There is no more Complex human creation than the multifaceted tax codes, and among the most difficult are the laws neighboring real estate investing. So, what follows is NOT to be considered legal guidance — consult your attorney or tax accountant before making any choice.

Real Estate tax law varies in every country and every state, but here are a few things that apply to Real Estate in general:

Many investors believe they can flip a residential home and they sometimes can. Neglecting current tax law can lower profits however.

As of 1997, you can sell a personal property tax-free, provided that you have occupied it for a minimum of two years. Capital gains tax will be assessed on investment income from the sale of stock or real estate. Assets held for less than a year are considered a short term gain and taxed at the same rate as ordinary income taxes, often as high as thirty-five percent. Holding on to the asset for more than a year makes it a long tem gain, customarily taxed at fifteen percent. Waiting a year to sell your property can save you a significant amount in taxes!

If you live in the property as your principal residence for at least 730 days (does not need to be sequential) then you do not have to pay any tax at all, if the money received is used to invest in a new property with a value at least equal to the old property.

In the United States, investors can put their profits from selling their investment property into a 1031 exchange.

You can defer any tax owed as long as you trade an investment or business property for another of “like kind”. Swaping undeveloped land for developed land, a residential rental home for commercial property, ect. is what falls into the category of “like kind”. Exchanged property has to be an income producing asset, not a personal one. That is the only restriction for it all.

You have to identify three replacement properties within 45 days and must ultimately close within 180 days. In addition, you are required to find a neutral intermediary to hold the funds in escrow and keep records of the transaction.

Please remember that the 1031 exchange is not intended to avoid taxes, but is a tax deferral and cannot be used for profits from your personal residence. Contact your tax accountant or a real estate attorney before using this tax deferral method.

Related to the sale of their personal residence, tax law allows for married couples to earn a profit of up to $500,000 and singles to earn a profit of up to $250,000 without incurring any tax liability.

One of the better tax write offs available is the mortgage interest deduction. The deduction is limited to loans under $1 million as well as points or origination fees.

Before making any investment decisions, it is important to keep accurate records of all expenses and income from your investments, whether these investments were inherited, or involve real estate sales or trusts. Using a tax professional for help is a worthwhile expense, as they can save you money by helping you avoid penalties and unexpected taxes.