Taxes are a simple fact of life. There’s no escaping them, but there is also nothing wrong with utilizing legitimate strategies to minimize taxes on money derived from investments. When it comes to real estate, the key to implementing an effective tax strategy is to begin with a clear understanding of the difference between capital gains vs. investment income.
Investopedia defines capital gain as “a rise in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold. A capital gain may be short-term (one year or less) or long-term (more than one year) and must be claimed on income taxes.” Investment income, on the other hand, is defined (also by Investopedia) as “income that comes from interest payments, dividends, capital gains collected upon the sale of a security or other assets and any other profit made through an investment vehicle of any kind.” By way of example, rental income from an investment property is subject to annual income taxes, but the capital gains tax only kicks in when the property is sold for a profit.
Income tax is due and payable on income derived from wages, self-employment, contractual services, interest, dividends and rental income. Personal income tax liability will vary depending on a variety of factors that determine an individual’s tax bracket, The important thing to understand is that capital gains tax rates also vary but are, in general, substantially lower than personal income tax rates.
Crowdfunded real estate investment platforms are the perfect vehicles for investors who want to keep it simple in every way, including tax consequences, since the capital gains are taxed at highly favourable rates. The problem with most of these platforms is that they are only available to qualified investors with minimum contribution amounts far beyond the means of most people. At IMBY, in addition to offering investors entry into the real estate market at insanely affordable price points ($1 is the minimum investment), our structure provides you with a built-in strategy for minimizing taxes, since you are not actually purchasing real property, but shares in a company. No taxes will be due on ownership shares until the property is sold or the shares are otherwise redeemed and you have realized a gain. Since IMBY’s focus is on choosing properties that will result in above-average returns, we feel very confident that our investors will be happy to pay the tax due on a rewarding investment when that time comes.
Check out IMBY’s innovative and user-friendly real estate investment platform. You don’t need to be a millionaire or a seasoned investor. $1 and a dream will get you started!