There are several benefits to be derived from real estate investment. Real estate serves as a good method of building up wealth, creating a stable source of cash flow, ensure substantial passive income. It serves also as a hedge against inflation and a good retirement backup plan. It also has another huge benefit, which may not be applicable to other forms of investment, the benefit is that it has huge tax advantages.
In this day and age when tax laws are stricter than ever and every little thing we acquire has its own applicable tax, it makes a huge difference that there is a form of investment that gets some considerable tax advantages. Below are some of the tax advantages available to real estate investors.
For properties acquired by September 2017 and beyond, there is a 100% bonus first year bonus depreciation deduction. The bonus will be available till 2022 after which it will reduce by 20% each year until it is no longer applicable. There are also depreciation deductions on improvements to the property in areas such as roofs, heating and air conditioning systems, alarm systems and more.
While tax payment on capital gains made from a stocks sale is inevitable, you can drastically reduce the tax rate if you decide to hold on to the capital gains for longer as long term capital gains have a smaller tax rate when compared to short-term capital gains. You can also get a tax break if you are a first time real estate investor, this will afford you the advantage of using the capital gains as down payment for the property completely free from tax.
When you use your IRA or 401k retirement plan to invest in real estate, you get to build your wealth while enjoy tax breaks. Compared to stocks and bonds and other forms of traditional investments, the tax breaks you get as a real estate investor using a self-directed IRA plan helps you to build your wealth faster and keep more of your money in your purse.
This might be the biggest tax break you will get in real estate investment. The interest on the mortgage is the interest tax deduction. You can also get a deduction for your mortgage insurance premium if you took one, so don’t forget to deduct it too.
Real estate is a profitable investment made all the more interesting with all the tax breaks. It is arguable that there is no better investment in terms of the tax advantages. When you sum up all the tax deductions you get on real property, it could mean up to 30% off your total tax expenses.
You can take other tax advantages in form of tax credits. Tax credits are allowances made to reduce your liability and the amount to owe to the IRS.
As an investor, you are allowed to claim credits for improvements made to the quality of your building structures. You can also claim investment credit using Form 3468. The form can be used to claim rehabilitation credit, residential energy credit, low income housing credit, and other types of available credits. The more research you do, the more tax advantages you will discover about real estate investment endeavor. You can read more about other tax benefits of real estate investment here.