Deductions — and just to remind you, here are the top 10.
- Depreciation — just remember, land doesn’t depreciate over time, unless you’re on the CA coast, yikes.
- Long-Term Capital Gains — a property sale is better than a 9-to-5 job.
- “Tax-Free” Refinances / 2nd Mortgages — defer taxes and use proceeds for another property, where you may be able to deduct the interest from the loan.
- 1031 Exchanges — lessons from first timers…the time limits (45 days to identify, 180 to close) are more difficult to meet than you would expect.
