How To Pay No Taxes On Rental Income In 2025

If you’ve ever wondered how to pay no taxes on rental income, you’re not alone. It’s a common question for new and aspiring investors—and a smart one, too. After all, what’s the point of earning rental income if the IRS is going to take a huge chunk of it?

Here’s the truth: there’s only one real way to legally avoid taxes entirely on rental income—a little-known loophole called the Augusta Rule (don’t worry, we’ll explain it shortly). But if you’re looking for how to avoid paying taxes on rental income in a broader sense, there’s good news. There are plenty of legal ways to avoid taxes on rental property—or at the very least, reduce how much you owe significantly.

That’s exactly what this article is here to help you do.

We’re going to break down everything you need to know—from tax-free rental income strategies to smart deductions, depreciation, and common landlord mistakes that could be costing you thousands. And if you're just getting started in real estate, don't worry—we’ll explain it all in plain language so it actually makes sense.

Along the way, we’ll also show you how our Ultimate Investor Program can teach you step-by-step how to build a profitable rental portfolio and keep more of what you earn. Because making money in real estate is great—but keeping it? That’s how you build real wealth.

Here’s what we’ll cover:

• How Rental Income Is Taxed (And Why This Matters)
• The Only True Loophole: The Augusta Rule
• 9 Proven Ways to Reduce Taxes on Rental Income
• Common Mistakes That Increase Your Tax Bill
• Why Most Investors Overpay in Taxes (And How to Stop)
• Frequently Asked Questions About Rental Income Taxes

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How Rental Income Is Taxed (And Why This Matters)

Before we dive into deductions and tax strategies, it’s important to understand how rental income is taxed in the first place—because this lays the foundation for everything else.

What the IRS Considers Rental Income

According to IRS rules for rental income, rental income includes more than just monthly rent checks. Here’s what the IRS counts as taxable income when you rent out a property:

• Monthly rent payments from tenants
• Advance rent (any rent paid before the period it covers)
• Security deposits if you end up keeping any portion for cleaning or damage
• Lease cancellation fees (yep, that’s income)
• Expenses paid by the tenant that should’ve been paid by you—like if they cover utilities or repairs
• Short-term rental income from platforms like Airbnb or Vrbo

So if you’ve been wondering, “do I have to report short-term rental income?”—the answer is yes. If you're renting out a room or home, even for a few nights here and there, the IRS wants a piece of that income (unless it qualifies under the Augusta Rule, which we’ll cover soon).

Ordinary Income vs. Passive Income

Now let’s clear up a big misconception: Is rental income taxed as ordinary income?

It depends.

Technically, rental income is considered passive income, which is taxed at your regular income tax rate—just like your job or business income. But it’s not earned income, so it’s not subject to Social Security or Medicare taxes (which is a win).

Here’s why that matters: even though rental income is taxed like ordinary income, it opens the door to powerful tax benefits that don’t apply to W-2 income—like depreciation, deductions, and even losses you can claim against your other income in certain cases.

In other words, while you may not be able to pay no taxes on rental income in most situations, you can legally reduce how much of that income is taxable—sometimes down to zero in the right scenarios—if you know what you’re doing.

Understanding how rental income is taxed gives you the power to control how much of your profit you actually get to keep. Real estate isn’t just about buying low and renting high—it’s also about using the tax code to your advantage. That’s why smart investors learn the rules early, structure their properties correctly, and claim every legal deduction they’re entitled to.

And if you’re not sure how to navigate all this on your own—don’t worry. That’s exactly the kind of thing we help people learn inside our Ultimate Investor Program. You don’t need to become a tax expert—you just need to know how to play the game. We’ll show you how.

Read Also: Tax Lien Investing For Beginners

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*For in-depth training on real estate investing, Real Estate Skills offers extensive courses to get you ready to make your first investment! Attend our FREE Webinar Training and gain insider knowledge, expert strategies, and essential skills to make the most of every real estate opportunity that comes your way!

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The Only True Loophole: The Augusta Rule

When it comes to how to pay no taxes on rental income, there’s really only one strategy that allows you to avoid taxes altogether—and that’s the Augusta Rule.

What Is the Augusta Rule?

The Augusta Rule is a legal tax loophole that allows homeowners to rent out their personal residence for up to 14 days per year without having to report that income to the IRS. That means the income you earn during those two weeks is completely tax-free.

It’s officially outlined in IRS Code Section 280A(g), and it was originally created to benefit residents of Augusta, Georgia, who would rent out their homes during the annual Masters golf tournament. But today, any U.S. taxpayer who owns a home can take advantage of it—not just golf fans.

How It Works

Here’s the deal: if you rent out your primary residence for 14 days or fewer in a calendar year, the IRS doesn’t require you to report the income—and you don’t pay any tax on it.

• It must be your personal residence (not an investment property).
• You cannot exceed 14 days—even by one day—or the income becomes fully taxable.
• You also can’t claim deductions for rental expenses related to those days. But you won’t need to—because the income isn’t taxed in the first place.

This is one of the most powerful, yet underutilized, tax-free rental income strategies available.

A Real-World Example

Let’s say you’re a small business owner or real estate investor and you host an offsite team meeting, mastermind, or training at your home for two days. Your business pays you fair market rent for the use of your space—let’s say $1,500 per day—and you do this seven times per year.

That’s $10,500 in income, none of which is taxable under the Augusta Rule rental income guidelines. As long as it stays within the 14-day threshold and meets the fair market value requirement, it’s perfectly legal.

This is one of the rare situations where the IRS actually allows how to not pay taxes on rental income legally—no loopholes, no shady tactics. Just smart planning.

A Useful Tool—But With Limits

If you were hoping to avoid all rental property taxes with one simple hack, we get it—the Augusta Rule sounds like a dream. And for the right scenario, it is. But here’s the reality: this strategy is limited in scope. You can only use it for 14 days per year, and it only applies to your personal residence, not your long-term rental properties.

So while the Augusta Rule is the only true method for earning completely tax-free rental income, the real power comes from knowing how to legally reduce what you owe the rest of the year.

And that’s what we’ll show you next—because if you know how to use deductions, depreciation, and tax-smart investing strategies, you can keep way more of your rental profits than you might think.

And if you want guidance on putting all of this into action, our Ultimate Investor Program was built to help you grow a real estate business that’s profitable and tax-efficient—from day one.

Read Also: How To Find Tax Lien Properties: An Investor’s Guide

9 Proven Ways to Reduce Taxes on Rental Income

So, the Augusta Rule is a great loophole—but it only takes you so far. If you really want to keep more of your rental profits year after year, you need to lean into the strategies that experienced investors use every day to lower their tax bills.

The truth is, most new landlords overpay in taxes simply because they don’t know what they can legally write off. But with the right tax strategies for rental property, you can take full advantage of the tax code—and potentially wipe out a huge chunk of your rental income from being taxed at all.

These are the same real estate investor tax strategies used by professionals who build long-term wealth through rental properties. And the good news? Every single one of them is 100% legal. These are not shady loopholes or gray areas — they’re legal ways to avoid taxes on rental property, backed by the IRS.

If you're serious about learning the ways to minimize rental income taxes, you’re in the right place. We even walk our students through these strategies, step by step, inside our Ultimate Investor Program—because saving on taxes is just as important as making the money in the first place.

Here’s a preview of the 9 most powerful ways to reduce your rental income taxes:

1. Maximize Your Rental Property Deductions
2. Use Depreciation to Your Advantage
3. Deduct Repairs and Maintenance
4. Claim Travel and Mileage Expenses
5. Set Up a Legal Business Entity
6. Hire a Professional (CPA or Tax Advisor)
7. Use Passive Loss Rules to Your Benefit
8. Take Advantage of Capital Gains Exclusions
9. Keep Detailed Records (And Stay Organized)

We’ll break each one down so you know exactly how to use them—even if you’re just getting started.

Maximize Your Rental Property Deductions

If you want to keep more of your rental income, one of the easiest and most effective strategies is to maximize your rental property tax deductions. This is where most new landlords leave money on the table—simply because they don’t know what they’re allowed to deduct.

So, what can landlords deduct from rental income?

According to the IRS, here are some of the most common (and completely legal) real estate tax deductions landlords can claim:

• Mortgage interest: Often your biggest deduction, especially in the early years of a loan
• Repairs and maintenance: Includes things like fixing leaky faucets, patching drywall, or replacing broken locks
• Property management fees: If you hire a company to manage your rental, those costs are deductible
• Property taxes: The annual taxes you pay to your local government
• Landlord insurance premiums: Including hazard, fire, and liability insurance
• HOA fees: If your rental is part of a homeowners association
• Utilities: If you cover water, gas, or electric for your tenants
• Advertising costs: For listing your property or marketing to new tenants
• Professional services: Like legal fees or accounting costs related to your rental business

These are just the basics. The full list is long—and that’s a good thing.

But here’s the catch: you can only claim what you can prove. That means keeping detailed records, saving receipts, and documenting dates and amounts. The better your records, the easier it is to back up your deductions and reduce your taxable income without worry.

This is why it’s not just about knowing what to deduct—it’s about building good habits from the start. Inside our Ultimate Investor Program, we show you how to organize your expenses, track deductions the right way, and build a tax-smart system that grows with your portfolio.

Because every dollar you don’t pay in taxes is a dollar you can reinvest.

Use Depreciation to Your Advantage

One of the most powerful tools in a real estate investor’s tax toolkit is something called depreciation—and if you’ve never heard of it before, you’re not alone.

Depreciation on rental property is the process of deducting the cost of your property over time. According to the IRS, residential rental property can be depreciated over 27.5 years, which means you can deduct a portion of the building’s value every year—even if the property is actually going up in market value (also known as a phantom gain).

Here’s the catch: you can only depreciate the structure, not the land. So if you buy a rental property for $300,000 and the land is worth $60,000, you can depreciate the remaining $240,000 over 27.5 years.

Let’s break it down with a simple example:

• Property purchase price: $300,000
• Land value: $60,000
• Depreciable amount: $240,000
• Annual depreciation deduction: $240,000 ÷ 27.5 = $8,727.27 per year

That means you can reduce your taxable rental income by over $8,700 every single year—just by owning the property. This is how savvy investors create paper losses (on their tax returns) even when they’re making money in real life.

So, how does depreciation reduce rental income tax? It lowers your taxable income on paper, which means you owe less to the IRS. And that’s a win every investor should take advantage of.

When you understand how to pay no taxes on rental income—or at least how to get as close as possible—depreciation is one of the core strategies to make that happen.

And yes, this is exactly the kind of tax-smart move we dive into inside the Ultimate Investor Program — because keeping more of what you earn is how you scale up faster.

Deduct Repairs and Maintenance

One of the easiest ways to reduce your taxable income is by deducting the day-to-day costs of keeping your property in good shape—but not everything you spend on your rental is treated the same way.

So let’s clear up a common question: Can I write off repairs on a rental property?

Yes—but only if they qualify as repairs or maintenance, not improvements.

Here’s the difference:

• Repairs are fixes that keep your property in its current condition.
• Improvements add value to the property or extend its life — and they’re not immediately deductible.

Let’s look at a few examples of deductible repairs and maintenance costs that qualify:

• Fixing a leaky faucet
• Repainting a room
• Replacing a broken window
• Patching a hole in drywall
• Cleaning or landscaping for turnover

These are all expenses you can deduct in the year they happen. They help maintain the property—not upgrade it.

Now let’s take a look at improvements that can’t be deducted:

• Adding a new bedroom
• Remodeling the kitchen
• Replacing the roof
• Installing central A/C
• Building a deck or fence

These are considered capital improvements. You can’t write them off all at once—instead, you have to depreciate them over time (often 5, 7, or even 27.5 years, depending on the type of improvement).

So while you can’t always immediately write off rental property expenses related to big upgrades, those everyday repairs? They can significantly reduce your tax bill if you keep good records.

And again, this is the kind of thing we help investors get right inside the Ultimate Investor Program—so you’re not leaving deductions on the table or misclassifying expenses that could trigger an audit.

Claim Travel and Mileage Expenses

Being a landlord often means putting in some miles—whether you’re checking on properties, meeting with tenants, or heading to the hardware store for a last-minute repair. The good news? Those miles and travel costs can be tax-deductible.

This is one of the most overlooked real estate investor tax strategies, especially for newer landlords. But it’s also one of the simplest ways to write off rental property expenses you’re probably already incurring.

Here’s how it works:

• If you drive your own vehicle for property-related tasks, you can deduct mileage using the IRS standard mileage rate (currently 70 cents per mile in 2025).
• If you travel out of town to manage or improve your property, you may be able to deduct airfare, hotels, rental cars, and even meals—as long as the trip is directly related to your rental business.
• Just make sure to keep detailed logs, receipts, and documentation showing the purpose of the travel. The IRS wants to see that the expenses were ordinary and necessary.

Let’s say you own a rental property two towns over and make regular trips to check on it, meet vendors, or handle maintenance. All that driving adds up—and those miles are deductible.

Or maybe you fly to a different state where you own a property. If you spend the trip actively managing or improving the rental (not just relaxing on the beach), the travel costs are likely deductible.

These kinds of small, consistent write-offs can really add up at tax time—and they’re part of a larger set of legal ways to avoid taxes on rental property.

When you’re learning how to pay no taxes on rental income, it’s not about one big loophole—it’s about stacking smart, legal deductions that lower your taxable income year after year. That’s what we teach inside the Ultimate Investor Program—because once you learn how to track and claim what’s already yours, your rental profits start working even harder for you.

Set Up a Legal Business Entity

As your rental portfolio grows, one of the smartest moves you can make is setting up a legal business entity—like an LLC (Limited Liability Company)—to hold your properties. While many new landlords start off owning rentals in their personal name, this setup can come with higher taxes and more risk.

Structuring your rentals under a business entity can open the door to real estate tax planning strategies that help you keep more of your income and better protect your assets.

Here’s how it helps:

• You may qualify for additional business deductions, like home office expenses, administrative costs, and more.
• It can help separate your personal and business finances, making it easier to track and write off rental property expenses.
• In some cases, it can allow for more flexible tax treatment, especially when paired with an S-corp election (something a tax advisor can walk you through).
• It provides liability protection, which isn’t directly tax-related but is critical for peace of mind.

To be clear, setting up an LLC won’t automatically make your rental income tax-free. But it does make it easier to stay organized, minimize risk, and build out a real estate business that runs like a business—not a side hustle.

And when you’re learning how to pay no taxes on rental income, having the right structure from the start can make a big difference. In fact, many of the tax strategies for rental property we’ve covered so far—from deductions to depreciation—are easier to optimize when your properties are held under a formal entity.

We go over all of this in detail inside the Ultimate Investor Program, because most new investors don’t know what they don’t know. But when you get the foundation right, the rest becomes a lot easier—and a lot more profitable.

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Hire a Professional (CPA or Tax Advisor)

The U.S. tax code isn’t exactly light reading—and when you add real estate into the mix, things can get complicated fast. That’s why one of the smartest investments you can make as a landlord is hiring a qualified tax professional who understands real estate.

A good CPA or tax advisor does more than just file your return. They can:

• Help you find deductions you didn’t even know you qualified for
• Keep you compliant with IRS rules and help reduce audit risk
• Spot opportunities for long-term real estate tax planning
• Help you decide if and when to create an LLC or other entity
• Maximize your write-offs while minimizing red flags

For new landlords especially, this kind of guidance can be a game changer. You might be asking, “Do I really need a tax pro just for one rental?” And the answer is—maybe not forever. But in the beginning, absolutely.

A tax expert can make sure you’re doing everything legally and efficiently right out of the gate, which saves you time, money, and stress. They’ll also help you build a strategy that scales with your portfolio—because what works for one property might not work for ten.

If you’re looking for landlord tax tips that go beyond the basics, a good CPA will deliver. And even better, when you combine their expertise with your own growing knowledge as an investor, that’s when things really start to click.

Use Passive Loss Rules to Your Benefit

Here’s something that surprises a lot of new investors: even if your rental property makes money, you might still be able to report a loss on your taxes—and that loss can reduce what you owe overall.

That’s thanks to the IRS passive loss rules, which are one of the more complex (but extremely valuable) parts of the tax code for real estate investors.

Let’s break it down.

Rental income is considered passive income by the IRS. That means losses from rental properties—things like repairs, depreciation, and other deductions—are also treated as passive losses.

Now, normally, passive losses can only be used to offset passive income. But there’s an exception for active participants, which includes many everyday landlords. If you meet the IRS requirements (such as owning at least 10% of the property and making management decisions), you may be able to deduct up to $25,000 in passive losses against your regular income—like your W-2 job or business income.

This can significantly reduce your tax bill, even if your rental is profitable on paper.

So if you’ve been wondering how to pay no taxes on rental income, using these passive loss rules strategically is one of the few ways it might actually happen—at least on your tax return.

Of course, there are income phase-outs, exceptions, and fine print (because it’s the IRS). But this is where smart real estate tax planning comes into play. Knowing how to structure your income and expenses—and working with a tax advisor — can help you unlock powerful tax savings that many investors miss.

These are the kinds of rental income tax loopholes that are 100% legal and available to anyone—but you have to know how to use them.

Take Advantage of Capital Gains Exclusions

While most of this article focuses on rental income, it’s just as important to think about what happens when you eventually sell your property—because that’s when capital gains taxes can come into play.

When you sell a rental for more than you paid, the profit you earn is considered a capital gain—and yes, the IRS wants a piece of it.

So naturally, the big question is: How do I avoid capital gains tax on rental property?

Here are two popular real estate tax strategies investors use to reduce or delay capital gains taxes:

1. 1031 Exchange (Tax-Deferred Strategy)
2. Exclusion for Primary Residences

Read Also: Tax Benefits Of Real Estate Investing: Save More, Earn More

1031 Exchange

A 1031 exchange allows you to sell one investment property and reinvest the proceeds into another “like-kind” property—without paying capital gains tax at the time of the sale.

It’s a deferral, not an exemption, but it allows you to keep your money working for you instead of handing it over to the IRS. There are rules and timelines to follow, so it’s best to work with a qualified intermediary. But this is a go-to move for investors looking to upgrade properties or grow their portfolio without losing momentum to taxes.

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Exclusion for Primary Residences

Now, this one doesn’t apply to rentals—but it’s worth mentioning in case you convert a rental into your primary home. If you live in a property for at least two out of the last five years before selling, you may qualify for a capital gains exclusion of up to $250,000 (or $500,000 for married couples).

It’s not something most long-term landlords can use, but it’s a creative option for those who mix personal and investment real estate over time.

Keep Detailed Records (And Stay Organized)

Tax strategies are only as good as the records backing them up. If you want to take full advantage of deductions, depreciation, and other benefits, you need to stay organized and keep solid documentation throughout the year.

The IRS doesn’t take your word for it—they want to see proof. That’s why having detailed records is one of the most underrated (but crucial) real estate tax strategies out there.

Here’s what to track:

• Receipts for repairs, maintenance, and improvements
• Invoices from contractors or service providers
• Mileage logs if you drive for property-related tasks
• Lease agreements and tenant communications
• Utility bills, insurance statements, and tax records
• Depreciation schedules from your CPA
• Notes from calls or meetings that impact your property decisions

The more organized you are, the easier it is to write off rental property expenses accurately and legally. It also helps if you’re ever audited—because when you can show clean records, it takes the stress (and the penalties) off the table.

If you’ve ever wondered how to pay no taxes on rental income, this is the part most people overlook: documentation. You can only use these strategies if you can prove your numbers. The IRS doesn’t accept guesses.

And remember—this doesn’t have to be complicated. Use a spreadsheet, an app, or good old-fashioned folders. The key is to stay consistent. In fact, IRS rules for rental income clearly state that landlords must maintain records to support their income and expenses. 

Common Mistakes That Increase Your Tax Bill

It’s one thing to know the tax strategies—it’s another to actually use them the right way. And unfortunately, many new landlords end up paying more than they should simply because of small, avoidable mistakes.

If you’re serious about learning how to pay no taxes on rental income—or at least how to legally reduce what you owe—then avoiding these common slip-ups is just as important as knowing the deductions.

Here are some of the most frequent mistakes we see new investors make:

• Not Tracking Receipts and Records: Without proof, deductions don’t count. If you can’t back up your expenses, the IRS won’t allow them—no matter how legitimate they are.
• Mixing Personal and Business Expenses: Using the same bank account or credit card for personal and rental expenses makes everything messy. It’s harder to track what qualifies and what doesn’t, which can lead to missed deductions or trouble during an audit.
• Missing Depreciation: Some landlords forget to claim depreciation—one of the most powerful rental income tax loopholes available. Skipping this can mean losing thousands of dollars in tax savings every year.
• Misclassifying Repairs as Improvements: This is a big one. If you deduct an expense in the wrong category—like claiming a new roof as a repair instead of a capital improvement—it could raise red flags and cost you down the line. 
• Waiting Until Tax Season to Get Organized: Trying to piece everything together at the last minute almost always leads to missed deductions or inaccurate filings. Staying organized throughout the year is one of the best landlord tax tips you can follow.
• Not Getting Educated: Tax law changes. And let’s be honest — most CPAs aren’t going to chase you down with strategies unless you know what to ask for. That’s why real estate education is so valuable. The more you understand your role as a rental property owner, the more you can legally save. Inside our Ultimate Investor Program, we teach investors how to avoid these exact mistakes, track expenses the right way, and build a rental business that’s tax-smart from the ground up. Because every dollar you keep is one more you can reinvest. 

Why Most Investors Overpay in Taxes (And How to Stop)

Most real estate investors are paying way more in taxes than they need to—not because they’re doing anything wrong, but because they simply don’t know what they don’t know.

• They miss deductions.
• They forget to depreciate.
• They structure deals inefficiently.
• They don’t plan ahead.

And as a result? They leave thousands of dollars on the table every single year.

This is why real estate investor tax strategies matter so much. It’s not about working harder or buying more properties—it’s about getting smarter with the ones you already own.

When you understand how to do these things, you build a foundation that supports real wealth:

• Maximize every legal deduction
• Set up your business the right way
• Use depreciation and passive losses to your advantage
• Plan for sales, capital gains, and long-term growth

That’s the exact kind of stuff we teach inside the Ultimate Investor Program.

It’s not just about finding good deals (although we show you how to do that too). It’s about building a tax-efficient portfolio that puts more money in your pocket and helps you grow faster—without getting overwhelmed or lost in the weeds.

Frequently Asked Questions About Rental Income Taxes

Still have questions? You’re not alone. Here are some of the most common things new investors ask when it comes to rental income taxes—answered clearly and simply.

Is rental income taxed as ordinary income?

Yes, rental income is taxed as ordinary income, but it’s considered passive income, which means it’s not subject to self-employment tax.

How can I reduce taxes on my rental income?

You can reduce what you owe by using tax strategies for rental property like depreciation, deductions, and passive loss rules—all proven ways how to reduce taxes on rental income legally.

Can I write off property management fees?

Yes—property management fees are fully deductible as part of your rental property tax deductions, along with other common expenses. 

What are the best tax deductions for landlords?

Some of the best landlord tax deductions include mortgage interest, repairs, property taxes, insurance, and depreciation. Staying organized is key— don’t overlook these essential rental property tax tips.

Do I have to pay taxes on Airbnb or short-term rentals?

Yes—you must report short-term rental income to the IRS if the property is rented for more than 14 days per year. So yes, you do have to pay taxes on Airbnb income, unless it qualifies under the Augusta Rule.

Final Thoughts: Keep More, Grow More, Invest Smarter

The goal isn’t just to make money—it’s to keep as much of it as legally possible. By using smart real estate investor tax strategies, understanding deductions, and planning ahead, you can tap into the powerful real estate tax benefits of owning rental property and build real, lasting wealth. While there’s only one true way to learn how to not pay taxes on rental income legally, there are dozens of ways to reduce what you owe. 

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Ready to Take the Next Step in Real Estate Investing? Join our FREE live webinar and discover the proven strategies to build lasting wealth through real estate.

Whether you're just getting started or ready to scale, we'll show you how to take action today. Don't miss this opportunity to learn the insider tips and tools that have helped thousands of investors succeed! Seats are limited—Reserve Your Spot Now!

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*Disclosure: Real Estate Skills is not a law firm, and the information contained here does not constitute legal advice. You should consult with an attorney before making any legal conclusions. The information presented here is educational in nature. All investments involve risks, and the past performance of an investment, industry, sector, and/or market does not guarantee future returns or results. Investors are responsible for any investment decision they make. Such decisions should be based on an evaluation of their financial situation, investment objectives, risk tolerance, and liquidity needs.