One of the beautiful things about owning real estate is that it can provide a stream of tax-free income for years to come.
That’s David Osborn talking about using real estate as a means to generate tax-free passive income streams.
Osborn is a venture capitalist and author of Miracle Morning Millionaires… and he encapsulates perfectly why real estate is the ideal investment for passive income. It’s all about putting the tax code on our side.
We’ve been talking all week about the need to rethink financial planning 101. And when we left off yesterday, we were discussing the need to build passive income streams… but in a tax-efficient manner.
Well, real estate is the way to do it. That’s right – boring, old-fashioned rental real estate.
The fact is, real estate is an incredibly tax-advantaged asset. By default, we shouldn’t owe any taxes on our rental income.
That’s because for every property we buy, the IRS says we can “depreciate” a fixed percentage of its total value every year.
In other words, we can write off a portion of the property’s value against our income every year… even though we didn’t lose the money.
It’s a phantom loss. Just for tax purposes.
And that’s just one element to it.
When we talk about investing in real estate, we’re really talking about building a business.
So we run everything through LLCs. And then we take deductions.
Home office expenses… subscription fees… educational resources… anything that we buy for business we can write off for tax purposes.
This includes expenses that we may have incurred anyway.
A great example of this is meals. If we go out to dinner with someone to talk about our real estate business – that’s a business meeting. And now we can write it off to reduce our taxable income.
So the end result is we don’t owe taxes on rental income. And that’s 100% by the book. It’s following the tax code.
And it can get far more advanced than that.
There are ways to create massive paper losses to offset other sources of income. In other words, we can potentially use real estate to make taxes on our active income go away too.
That takes advanced tax planning and a good CPA… but it’s possible.
So the bottom line is that when we talk about creating extra income using rental real estate – it’s tax-free money that shows up in our bank account.
It’s not like the nest egg approach where we get hit with taxes every time we want to access our money. Yesterday we used an example to demonstrate why this is so important.
We noted that if we plan for retirement the traditional way, we’re going to be on the hook for substantial tax bills in the end.
For example, if we say we want to take $70,000 a year in income from our nest egg, we’ll have to sell at least $83,000 worth of our financial assets. The extra goes to pay the taxes.
That’s not the case with real estate.
If we acquire rental properties that produce $70,000 a year in income, that’s tax-free money. And we don’t have to sell any assets to get it. The passive income just shows up in our accounts every month like clockwork.
This is why real estate should be the cornerstone of any long-term wealth strategy.
And here’s the thing – it’s far easier to get started with real estate than most realize. Finding the ideal properties and putting the proper management structure in place just isn’t that difficult… if you know what you’re doing.
That’s where our Rental Real Estate Accelerator program comes into play. It’s designed to help anyone tap into a tried-and-true system for building $10,000 a month in passive income with real estate.
More information on the program right here: Rental Real Estate Accelerator
-Joe Withrow