Some of the Best Tax breaks Are Available for Real Estate Investors

Good morning my dear clients,

Monday's topic still the Money&Finance.


      For Real Estate Investors or non-Investors taxes can be the biggest expense in one’s lifetime. Let me tell you first hand that Real estate has some of the BEST TAX BREAKS of any investment.

      As I am sure you are aware, the more you earn through your 9-5 job or any other source of income, the more you get taxed. The system is setup that way to tax hard workers and benefit investors. Have you ever looked at the bottom stub of your paycheck lately and seen how much the government takes from you? Wage income not only requires work, it gets taxed at a very high rate, plus the government takes social security, which is a system that may be bankrupt by the time you retire.

      Real estate has many tax advantages:

Capital Gains

The maximum federal tax rate on capital gains is 15%, whereas wage income is taxed up to 35%. There's state taxes also. Some states offer further discounts on capital gains taxes. Remember, according to capital gains tax laws, you are required to hold a property for 12 months or more before selling and that it be held for productive use (i.e., as a rental, not a long-term fix and flip).

Principal Residence Exemption

If you sell your residence, the first $250,000 is exempt from gain or $500,000 if you are married. Remember, this requires that the residence was used as such for two of the last five years.

1031 Exchanges

Under IRC Sec 1031, you can roll your profits from a rental property into another real estate transaction and defer paying taxes. Your tax basis rolls into the next property. The rules are rather stringent, in that the exchange must be completed with 180 days and the exchange property must be identified within 45 days of the sale of the relinquished property.

Interest Deduction

You get to deduct interest you pay on debt you have used to acquire your real estate.

Property and Real Estate Depreciation

For rental properties, you get a tax deduction for the "wear and tear" on the structure, even if the property increases in value! Thus, you can actually break even or make money, but on paper show a loss to offset other income.

Don't Pay Social Security Tax

Your income from real estate is general NOT subject to Social Security tax withholding. Regular employment income is subject to 15.3% tax on the first $97,000, and thereafter your earned income is subject to medicare withholding (which you may never get back in your lifetime the way things are going!).

It's not just how much or what you make, it's how much you keep. If you plan ahead wisely, you will be rewarded in keeping more of your income to invest and enjoy.