How to Use Tokenized Real Estate to Pay Fewer Taxes (100% Legal Way)

How to Use Tokenized Real Estate to Pay Fewer Taxes (100% Legal Way)
3 min read

Real estate investment is a subject to extra taxation in most countries around the world. In addition to standard income taxes, investors often have to pay property tax, and sometimes a luxury tax. In some countries, investors who own multiple properties pay higher taxes.

The assessment process can be complex, and the collection of taxes can be time-consuming and costly. However, tokenized real estate allows investors to pay fewer taxes and get more profits.

Tokenization of Real Estate and Taxation Benefits

Blockchain technology is revolutionizing real estate through the tokenization of property. Tokenization allows investors to purchase fractional ownership of real estate assets, providing increased liquidity and accessibility to the market.

With tokenized real estate, the ownership of the property is recorded on a blockchain, providing a transparent and immutable record of ownership. Tokenization can also reduce the taxes amount, because such properties are taxed as crypto and NFTs, not as real estate. So, extra taxes are not applied here.

Tax practices may differ from country to country, so you should check it with an accountant or tax advisor before using this method. Still, in most jurisdictions, this is an effective 100% legal way to pay fewer taxes on your real estate investment. Let's take the USA as an example.

Real Estate vs Tokenized Real Estate Investment Tax In the US

In the United States, property taxes are levied by local governments and are based on the property's assessed value. The assessment process can be complex, involving appraisals and comparisons to similar properties in the area.

However, with the advent of blockchain technology, the property valuation and taxation process could become more streamlined and transparent.

Real estate tax

In 2023, the federal estate tax ranges from rates of 18% to 40%. In addition, you may face extra spendings, such as insurance, agency fee, self-employment tax, state income tax, luxury tax, local taxes and so on (depending on the state).

Digital real estate tax

In the US, you'll pay up to 37% tax on short-term capital gains and crypto income and up to 20% tax on long-term capital gains. Although NFTs deemed collectibles may be taxed at 28%. So, tokenized properties (which are generally NFTs) are taxed less than ordinary real estate.

In addition, investors can purchase fractional property ownership, reducing their tax liability compared to owning the entire property. Also, profits from crypto investments are much more challenging to track than profits from renting out (this is not advice, just a fact).

How to Invest In Tokenized Real Estate

To start investing in blockchain real estate, you need to find a project that offers this opportunity. For example, Home Key offers investment packages with returns ranging from 18% to 73% per annum. All accruals occur through the blockchain in crypto, so you do not need to use your personal bank account for investments, and at the same time, compliance with the agreements is secured by smart contracts.

In summary, blockchain technology has the potential to revolutionize the property taxation process, making it more efficient, transparent, and cost-effective. The tokenization of real estate can make an asset more liquid, while also reducing the compliance and administrative costs associated with property taxation.

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