Real Estate Tax Benefits
Real estate, whether your primary residence or bought and held as an investment for years, has the power to yield tremendous benefits. The first benefit that might come to mind could be the appreciation in value or cash flow. But, one under-appreciated and lesser known benefit you may choose to take advantage of is the tax benefits of real estate. How can you capture these advantages and better leverage your assets? Listed below are some of the tax benefits for buying and holding investment properties and principal residences.
Primary Residence/Owner Occupant Properties
- Deduct all interest on your mortgage that you pay, reducing your taxable income.
- Deduct all your property taxes paid, also lowering your taxable income.
- Deduct Points that you or the seller may have paid for lowering your interest rate when you purchased the home.
- Deduct mortgage insurance paid, lowering your taxable income.
- After occupying property for two years the capital gains you receive when you sell are tax free.
- You can deduct all interest,taxes, insurance on your landlord policy, and your mortgage insurance paid, this will lower your taxable income.
- You can deduct repairs, maintenance on the property.
- Straight line depreciation-- you can depreciate the improvements (house) over 27.5 years. For example if the improvements on the property are valued at 200k you will be able to deduct 7,272 dollars each year for doing absolutely nothing except owning an investment property.
- 1031 tax exchange-- this is a little more advanced and is for experienced investors. It allows you to sell your property tax free but, the catch is you have to exchange the gains into another real estate asset of equal or greater value of the property you're selling. There are strict timelines involving this, which makes the process somewhat difficult. Within 45 days of the sale of your property you have to have the property or properties you would like to exchange for “identified”. And they have to be closed on and have a completely transferred title within 180 days of the sale of the original property. This can be very beneficial in the compounding of your capital, but it must be done precisely.
There are so many benefits to owning real estate that really can change your life. Whether its your primary residence or an investment property, if you take advantage of the benefits offered by homeownership, you can see your life change financially.