Tax Shelter Options for Fix & Flips and Rental Properties

March 12, 2021 Blog 5 Comments

Regardless of whether you invest in fix & flips or rental properties, we are all sitting in a world of unknowns right now. However, all politics aside, there are two things that are certain. First, is that the trillions of dollars in government aid will need to be paid back. Second, is that this expectation foreshadows what recourse will most likely be taken, taxes. So, in anticipation of this impending tax event, does your investment strategy also include an optimal tax shelter plan? 

The government has granted you the boon of many forms of tax sheltering vehicles, including the Self-Directed IRA (SDIRA). It is no secret, and yet Self-Directed IRAs are still one of the most underutilized vehicles for tax relief on alternative investments by new and even seasoned investors! SDIRAs are available for individuals in the form of Traditional or Roth IRAs and Solo 401ks, and for the entrepreneurs/business owners with SEP and SIMPLE IRAs.

But once you funnel away that income it’s trapped it in a retirement account and you can’t use it for your next real estate investment, right? That’s not entirely true. A Self-Directed IRA empowers you to you acquire real estate with qualified funds. Let’s put it into perspective by breaking down the numbers for investing with cash versus investing with qualified funds.

Fix n Flip and Rental Cash vs SDIRA graph small revised

As you can see, that is a significant amount of capital gains and/or interest income that is sheltered from taxes, and can be used for future real estate investments. So, can you say you are doing everything you can to protect your hard-earned investment income? If you can’t answer this question with confidence, you could be overdue on a visit with your tax advisor to discuss your options.

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