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What are some Legal Ways to Reduce Taxes

Taxes can take a big bite out of your income, but there are legal ways to reduce your tax bill. From deductions to credits to smart investments, there are plenty of strategies you can use to keep more of your hard-earned money. In this article, we’ll answer some common questions about legal ways to reduce taxes and provide effective strategies to help you save money.

Today I want to talk about rich people and more particularly I want to talk about what rich people are good at because there are two things that rich people are good at.

Rich people know how to make money and rich people know how to keep that money, aka how not to give their money to the IRS in taxes.

NBC News says that the richest Americans pay almost no income taxes.

Motley Fool talks about how Warren Buffett, one of the wealthiest investors in the world, pays a lower tax, tax rate than his secretary.

CNN covered how Donald Trump paid no money in taxes and then CNBC covered how Trump said that he is smart for not paying taxes.

I don’t know about you but I don’t particularly enjoy paying taxes either.

When I think of my favorite things to do, like hiking and working out, and eating some really good guacamole, I don’t see paying taxes anywhere on that list.

And if you enjoy paying taxes and you feel like you should be paying more money in taxes, then by all means please go and do that.

I mean you can just go on to the Treasury website and you can donate some more of your money to the Treasury Department that way if you’re not paying enough money in taxes, you can just donate this extra money to the government and the IRS.

I’m not an attorney, and I’m not your attorney but what I want to do today is I want to go over seven ways that you can legally, pay less money in taxes and maybe even not pay any money in taxes, that way you can do what rich people do and keep more money in your pocket.

So let’s start with number one.

The first thing you can do to no longer pay so much money in taxes is to stop earning money.

Legal ways to reduce taxesThis is actually what wealthy people do.

See, the IRS taxes you based on how much money you earn. And so if you can show the IRS that you didn’t earn any money, well then they can’t tax you because you didn’t earn any money.

If you only have one stream of income from your job, this one’s going to be harder for you to implement right now because what wealthy people do is they show the IRS that they didn’t earn any money.

What they do is they make money from their investments and their assets, but they don’t actually earn any money themselves because when you earn money from your job, that money is automatically taxed.

If you own a business that makes $100,000, you don’t pay taxes on how much money you make.

You pay taxes on how much money you keep.

So if you make $100,000 and then you spend all $100,000, well you only have $0 worth of taxes. It will then come because you made $100,000 and you spent $100,000.

A couple of years ago, my accountant calls me up and he says, just a brief, we have a problem.

You have a big tax book coming unless you can go on and spend more money.

So I had to figure out how I could spend $300,000 in the most effective way possible in my business so that way I’d have a smaller tax bill at the end of the year.

Now, if you have a business, you don’t want to just spend the money to spend it because then that’s just like throwing the money in the garbage.

Yeah, you’d have to pay some of that money in taxes, but it’d be better to spend some of the money in taxes and keep the rest of it than just taking all of that money and throwing it in the garbage.

So now what you’re trying to do is you’re trying to figure out how do you take this money, spend it, but grow the business that way now your business is worth more money and it’s going to make more money in the future that way you don’t have to spend that money in taxes because if you don’t spend that money, then half of it is going to go to the IRS.

But if you can spend that money and make more money in the future, well, now you’re using that money to invest in yourself and make more money instead of giving it to the IRS.

So I spent a lot of things like consultants and classes and advertising and marketing that way.

Now, I’m spending the money that way I don’t have to pay as much money in taxes, but I’m spending it in a way that’s going to benefit the business, in the long run, that way I can make more money in the long run.

And this is the same reason why you see so many advertisers making so many advertisements at the end of the year because they’re trying to capitalize on all the advertising revenue that companies are spending because at the end of the year, October, November, and December, this is when companies are looking at.

Their books say, oh my god, we have a big tax bill due that spend as much money as we can and advertising and marketing that way we don’t have to pay so much money in taxes.

That means they’re paying more money to spend on advertising, which means that advertisers are going to make more money per advertisement in October, November, and December.

So advertisers are trying to capitalize on that and make as much money as possible towards the end of the year.

And then comes January, February, and March and all of these companies run out of money and they’re not spending any money on advertisement and the advertisers are struggling to make any money in January, February, and March.

The second way that you can avoid not evading but legally avoiding paying taxes is by using debt strategically.

How to Use Debt Strategically to Reduce Tax

Debt reduce taxes

  • Using debt strategically can be an effective way to reduce your tax bill. One way to do this is to take advantage of the tax deduction for mortgage interest. If you have a mortgage on your primary residence or a second home, you can deduct the interest you pay on the loan, up to a certain limit. This can reduce your taxable income and lower your tax bill.
  • Another way to use debt strategically is to invest in tax-advantaged accounts such as a traditional IRA or 401(k). By borrowing money to make contributions to these accounts, you can take advantage of the tax deduction for contributions while also benefiting from the tax-deferred growth of your investments. Just be sure to consult a financial professional to make sure this strategy is right for you and that you can handle the debt payments.
  • However, it’s important to remember that using debt to reduce your tax bill should be done carefully and strategically. Taking on too much debt can lead to financial problems and even bankruptcy. Additionally, taking on debt solely for the purpose of reducing taxes may not be the best long-term financial strategy. As with any financial decision, it’s important to weigh the pros and cons and consult a professional before taking action.

For example, Elon Musk really demonstrated how this works back in 2021 because he ran a Twitter poll to his followers asking if he should sell his stock.

Now while that seemed like a harmless tweet, he actually had a hidden agenda behind that tweet.

Elon Musk doesn’t pay any taxes.

And the reason why he doesn’t pay any taxes is because of what I said in number one, he doesn’t earn any money.

He doesn’t take a salary out of his company and because he doesn’t earn any money, he doesn’t have to pay any taxes even though he’s one of the wealthiest people in the world.

Well back in 2012, Elon Musk was awarded something like 22 million stock options for Tesla stock that he would receive in 2021. When he received these Tesla stock options in 2021, that was the first time that he earned money in years and now he had to pay taxes on the money that he earned but he didn’t have any money to pay these taxes.

That’s why he ran this tweet poll because if he sold his stock, now he’d have some income that he could use to pay his taxes.

At this point, you might be wondering if he’s one of the wealthiest people in the world who doesn’t have any cash in his bank account, how does he afford to eat and pay his mortgage?

Thanks to the help of strategic debt.

Elon Musk is not surprisingly one of the largest shareholders of Tesla and so when he starts getting his options or shares of Tesla at $6 a share and the price of Tesla goes up to $1,000 a share, he has a lot of money on paper because the share prices have gone up from $6 to $1,000.

Now he doesn’t actually get that money in his bank account unless he sells these shares but if he sells these shares then he has to pay taxes on these shares.

So what he does instead is he borrows against these shares. He takes out debt.

If he has a million dollars worth of Tesla stock, he can go to the bank and say, hey, how about you give me a loan for half a million dollars and you can use my Tesla stock as collateral.

He’s essentially refinancing out of his Tesla stock.

So now what happens is, he has cash in his hand which is debt and now all he has to do is pay some money back plus interest.

Now this works great especially when you’re in an environment with such low-interest rates because now he can borrow money at 3, 4, 5% per year while his stock can grow by 10% a year.

So he’s making a profit by borrowing this debt and he gets to borrow the debt tax-free.

If you go out and borrow $250,000 to buy a home, you don’t have to pay taxes on the $250,000 that you get from the bank and if you go out and you’ll find it, another half a million dollars out of your home, you put half a million dollars into your bank account but again, you don’t have to pay taxes on the debt that you get because this is money that you have to pay back. It’s not income that you’re getting.

So when Elon Musk takes debt out against his Tesla shares, he gets this cash into his pocket debt free.

He can pay some of the money back and interest but the value of this stock keeps going up so he can just borrow more if he needs more money.

This is a strategy that a lot of wealthy people use where you own assets and then the value of your assets go up.

When they go up, now you can borrow against your assets.

You take this debt which is now tax-free in your pocket and you can live off of this money, you can spend this money, you can live your life and now you have money in your pocket, tax-free to spend.

In an interview with Robert Kiyosaki, the author of Rich Dad Poor Dad, says that this is the strategy he used to become a billionaire on paper and it is a strategy that made him wealthy.

Here is the video you can check out: The Rich Dad Company on TikTok

Take a look.

The reason I pay no taxes is that I borrow money. I’m a debtor and I am a billionaire in debt.

You know why?

Because I get tax breaks for borrowing money.

The reason I am so rich is because I’m in debt and my friend Dave Ramsey says, live debt free.

I’m going, well, you’re an idiot.

I mean, he’s my friend but I say, Dave, I like debt.

He says, I know but most people can’t handle debt.

I said, I agree. That’s why there’s no financial education in schools because if you knew how to handle debt, you wouldn’t save that crappy dollar you have in your hand.

I’d rather borrow the money tax free.

I wouldn’t feel right going to the third point without giving you a little bit of a warning because taking on more debt does come with more risk.

I mean, anytime we take on debt, it has risk.

But if you over leverage, then it comes with more risk because we’ve seen that if you over leverage on anything, whether it’s stocks or real estate, and then you start to see the value of the asset go down.

Now, you’re underwater and now you can really struggle.

So if you do go down this route, of using debt as a way to live tax free, just make sure that you’re being cautious that you’re not over leveraged and you know what you’re doing.
The third thing that you can do to not pay taxes is to maximize your deductions.

How to reduce taxes by maximizing your deductions

reduce taxes by maximizing your deductions
Maximizing your deductions is a smart way to reduce your tax bill. Here are some strategies to help you maximize your deductions:

  1. Keep accurate records: To maximize your deductions, you need to keep accurate records of your expenses. This includes receipts, invoices, and bank statements.
  2. Itemize your deductions: If you have a lot of deductible expenses, it may be worth itemizing your deductions instead of taking the standard deduction. Common deductible expenses include charitable donations, medical expenses, and state and local taxes.
  3. Take advantage of tax credits: Tax credits can reduce your tax bill dollar-for-dollar. Some common tax credits include the Earned Income Tax Credit, the Child and Dependent Care Credit, and the American Opportunity Tax Credit.
  4. Contribute to tax-advantaged accounts: Contributions to tax-advantaged accounts such as a traditional IRA or 401(k) can reduce your taxable income and lower your tax bill.
  5. Consider hiring a tax professional: A tax professional can help you identify all of your deductible expenses and make sure you’re taking advantage of all available tax credits.

Remember, maximizing your deductions should be done carefully and accurately. Be sure to keep good records, consult a tax professional if needed, and follow the instructions carefully to avoid costly mistakes.

By using these strategies, you can maximize your deductions and reduce your tax bill, keeping more of your hard-earned money in your pocket.

However, one of the easiest ways to do that is by hiring an accountant because your accountant’s job is to do one thing.
Find as many tax deductions as possible, that way you can pay less money in taxes.

If you own your own business or you have a side hustler or you’re an independent contractor, now you have opened up the doors of tax deduction possibilities.

When you only earn your money from your job, your financial statement looks something like this.

You earn money and then you pay taxes and then you can spend whatever is left.

But if you own a business or if you’re a side hustler or you’re an independent contractor, now you have a different financial statement because now you earn just like before, but then you can spend your money and then you only pay taxes on whatever is left.

Things switch because of how you earn your money because the government and the IRS want to incentivize you to invest in your growth and they incentivize you to go out and take a risk and start a side hustler and start a business because, well, it’s risky and so you get rewarded with less taxes.

For example, I use one of my computers and business.

So when I go out and buy a cell phone or a computer, this is a business expense because I need to use it in my business so I get to deduct it against my taxes.

My team and I went out for lunch today.

That was another tax deduction.

Let’s say I have to travel for business, I need to buy a ticket, I need a hotel room, food, rent a car etc.

All of those things are tax deductable and along with that, I will enjoy a trip.

See, I make money and then I get to spend money on things like my cell phone, my laptop, my food and my trips and then after what’s left, that’s what I pay taxes on.

I spend my money and then I pay taxes while most people earn money and then they pay their taxes and then that’s when they go out and spend money on their cell phone or their computer or their food or their trips.

Now, of course, all of these tax deductions have to be used in my business.

They have to be used to help grow the business and you don’t always get to deduct 100% of every dollar that you spend, which is why you want to make sure you speak to a tax professional before you go out and do any of this.

But you can see how the tax code incentivizes you to go out and start your own side hustle and start your own business because you get the incentive with the tax code and this even goes to your car.

I hired a new accountant recently and he calls me up last week and he says, just breathe, what do you think about G-Wagons?

I’m like, they’re nice, why?

He says, well, I think you should consider buying a G-Wagon because I think that we can get you a good tax deduction on a G-Wagon.

Section 179 says that you can go out and buy business equipment and deduct it against your taxes.

But the reason why this is so different and unique right now in 2022 is that there’s a special provision that says that until January 1st, 2023, if you go out and you buy a heavy car for your business that weighs over 6,000 pounds, you can deduct 100% of that purchase price against your taxes this year.

Typically, the way it works with heavy machinery is you have to deduct a piece of it every single year for a number of years.

So if you go out and you bought a $30,000 car, well, you wouldn’t be able to deduct all $30,000 this year.

You could only deduct a small piece of that and then you deduct it a little bit next year and the year after that and the year after that.

But now, Section 179 says that until the end of 2022, if you go out and buy a heavy car, you can deduct all of it against your taxes.

Now, there are some limits and exceptions to this.

So again, talk to a tax professional before you go out and do anything.

But what my accountant said is that, yeah, you don’t need a G-Wagon to run your business, but what we could potentially claim is that because you have a lifestyle brand, it goes with a lifestyle.

So there is a claim that we can make that you as an influencer need a G-Wagon to help you run your personal brand.

Now, personally, I’m not going to go out and buy a G-Wagon just for tax purposes, because again, as I said before, I don’t want to just spend my money to spend it.

If I’m going to spend my money, I want to do it in a way that’s actually going to earn me a return and help me build my business and help the business earn more money over the long term.

But these are things that you’re seeing people do.

And these are potential claims and deductions that you can make if you follow this system.

But the only way that you can do that is again, if you own a business or if you’re a side hustler, or if you’re an independent contractor.

The fourth thing that you can do is you can invest more aggressively.

Now, I’ve been talking about why you need to invest for so many reasons.

You need to invest to build wealth.

You should be investing to fight inflation.

But now, I’m talking about why you need to invest to fight taxes.

Investing is something anybody can do regardless of how you earn your money and it provides a tax break for everybody.

You don’t need to be a millionaire, a multi-millionaire, or a hundred thousandaire in order to start getting tax breaks from investing in money.

But what you do have to do is you have to actually invest your money and you want to make sure you’re investing your money the right way.

If you go out today and you buy a stock for $100 a share and then three months later, it goes up to $200 a share and you sell, well, now you have made some money from your investment but you’re not going to get any tax breaks because you sold your stock within less than a year and in the IRS’s eyes, that’s not considered an investment.

An investment is something that you hold on to for longer than one year.

Some ideas of how to invest in short-term investments to pay zero taxes.

Ways to minimize your tax liability with short-term investments are:

One strategy is to invest in tax-exempt bonds, which are issued by state and local governments and offer tax-free interest income. These bonds can be a good choice for short-term investments because they typically mature in less than 10 years.

Another option is to invest in a tax-free money market fund. These funds invest in short-term, high-quality municipal bonds and offer tax-free income. However, keep in mind that these funds may have lower yields than taxable money market funds.

You can also consider investing in a Roth IRA, which allows you to contribute after-tax dollars and withdraw the funds tax-free in retirement. While Roth IRAs are designed for long-term investing, you can withdraw your contributions at any time without penalty, making them a potential option for short-term investments.

Overall, investing in short-term investments to pay zero taxes may not be easy, but there are ways to minimize your tax liability. Consider tax-exempt bonds, tax-free money market funds, and Roth IRAs as potential strategies, and be sure to consult with a financial advisor or tax professional to determine the best approach for your specific situation.

If you hold on to something for longer than one year, now you qualify for something called long-term capital gains rates.

What is long-term capital gains rate

Alright, folks, let’s talk about the long-term capital gains rate! This special tax rate is a sweet deal for investors who hold onto their assets for more than a year.

The long-term capital gains rate is a tax rate that applies to profits made from the sale of assets that have been held for more than one year. The rate is lower than the ordinary income tax rate and is designed to encourage long-term investments.

For most taxpayers, the long-term capital gains rate is 15% or 20%, depending on their income level. Taxpayers in the 10% or 15% income tax bracket may qualify for a 0% long-term capital gains rate.

Capital gains rates, long-term capital gains rates are a lower tax rate that you get when you invest your money and I mean actually invest your money for longer than a year.

Basically, if you sell an asset after holding it for more than a year, you might qualify for the long-term capital gains rate. This rate is lower than the ordinary income tax rate, which means more money in your pocket!

For most taxpayers, the long-term capital gains rate is either 15% or 20%, depending on your income. And if you’re in the 10% or 15% income tax bracket, guess what? You might qualify for a 0% long-term capital gains rate! Cha-ching!

But wait, there’s more! If you sell an asset that you’ve held for less than a year, that’s called a short-term capital gain. And unfortunately, short-term gains are taxed at the regular income tax rate. So, hold onto your assets for at least a year to take advantage of the long-term capital gains rate.

Of course, tax laws can change, and everyone’s situation is different. So, it’s always a good idea to talk to a tax professional to make sure you’re getting the most out of your investments.

So there you have it, folks! The long-term capital gains rate is a fun tax incentive that rewards investors for playing the long game. Keep holding those assets and enjoying those lower tax rates!

What if you’re just trading your money, meaning you’re holding investments for less than a year, you don’t get those tax breaks.

Now, the money that you earn from your investments, your investments that you hold on to less than a year, are going to be taxed at the same tax rates that you would have gotten if you earned this money from your job.

If you work a job and let’s say you make $40,000 a year from working a job, you’re going to have to pay taxes on this money.

You’re going to have to pay federal taxes, you’re going to have to pay state taxes, you’re going to have to pay bike taxes and after all these taxes, you’ll be left with something around let’s say $32,000 depending on where you live.

Some states are going to tax you more, some states are going to tax you less, but something around $32,000.

This is if you work a job.

Now, if you invest your money like I’ve been talking about and you earn $40,000 worth of profits, so now you bought a stock, you bought some real estate department investment, you held on to it for longer than a year and you sell it and you have a $40,000 profit.

Well, now you don’t have to pay any long-term capital gains rates because you’re under the threshold. $40,000 is zero and then depending on where you live, you might not have to pay any state taxes.

You don’t have to pay any bike taxes, which means at the end of all this, you’re left with $40,000. $40,000 is more than $32,000 and the reason why you get to keep more is because you earn this money from your investments, not from here.

If you make $40,000 in your capital gains, long-term capital gains, your tax rate is zero and the highest tax rate in 2022 on long-term capital gains rates is 20%.

So if you make a million dollars for your investments, the most you’re going to pay is 20% in taxes.

The fifth thing that you can do is you can earn money from real estate investments.

How to invest in real estate and earn from taxes

real estate investment will reduce taxes

  • One strategy is to take advantage of tax deductions available to real estate investors. These deductions can include mortgage interest, property taxes, repairs and maintenance, and depreciation of the property. By deducting these expenses from your rental income, you can lower your taxable income and potentially pay less in taxes.
  • Another option is to invest in a real estate investment trust (REIT), which is a company that owns and operates income-generating real estate properties. REITs are required by law to distribute at least 90% of their taxable income to shareholders as dividends, which means you can earn income from them that is taxed at a lower rate than ordinary income.
  • You can also consider a 1031 exchange, which allows you to defer capital gains taxes by selling one property and using the proceeds to purchase another property of equal or greater value within a certain time frame.
  • Of course, investing in real estate can be complex, and tax laws can be confusing. It’s important to work with a knowledgeable real estate agent or tax professional to help you navigate the process and maximize your tax benefits.

Overall, investing in real estate can be a great way to earn income and take advantage of tax benefits. Consider deductions, REITs, and 1031 exchanges as potential strategies, and don’t forget to seek expert advice before making any big moves.

Let’s see an example of investing in real estate

If you go out and you buy this home and you keep the numbers round and easy to understand, let’s assume that this home costs $100,000.

Now again, you’re not buying this home to live in yourself, you’re buying it as an investment property, so you’re going to rent it out to somebody else and let’s assume that you can rent it out for $1,000 a month.

So if you rent it out for $1,000 a month, that’s $12,000 a year in rental income, but not all of the $12,000 is yours.

You have expenses to pay.

So let’s assume that a third of this money is going to expenses.

This is your taxes, your insurance, your maintenance costs, your management fees, so that costs you 33%.

So now you’re going to send in about $4,000 a year in your expenses, which leaves you with $8,000 of profit.

Now if you go out and you get a mortgage to buy this property, that means you’re going to have to finance $80,000.

So you’re going to have to pay some of this money back to the bank.

So if you borrow $80,000, it’s going to cost you something around $400 or so a month.

So $400 a month is right around $5,000 a year, which means now you have to subtract your $5,000 a year in your debt costs, which leaves you with $3,000 in your pocket.

Now you’re going to have to tell the IRS that, hey, I made $3,000 of income and you’re going to have to pay taxes on this $3,000 worth of profit, except you get another tax break as a real estate investor.

You get to tell the IRS that, hey, my property is a little bit older.

And because my property is a little bit older, I deserve a tax break even if the value of your property is going up.

So now you will get to tell the IRS in this case that because your property is older, you should get a $3,600 tax deduction.

This is only on your taxes, which means that in your tax return, you get to tell the IRS that you made a whole negative $600.

So you tell the IRS that you made negative $600 when in actuality, you put $3,000 in your pocket.

The technical reason of why you get to do that is you get to deduct one for 27 and a half years.

The reason being because your home goes through wear and tear and you get to deduct that on your taxes and you get to deduct this even if the value of your property is going up.

So now you made $3,000.

Your bank account has $3,000, but you get to deduct this much of your property every single year.

In this case, that’s $3,600 assuming that $100,000 is just the property.

There’s no land included because you can’t deduct the value of your land.

So now you are left on taxes on paper with a negative $600 income.

You pay taxes on negative $600, which means your tax bill is zero and the next time you have to pay taxes, you’ll be able to deduct this $600 of loss against that.

But you show the IRS that you didn’t make any money, but in actuality, you still have money in your pocket and it’s completely legal.

This depreciation loophole is what allows people like Donald Trump to make a lot of money every single year from his real estate properties, but pay nothing in taxes because you get to deduct the value of depreciation of the property while you’re still earning money.

And then if the value of your property goes up to $200,000, what you could do is you can just refinance out.

So now you can pull out another $100,000 and now you get this money in your pocket again, tax-free.

Remember we talked about earlier, living off of debt?

That’s again what real estate investors do when the value of the property goes up, they borrow against it and now you have cash in your pocket tax-free.

You can use this cash in your bank to go out and buy another property, create more income, get more tax deductions and have more money in your pocket while you’re paying less money in taxes legally.

This as you can see is why financial education is so important.

The average person is not going to be able to take advantage of any of these tax breaks because they don’t understand how money works.

And if you’re thinking, well, what am I supposed to do?

All I do is work a job.

I don’t have the ability to go out and buy some real estate as an investment.

I don’t have the ability to go out and start a business.

But what you can do is first get financially educated.

That way you can start moving in the right direction.

You don’t have to go out and start a business to start getting these tax breaks.

You can start a side hustle, which doesn’t have to be a ton of work or a ton of time, but it’s something that you can start doing, something that you can start implementing to earn some more money and capitalize on some of these tax breaks.

And if you want to invest in real estate, it’s something that you can do, but you first have to set your mind to it.

I mean, if you put a little bit of money aside every single month, you will be able to work towards buying your first rental property.

And if you’re thinking that you’ll never be able to afford a property in your area, well, then you can look in places like the Midwest, because in the Midwest, you can find properties for around $100,000 that will produce great cash flow, but you have to understand the neighborhoods. It takes time, It takes effort, but this is why financial education is so important. Because anybody can do it when you have the right mindset and you have the hustle, but you need to know what to do.

The sixth thing that you can do involves the home that you live in yourself.

How use your own home to earn from taxes?

If you buy this home right here to live in yourself for $250,000 and you live in there for, let’s say, 10 years and then the value of your home now goes up to $400,000.

What you can do is you can sell your home for $400,000 and now you pocket this $150,000 and guess what?

There’s $150,000 that you get from selling the home that you live in is tax-free.

This is one of the most valuable tax deductions out there for the average person because if you own a home, you can sell your home and you can profit up to $250,000 if you’re an individual or $500,000 if you are a married person and this money that you put in your pocket is completely tax-free, then

now you can put in your pocket, you can go out and spend, you can go out and use for a bigger home or you can use this money to invest in something else.

The key for this deduction to work is you have to live in this home as your primary residence for at least two years before you sell So you can’t just buy a home, living it for two months and sell it for a profit and get this tax break.

You have to live there for at least two years as your primary residence.

If you have questions about whether you qualify for this rule or not, again, talk to a tax professional because there are exclusions and the last thing that you want to do is to sell your home, you make a $100,000 profit, you go and spend this money and then you find out that you didn’t actually qualify for this deduction and now you have a $30,000 tax bill.

So again, talk to a tax professional.

And the seventh thing that you can do is sell your real estate investment.

How earn from taxes by selling your real estate investment?

earn from taxes when selling real estateSo again, let’s assume that you bought this property as an investment property for $100,000.

You’re making your cash flow, you’re getting your tax breaks on your deduction, but you’re making money every single year and now a few years go by and the value of your property goes up to let’s just say $200,000.

Now, if you sell your property, you’re going to have $100,000 worth of profit that you have to put taxes on.

You don’t get that same deduction here that you get with your primary residence, but you have to put taxes on $100,000 worth of profit.

However, if you take this new $200,000, you take the $100,000 that you got from the money that you put in and you take the $100,000 profit and you go out and you buy a bigger property.

This might mean a bigger home, a bigger investment property.

If you go out and invest all this money into a real estate investment and like kind of exchange, well, now you get to defer all of these taxes.

You don’t have to pay any taxes on this profit and now you own a bigger property, which means you’re going to be making more money.

You get a bigger tax deduction and now you get bigger cash flows.

And guess what?

Well, then you can double this property to $400,000 and then you do it all over again and you can do it again and again and again and again.

You go from $400,000 to a million dollars and a million to $2 million to $4 million and you can do this until you die.

I don’t know why I made dying sound so exciting, but you can do this for your whole life.

Meaning you can just defer the taxes again and again and again.

That way you never have to pay the taxes because you don’t touch the principle.

You just keep letting the money grow, then you flip it into a bigger property, you let the money grow more, you flip it into another property and the IRS lets you not pay taxes on it when you do that.

If you do this exchange, which is called the 1031 exchange, 1031 exchange, lets you flip real estate property to real estate property without having to pay taxes on the sale.

This is one of the biggest tax breaks that wealthy people use to grow and compound their wealth tax-free because now you can start investing in real estate and you can keep flipping the properties as property values go up.

So if you’re investing in a good area where property prices are going up, now you can flip your properties again and again and again.

You’re growing your wealth and you’re doing it completely tax-free and while you’re doing that, you’re also growing the amount of money that you’re making every single year because when you flip into a bigger property, you’re getting more rent and that means you’re also getting those bigger tax breaks, the depreciation tax breaks that I was talking about.

So you keep increasing the amount of money you’re making and you’re increasing the value of your property and you can do it tax-free if you know what you’re doing.