Real estate investing comes with its own set of tax rules and regulations that you need to be aware of. If you are not fully aware of the guidelines and regulations you might be paying too much to the government and also doing more paper work than you need to. Learning a few tips can save you time and money, both of which you can better invest in growing your real estate investment business.

When a real estate investor sells a property a capital gains tax is recognized as well as a tax on depreciation recapture. That tax along with state tax can result in a liability of as much as 25% of the sale of the property. A section 1031 exchange, which is named for the IRS code pursuant to this tax, lets the investor defer all of the taxes that are due on the sale as long as the money made is spent on another property which meets the IRS guidelines.

The replacement property much be identified with 45 days of the first sale and must be purchased within 180 days of its sale. The new property must also have a purchase price equal to or greater than the property which was sold. There are additional terms which must be met for the handling and placement of the funds between the sale and the purchase as well.

If you are just getting into real estate investment, it is wise to speak to your tax advisor about the implications of your new business and to get his or her advice on filing the exchange documentation. Clearly, the tax laws and guidelines around real estate transactions are very complicated. It is wise to have discussed your new career with a qualified tax law professional prior to making any investments. The taxes due on sold property as well as on the income generated by your properties will have an impact on your budgeting throughout the purchase and rehab processes.

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