Top 3 Tax Benefits of Investing in Real Estate

If you’ve considered real estate investing and wondered what the benefits might be, this list may be enough to get you into the game right away.

Deductions on ALL Relevant Expenses

Most people already know about deductions. But if you invest in a rental property, as the owner you can deduct almost all of the expenses you incur for managing that property. 

That means you can deduct the mortgage interest you pay on your loan, office expenses, and much more (including mileage to check on your rental property).  Of course, make sure to talk to your CPA about exactly what you can and cannot deduct.

Long Term Capital Gains

The next benefit is long-term capital gains.  Capital gains are simply the profits you make when you sell a property. You are then taxed on what you made, or ‘gained’.  When you sell a property that you owned for less than a year, you pay a ‘short term capital gains’ tax, which is a higher tax than the ‘long term capital gains’ tax, which is what you will pay if you own your rental property for a longer length of time.

Depreciation

Another great benefit when it comes to taxes and real estate investing is depreciation. This is something you will claim on your taxes every year; it is a deduction taken on materials that break down over time.  You will get to deduct the value of your building over the length of time the IRS determines (for residential real estate, their number 27.5 years and for commercial real estate, that time is 39 years).  This means that over that period of time, you will get a bit of deprecation each year.  This is very beneficial to the property owner, for years to come!