There are many incredible benefits to owning rental real estate, including the unmatched tax incentives. In fact, tax savings may be the number one reason to invest in real estate. On today’s show, we’re going to dive into six specific ways that real estate investors can save on taxes through investing in rental properties.
On this episode of Investing in Real Estate, we’re going to discuss some of the best tax benefits of investing, including depreciation, mortgage interest deductions, and much more. I consider this episode the ultimate guide to real estate taxes, so get ready to take some notes!
Six Powerful Tax Benefits for Real Estate Investors
1. Depreciation
This may be the most powerful tax benefit for real estate investors. Depreciation is a tax deduction that allows the investor to recover their costs over time, and lower taxable income. Basic depreciation allows you to reduce your tax burden by depreciating an equal percentage of your property building each year, over the span of 27.5 years.
2. Mortgage Interest Deduction
Real estate investors are able to deduct the money they pay on mortgage interest every year. This is an incredible tax benefit, because mortgage interest can really add up over the span of a year! In fact, mortgage interest can be one of the most significant expenses for investors. Using the mortgage interest deduction reduces your taxable income, allowing you to pay less in taxes.
3. Property Tax Deduction
Much like the mortgage interest deduction, the property tax deduction is a great way to reduce your overall tax burden by deducting the amount paid on taxes.
4. 1031 Exchange
The 1031 exchange is a tax strategy advanced investors can use to defer taxes on the sale of a rental property. If you’re looking to sell a rental property, diversify your portfolio, and make higher returns, a 1031 exchange may be right for you. For more on 1031 exchanges, see this video.
5. Capital Gains Taxes
When an investor sells a property, a hefty capital gains tax can be applied. However, if you hold the property for longer than a year, you may be able to take on a smaller tax burden. You can also avoid this tax hit altogether by utilizing a 1031 exchange (see above).
6. Tax Credits
There are a multitude of other tax credits available to real estate investors, which is why it’s essential to work with a CPA who understands investing. Certain types of investments like low income housing and opportunity zones can provide great opportunities to save on taxes. Again, this can be complex, so be sure to work with a great CPA who can guide you.
Episode Resources
Book a Call with Our Team
How to Pay Zero in Taxes with a Cost Segregation
Using a 1031 Exchange to Build Wealth
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DISCLAIMER: I am not a financial adviser. I only express my opinion based on my experience. Your experience may be different. These videos are for educational and inspirational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. There is no guarantee of gains or losses on investments.
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