*** Tax-Slashing Secrets for Real Estate Wealth

There are very few business opportunities that allow you to build wealth without paying taxes - and then subsequently pay reduced rates when the time comes to settle up with Uncle Sam.nnReal estate, however, is a prime exception. Today I will focus on two strategies that can slash the taxes you pay on your real estate investments - and put a lot more money in your pockets at the same time. Set up properly, both of these wealth-building tools will result in little to no tax due until your property is sold.nnTax Strategy One: Offsetting Rental IncomennLet's assume you purchased a rental property for $100,000 and you found a tenant who paid $1,100 rent per month. Your monthly out-of-pocket expenses averaged $1,000. This would include mortgage payments, repairs, management fees, and so on. While this scenario does generate some positive cash flow (cash inflows greater than cash outflows), this will most likely result in a tax loss.nnThe reason for this is that when you file this activity on your tax return, you are entitled to depreciate your property. Depreciation allows you to recoup the purchase price of your property over time through annual tax deductions. In other words, depreciation is a noncash expense. Combining depreciation with other rental expenses may very well mean that your total expenses exceed the amount of cash you have actually spent out of pocket on the rental activity. In some situations, this tax loss can be used to offset other W-2 income. The bottom line to you is that you receive valuable tax benefits. The wealthy realize this, which explains part of the reason that they are so actively involved in real estate.nnTax Strategy Two: Make the Most of Property AppreciationnnThe second wealth-building aspect in this example would be the appreciation of the property itself. Over time, real estate values tend to increase. Let's assume that over a three-year period the property you purchased has increased in value to $120,000. The monthly mortgage payments made on the property have reduced the outstanding debt to $95,000. You now have increased your net worth by $25,000 without paying a dime in tax. Are you starting to see why the wealthy are involved in real estate? They're not in real estate because they are wealthy, they're wealthy because they're in real estate.nnAnother exciting part of this scenario is that when you sell that property and turn that equity into cash, the majority of the gain will be taxed as a long-term capital gain. That means preferential tax treatment! Currently, the maximum long-term capital gain rate is 15 percent.nnIn my book Trump University Asset Protection, I stress the fact that ultra-wealthy people apply strategies to that allow them to dictate the type of income they receive. Consider that if you went out and got a second job that paid $25,000, you would probably be paying much as to 40 percent in taxes, depending on your tax bracket. But using this wealth-building real estate tool that I am recommending, you would only be paying around 20 percent - assuming you live in a state with state income tax. That's half the tax on the same dollar amount of income.nnIt all boils down to solid tax planning - which in turn boils down to a solid increase in the amount of money in your pocket.nnn

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nJ. J. Childers is an attorney dealing primarily with the topics of asset protection, estate planning, and tax reduction. He travels the country extensively working with individuals and companies to help them with their small business wealth structuring. He is author of the new book Trump University Asset Protection 101.