As tax time is near, it's time to spend some time discussing the impact that money has on your personal and private investor’s income. The good news is that investment in real estate offers some of the best tax advantages over all other asset classes. You may know more about the benefits that the best private money lenders have through https://www.baymountaincapital.com/.
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With depreciation, taxable income may be less than the cash flow on the property. With Exchange 1031, you can roll capital gains from one project to another with the same value or greater. You must identify the property exchange within 45 days and close the transaction within 180 days to defer capital gain from the sale of the first property. If you have a capital gain of $ 1,000,000 and a 20% tax owed on it, $ 200,000 will go to the government. But, by 1031, you can roll your profits into a new project and avoid paying that $ 200,000 in taxes. You can effectively use the money owed to the government to increase your wealth.
You should remember the requirements of tax reporting that comes with getting private money. You have an obligation to get the right tax forms for investors every year so that they can file their income tax returns.
1099 for a private money lender or the shareholder receiving the dividends and K-1 for LLC members and limited partners. There are some additional responsibilities that come with raising capital, but if you keep good records and maintain a good CPA or tax attorney, there will be no problem.