When you invest in commercial real estate in Oklahoma, make sure to take advantage of all the real estate investing tax strategies available to you with some careful real estate tax planning.
Real Estate Tax Advantages
There are advantages to having real estate investments. Investment income has a lower tax rate than earned income, such as from your job. In real estate, investment income is the money that you make from the sale of a property. If you have your investment property for more than a year, you will pay a lower capital gains tax rate.
The money earned from renting a property is passive income. While it has a higher tax rate than investment income, you have deductions that will reduce your taxable income.
Tax Deductions for Real Estate Investors
Understanding deductions is essential to real estate tax planning.
Real Estate Investing Tax Strategies
There are advantages and disadvantages to creating a real estate investment business such as an LLC, LP, or S corp. This is a good idea if you sell properties quickly. Adding an LLC protects you from becoming classified as a dealer. If you are not a dealer, your FICA taxes decrease.
One of the best real estate tax advantages is the 20% pass-through deduction. If you qualify, you can deduct 20% of your qualified business income that comes through the company. It applies to rental properties and those that spend at least 250 hours a year or more managing the rental property, those who spend 250 hours or more managing a mortgage asset. It also covers dividend payments from shares in a REIT.
Of course, you should never overlook business tax deductions for real estate investors. These include:
- Mortgage interests
- Property taxes
- Repairs and capital improvements
- Management fees
- Fees for lawyers and professionals
- Travel and mileage
You can also use passive deductions such as depreciation.
Before You Invest in Commercial Real Estate in Oklahoma
This blog is just a quick overview of taxes for commercial property, and the tax laws will change. If you invest in commercial real estate in Oklahoma, consult a professional to help you make the best investment decisions.