Tax Benefits for Real Estate Investment

Real Estate Agent

You’re interested in real estate investment and any tax benefits linked to these types of investments. The following are a few benefits you can enjoy if you choose to go down this route.

The Long-Term Capital Gain Perk

A great benefit some people could take advantage of is the long-term capital gain perk. There are two types of capital gain periods. One is short-term and the other is the long-term period. Short-term capital gains describe any profit you make off of your investment if you don’t hold it for too long. Making a quick buck means you’re capital gains will be taxed at the normal 35 percent. If you choose to hold your real estate investment long-term, you’ll have to worry about a 15 percent tax.

The Home Exclusion

Another one of the tax benefits of REITs is given to folks who make their investment a home for at least two out of five years. This is not always possible for investors, but if you’re able to, you’ll be eligible for the home exclusion tax perk. The IRS allows you to exclude up to $250,000 from your capital gains but only if you made this property your home for the proper amount of time. Things look even better if you have a spouse and file with them because you get to double that exclusion.

No Self-Employment or FICA Taxes

Those who have a rental property and are getting passive income from it are going to be happy to learn that you won’t be subject to social security or Medicare taxes. The exception doesn’t apply to folks who acquired the property through trade or who are in the business of selling rental properties for profit. The exception passive rental income earners get comes with a warning. If you’re trying to invest in these programs for your retirement, you might be in trouble if you don’t have a business or regular employment. Medicare and social security are a safety net for when you retire, so make sure you’ve made other plans to address this issue.

The Depreciation Perk

Deductions sound like music to folks who’ve been dealing with taxes all of their lives. You’ll like that the IRS gives you a significant deduction on a depreciating investment property. Real estate doesn’t stay new forever. Depending on how long you keep it, there’s going to be some wear and tear. This natural aging entitles you to a tax break as long as this is your income-producing real estate. You need to talk with a specialist to figure out how much your property has depreciated.

The 1031 Exchange Benefit

The 1031 Exchange benefit provides the opportunity to roll over capital gains from one real estate investment to another. You don’t have to worry about getting taxed for those capital gains. This won’t become a burden unless you sell the property, according to the experts at Money Morning, “You can use this trick multiple times. Be sure to read the details of this benefit because there are a few rules like how the replacement investment has to be of equal value or higher.”

The Refinancing Perk

Those willing to refinance can do so without worrying about taxes. You can only do this if you’re borrowing against your property’s appreciation along with your equity’s growth. This little benefit is one many investors use to continue growing their real estate investment empire. You’ll probably want to wait until your property has appreciated enough and has a lot of equity so that you can borrow the kind of cash that can take you far in your investment goals.

The Opportunity Zone Benefit

The Tax Cut and Jobs Act passed in 2017. Sometimes, tax laws affect you negatively or positively. This change can do a little of both depending on your particular situation. One of the perks of the law deals with “Opportunity Zones.” These are special places around the United States that have been flagged as “Opportunity Zones.” These are areas the US government wants folks to invest in. These areas could be struggling and need investors to help revitalize the area. If you happen to invest in these areas, you get to delay dealing with taxes on your gains for almost a whole decade.

Hopefully, you can take advantage of some of these perks as you try to join other real estate investors across the nation. Try to talk to a tax attorney or other real estate investors to see what else you can learn.