Real estate investment offers many tax benefits. Perhaps the most enticing is the tax deductions that are available to property owners. Real estate investment is seen as a business, so you get a few more tax benefits than if you’re just a residential home owner. This allows the protection of all your investment income from being overly taxed. The following lists some tax benefits that are available to real estate investors.
- Mortgage loan interest can be deducted on your tax return, just like it can for a regular home mortgage. This is very convenient, as it allows you to offset some of your income from that property!
- Everyone has to pay the dreaded property taxes, whether you own residential property, commercial property, or empty land. Luckily, these taxes are tax deductible for investment property owners. Obviously, the higher your property tax bill, the greater the tax savings.
- If you’re a home owner, you can’t deduct your home owner’s insurance premiums. However, if you’re an investment property owner, you can! The premiums you pay to cover your real estate investment properties are deductible on your tax return.
- I’ve said before that you often have to do a lot of repairs and renovations on bank owned properties. The repair costs, as well as regular maintenance expenses, are also tax deductible on your tax return. Examples of these kind of expenses include repairing a damaged ceiling or repainting the walls. Maintenance costs can add up fast, especially on older properties, so being able to deduct those expenses is a very important benefit of owning investment real estate. Keep in mind that property improvements are treated differently than repairs or maintenance. These are counted against any gain when you sell the property.
- In accounting, depreciation represents a gradual decline in value of an asset over time. You can depreciate your real estate investment property on your taxes, therefore reducing your taxable income. Realistically, we all know that homes actually appreciate (rise in value) in an optimal market; however, the IRS requires depreciation to be recorded over a set period of time. This depreciation is strictly on paper; it doesn’t affect the property’s market value. Current regulations require residential properties to be depreciated equally over a time period of twenty-seven and a half years, while commercial investment property must be depreciated over thirty-nine years.
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