Real estate investor Robert Tweed discusses ways to defer taxes on real estate sales, particularly 1031 exchanges.
Canadian Robert Tweed has developed an expertise in 1031 transactions and has completed $500 million in investments in this sector. The IRS allows individuals to defer investment properties in a number of scenarios, including deferring taxes on installment sale agreements.
These transactions are broken into gain, principal and interest. Each of these components receives different treatment on an individual tax form (1040). According to Robert Tweed, if a buyer assumes a promissory note on a property, the cost basis is reduced by the mortgage balance.
Robert Tweed Advises Investors to Track Losses
Robert Tweed advises real estate investors to track and claim losses on their properties, and this is a great strategy to reduce taxes at the end of the year. Losses include money spent on repairs, revisions, and updates to investment properties. It also includes upgrades such as windows, new appliances, and landscaping, and you can use it all to reduce your tax burden.
Use an Installment Sales Trust Per Investor Robert Tweed
With an installment sales trust, you can defer tax payment. This process has no like kind requirements or time limits, allowing you to time the market to buy properties priced advantageously and sell them when the market goes up. It also applies to certain other assets such as precious metals and stocks. It’s important to work with a financial advisor by using this type of strategy to build your wealth, according to Robert Tweed.
A 1031 Exchange Is a Great Investment Strategy Says Robert Tweed
The 1031 rule allows you to reinvest money from property sales into another property without paying capital gains. This only works if you don’t cash out on profits from the property sale. Many investors use this strategy to build their portfolios or to cut their losses on unprofitable holdings without paying taxes on the proceeds. Under this strategy, you would sell properties making less money to purchase ones that show more promise, says Robert Tweed.
Robert Tweed notes two other tax deferral strategies. You can also consider living in an investment property to avoid capital gains taxes when you decide to sell it. Rolling the proceeds of property sales into a retirement account can also help you defer taxes. Use a 401K, Traditional IRA or Roth IRA to reduce your tax burden.
Using these strategies helps investors retain more of their wealth or defer tax payments until retirement when they fall within a different tax bracket. Partnering with a 1031 expert can help you understand the intricacies of this underutilized investment practice. There are many other ways to save money on taxes and it’s important to consult with the financial advisor before making important investment decisions.