As the saying goes, don’t put all your eggs in one basket or you might lose everything at once. Portfolio diversification is key; having a variety helps mitigate the risk of the decline in your investment.
Real estate offers an excellent place to further diversify your holdings. Residential real estate allows for single-family, multifamily and even mobile home investing, while commercial real estate investing provides value appreciation, diversification of your portfolio and, the king of it all, cash flow.
U.S. tax law provides some benefits for real estate investing that don’t apply to other investment types. Depreciation paired with the 1031 exchange tax deferral makes real estate a safer bet than most investments in uncertain times.
Real estate is a physical asset and, similar to other physical property, depreciates over time. Accounting for depreciation on your taxes can be a powerful tool because the property isn’t a cash expense incurred by the owner every year, yet it allows for a potential decrease in taxable income resulting in tax savings. For example, a rental property with a net income of $200,000 is subject to a yearly depreciation expense of $50,000, which decreases the net income to $150,000. At a tax rate of 35 percent, this $50,000 yields a tax savings of approximately $17,000. The tax savings can be significant over the holding period of the investment. Be aware the depreciation expense taken every year lowers your cost basis in the property, important upon the sale of the property.
On the flip side, another potential benefit is the appreciation in property value. However, when a property appreciates, the tax liability can be significant upon sale. Let’s say a property purchased for $500,000 with an annual depreciation expense of $25,000 is sold after 10 years. The basis decreased from $500,000 minus $250,000 depreciation ($25,000 per year) to $250,000. The difference between the selling price and the adjusted cost basis is considered a capital gain and is taxable income. If this property sells for $1 million, the taxable gain is $750,000. Great investment but big tax bill! You may employ a 1031 exchange (a strategy derived from Section 1031 of the Internal Revenue Code), which allows you to defer the capital gain taxes on this sale so long as the proceeds are used to acquire a “like kind” property. A few rules must be followed to properly execute a 1031 exchange. With no limit on how many times a 1031 exchange can be completed, utilizing this tax strategy correctly can help your portfolio continue to grow as you invest in bigger and bigger properties.
While real estate investing can be a great way to diversify your portfolio, there is significant strategy involved. To maximize your earning potential and minimize your tax obligations, be sure to work with a business advisor who specializes in the real estate industry.
Anantara Uluwatu Bali Resort’s acclaimed Anantara Spa incorporates indigenous practices from world traditions, offering signature experiences individually personalized. And now, two renowned healers, experts in holistic, natural approaches to healing mind, body and spirit, join the celebrated Ibu Jero, High Priestess of Balinese Healers, at the spa.
The Global Business Travel Association’s (GBTA) Convention 2021 will be unlike any other convention before it, as we come together in person for the first time since the business travel industry drastically changed and look forward to rebuilding and reshaping the future. GBTA Convention 2021 will bring all of us together to learn from experts and each other, in-person at Orange County Convention Center in Orlando, Florida, Nov. 17–19. The safety of our attendees is our top priority. View health and safety protocols.
It’s time to start dreaming of your next trip. Here’s some destination inspiration for you. Take a visual journey through Tulum with us.
While the lure of 10 tasting rooms along the only Urban Bourbon Trail in the United States (and the world) brings almost 19 million visitors to Louisville each year, business and city leaders have plans to grow the city to attract another type of visitor — the sports enthusiast.
History and culture are etched into every corner of Greece. Beginning with its language, the oldest written language still in existence, and moving from the traces of passing civilizations and religions to pre-historic findings and works from many movements, there’s a wealth of culture to discover on your next trip to Greece.
This holiday season, award-winning oceanfront hotel Prince Waikiki will partner with Miracle Bar’s Sippin’ Santa, making it the first time the state of Hawai’i has hosted a Miracle Bar pop-up. The hotel will turn its outdoor space into a tiki-themed winter wonderland furnished with both classic and Hawai’ian-inspired holiday decorations. The exclusive holiday cocktail event will be open Dec. 1–31, daily 4–10 p.m.
If you’ve ever dreamt of experiencing the good life of Florence’s great families — but in a modern context — Antica Torre di Via Tournabuoni 1 more than fulfills the requirements. The former private villa in its newly reinvigorated state (completed during the pandemic) offers a full-on Florentine immersion, whether you are traveling on business, pleasure or some mix of both. The location (the physical and cultural center of Florence) and the mid-13th-century building’s conversation-starting pedigree (built by the Guelf-Ruggerini family and owned by the Gianfigliazzi family) are two of the most important selling points. However, it’s what the current management has done to make the property relevant to 21st-century travelers that makes it worth checking into.
GBTA’s Convention 2021 will bring the business travel industry together for the first time in a long time. Once again, you’ll learn and connect with experts and each other, along with discussions with leading thinkers, entrepreneurs and change makers addressing the issues that matter most.
Research conducted by money.co.uk reveals, out of 40 global cities reviewed, the 10 best cities in the world for art and culture lovers, with four of the top 10 located in the United States. The rankings factored in the number of art galleries, museums, monuments, street art and architecturally notable buildings.