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How To Use Real Estate Tax Shelters Correctly

If the stock market, with its wild swings up and down and it’s inconsistency and dangerous nature have put you off of that form of investing, then you may be ready to take the leap into real estate investing. The fact of the matter is that real estate investing can be a great way to add stability and growth to your portfolio and at the same time enjoys fantastic tax benefits that I’d like to talk about a little bit in this article today.

It is true that tax reform has changed many of the tax benefits that we used to get from owning real estate, there are still many rather significant advantages in the tax arena that continue to make these investments attractive even today in the crazy housing meltdown that we’re currently witnessing.

One way to take advantage of the tax man with real estate involves past real estate investments. This particular plan is going to be very useful to many people who invested in real estate before the recession of 2008 to 2010. Why is that? Well frankly it’s because many of those investors have lost an arm and a leg since then.

With the bursting of the real estate bubble and the massive drop in housing prices, you would be hard pressed to find a real estate investor who doesn’t have massive losses. And that’s where this strategy comes into play. If you owned real estate that generated losses in previous years then you can invest in new income producing properties today. In many circumstances the new income that is generated today will be offset by those losses that you held in the past from a tax point of view. Be sure to talk to your accountant or CPA or tax lawyer before engaging in this particular tax strategy.

Another strategy is to aggregate your losses from many different tax shelters not just the ones from real estate. Most people don’t realize that losses from a real estate passive activity can usually offset income from any other type of passive activity. And the opposite remains true as well so if you are involved in any sort of passive shelters like equipment leasing or R&D or things like that you can take advantage of this tax benefit.

Finally I should say that many investors look towards real estate investing simply because of the tax shelter benefits. Heck I wrote an entire article about it! But the fact of the matter is that tax issues should never be the overriding reason you make any investment. Instead you should simply focus on the economic reasons of the investment. Is it a good deal? Will it offer significant income? These are the most important factors when it comes to making any investment decision and any tax benefit should be secondary in your mind.

Written By Jason Markum

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