Investing in real estate continues to be one of the best ways to build your wealth. However, the increased costs and competition in the real estate market, especially the residential assisted living properties, mean that it is increasingly necessary for investors to cut costs. One way is through reducing their taxes via assisted living tax deductions. There are various ways investors can reduce their RAL investment and it is important that you know the different methods and which one suits you best.
Real Estate as a Business/Professional
Investing in real estate as a business will reduce your taxes significantly as you can enjoy substantial tax breaks. Having a professional designation could allow you to deduct up to 100% of your rental losses against any other types of income, such as ordinary income. However, individuals should note that to qualify for this designation, they must dedicate a minimum of 750 hours to their real estate business and participate in it actively.
You also have to spend at least 50% or more of your time to work on the management, rental, renovation, or the various services performed at the property, in this case, the residential assisted living facility. This can mean meeting the residents, facility team members, contractors, attorneys, facility managers, or creating and reviewing marketing campaigns, leases, or contracts associated with the property.
The goal is thus to be actively involved in your RAL investment by learning more about your business and actively reviewing the financials, accounts, and any news concerning your properties. If the Internal Revenue Service (IRS) deems that you have not met the minimum of 750 hours, then you will lose your real estate professional designation and any assisted living tax deductions associated with the designation. If you only invest in residential assisted living facilities but do not wish to take such an active role, then this designation and its tax incentives may not be the best option for you.
Real Estate Business Deductions
If you are a business owner or real estate investor, then you should take advantage of the real estate business deductions to lower your tax bracket and reduce your taxes. Some of the deductions which apply to business owners and real estate investors are advertising expenses, office expenses, travel expenses, mortgage interest, property management fees, repairs on the property, insurance, and property taxes on the investment property. By utilizing these assisted living tax deductions for your RAL investment, you can decrease your tax bracket substantially.
Type of Income Earned and Capital Gains Tax
According to the IRS, there are three different types of income earned, which are namely investment income, earned income, and passive income. The type of income earned thus determines how you are taxed. If you want to reduce your tax bracket, then you should change the type of income earned. Ordinary or earned income is taxed at a higher rate than investment income. By utilizing these assisted living tax deductions for your RAL investment,
