As children, we’re taught that a human only needs three things to survive—food, water, and shelter. And while real estate offers a physical shelter (which is one of the reasons it is so great—people will always need shelter) what we’re talking about here is real estate as tax shelter.
It might first be helpful to define what it is we mean by tax shelter. Simply put, tax shelters are a means of reducing taxable income which results in payment reduction to tax collecting entities. This can include state and federal governments. Local and international tax law can dictate the methodology of tax shelters. In the United States, a tax shelter refers specifically to a method that recovers more than one dollar for every dollar spent within a four year timeframe.
The best way to protect and preserve wealth is to utilize certain tax shelters. The best tax shelters are income properties. There are things like the 1031 exchange, legal shelters like LLCs, partnerships, etc. These things sound complicated, and they certainly can be. But instead of getting caught up in the logistics of such things, focus on first acquiring properties.
If you’ve got a single property, you shouldn’t be worrying about setting up a series of LLCs in different states. You shouldn’t be worrying about Family Limited Partnerships. In fact, if you have less than ten properties, you should simply protect your assets with insurance. Good insurance will go a long way and save you the complication of sorting through some of the more complicated stuff. Focus on finding and maintaining good quality properties with quality insurance.
Once you’re an advanced investor and have dozens of properties, speak with a qualified professional about ways you can best protect your wealth. Until then, remain focused on acquiring high quality properties, properly insuring them, and building your wealth through the ownership of income properties. Protect your wealth with the ultimate tax shelter—and don’t overthink it. (photo credit: Tjflex2 via photopin cc)
The Jason Hartman Team