A major event like a house fire may cause you to want to take a step back and reassess your financial situation.
Of course, there is a lot going on after a house fire with the insurance settlement and deciding whether you want to repair and remain in your fire-damaged house …
But if you can find the time, reassessing where you are and where you want to go in the future can be valuable.
For instance, maybe the house fire has you thinking about the state of your current finances and how you can build them up over time.
Or maybe the insurance settlement you received, combined with selling your fire-damaged house to a company like We Buy Fire Damaged Houses, which buys burned homes in “as is” condition, has you wondering what to do with your sudden influx of cash.
One thing everybody wants to do is save on taxes. So here are two ways to both improve your financial picture following a house fire as well as cut your yearly tax bill.
Strategy 1 – Purchase a Rental Property
One great way to put your house fire settlement and sale money to work for you is to become a landlord.
As an added bonus, becoming a landlord can also lower your tax bill.
A landlord, by the way is defined as the owner of a house, apartment, condominium, land or real estate which is rented or leased to an individual or business.
The truth is landlording can allow you to create a passive income stream that sends money consistently into your bank account. It really is a great way to build wealth.
As an example, let’s compare landlording to investing in the stock market.
The stock market is cyclical. It always has up swings and down swings. It’s the natural cycle of stocks. It can’t keep going up forever. At some point it will go down.
Stock Market Investing is Risky
So what happens if you have all of your money, or your entire retirement in the stock market and the market “corrects” like it did in the dot com crash of 2000 and the subprime meltdown of 2007?
Well, as we say in those unfortunate circumstances, you can quickly lose half, if not all, of your net worth very quickly – and you may never be able to get it back.
The sad truth is a 50% reduction in net worth requires a 200% correction just to get back to even.
When something like this happens to you, after you’ve spent the better part of your life “saving” for retirement it can be devastating!
This is why the stock market is a very risky place to have your retirement funds. And this is why it is impossible to get wealthy by just “saving” money.
The Better Approach
A much better approach is to have multiple income streams – including rental property.
Here’s more good news: you don’t need cash, good credit, experience or any special licenses to become a landlord.
Landlording is also much less work intensive than flipping properties. Many house flippers discover that finding a house, fixing it up and flipping it never ends up producing the amount of money they expected when they started.
Plus, doing just one fix and flip deal can take a good amount of time. One more thing, it seems like everybody is flipping these days. It has become a very competitive marketplace. Landlording on the other hand is much less competitive and much less time consuming.
Landlord Tax Benefits
One of the great things about becoming a landlord that is not often talked about is the tax benefits that you will enjoy.
For example, as a landlord you may be able to take advantage of the following tax deductions:
- Replacing damaged furniture
- Replacing water pipes and disposal duct
- Buildings and contents insurance
- Accounting processes
- Cleaning and gardening
- Professional services
- Depreciation in the form of wear and tear (usually around 10% of the gross rental income)
But wait, there is more, much more, when it comes to landlord tax benefits.
More Tax Benefits
- Landlords are able to claim the mortgage interest deduction, which is available to all homeowners. Available for home loans up to $1 million, landlords can use this deduction to deduct the mortgage interest that they have paid to buy or fix up their properties.
- When refinancing a property for more than it was originally worth, landlords can deduct additional amounts of interest and fees if the extra funds were used to improve or maintain the property.
- Landlords can take advantage of deductions not available to traditional homeowners like: insurance premium deductions, property repair deductions and utility deductions.
- Landlords receive a depreciation deduction for the breakdown of their properties over time.
- One more thing, for landlords legal fees count as a deductible expense. That means if they are forced to evict someone they can deduct the legal costs while the tenant cannot.
Strategy #2 – Buy a Life Insurance Policy
If nothing else, your recent house fire should have really got you thinking about the fragility of life and the unexpected things that can happen. It is best to be as prepared as possible for the unexpected – and one way to do that is to buy life insurance.
Another great thing about life insurance, besides insuring that your loved ones will be taken care of in the event of your death, is …
Simply put, owning a life insurance policy may be the single biggest benefit in the Tax Code.
Here’s why: your heirs receive the wealth you are providing them TAX-FREE!
Just think what that would have meant if someone had done that for you. Well, now you can do it for your spouse, kids, grandkids or others.
It’s a Way to Ensure Your Legacy
In addition, an investment in a life insurance policy will give you control, options and flexibility over what other investments provide.
In fact, it may be possible to grow your wealth tax-free in a life insurance policy and gain access to it yourself during your lifetime!
That’s right, you could end up using your life insurance money yourself. This is especially attractive considering how hard it is to make money today with traditional investments.
With the right insurance policy you can grow your wealth tax free and remember it comes with a guarantee that you are going to have a certain amount of money at a certain point in time. Other investments don’t offer a guarantee – what is here today may be gone tomorrow.
With life insurance you get that guarantee; plus, as I mentioned earlier, you may even be able to use those funds yourself during your lifetime.
Here’s the Bottom Line …
You know the benefits that come with buying life insurance.
You know that a good life insurance policy will ensure that your loved ones are taken care of in the event of your premature death.
It could also prevent them from having to pay funeral expenses, the home mortgage, your existing debt and it could even provide your children with the money they need to pursue their college education.
But it turns out there are actually big tax advantages that come with life insurance – for your heirs and maybe even for yourself.
That’s why getting a life insurance policy and growing your wealth tax free is one of the best decisions you can make.
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