How to Take Advantage of Tax Benefits of Property Investment – Today and in the Future
Written by: Lorraine
Surprising Tax Benefits of Real Estate Investing That You May Not Know About I am a realtor and a real estate investor, and I have invested in hundreds of rental properties to take advantage of the tax benefits of property investment. Clearly, I think it is a great idea because this type of investing earns […]
Published onAugust 28, 2023
Last update: ago
Est. Reading: 3 minutes
Surprising Tax Benefits of Real Estate Investing That You May Not Know About
I am a realtor and a real estate investor, and I have invested in hundreds of rental properties to take advantage of the tax benefits of property investment. Clearly, I think it is a great idea because this type of investing earns a passive income, doesn't require any effort or time investment, and is an asset that continues to gain value over the years.
These are the obvious benefits of investing in rental properties. However, there are more reasons, very sound financial ones, that will benefit the investor in their lifetime and their heirs beyond that as well. There are tax benefits of property investment, tax-deferred 1031 exchange, the benefit of the Step Up basis, and more, as I explain in my podcast.
Shifting your tax liability.
When you buy a car or a machine, you can claim depreciation on it, which is then deducted from your total income tax liability. However, did you know that you can claim depreciation in respect of homes as well? We receive this depreciation benefit even though real estate does not depreciate in quite the same way as a car or piece of machinery. While there is everyday wear and tear, this doesn't actually lower the value of the home, nor is there a point at which the property becomes worthless – in the way that a car will.
This helps change your income bracket today so that you're paying less tax. In a sense, you're shifting your tax liabilities during your income-earning days! So the depreciation tax benefits of property investment are very significant savings that you can enjoy as a real estate owner.
Then there is another benefit that you can take advantage of as a real estate investor buying rental properties, the tax-deferred 1031 exchange provision. This helps you postpone the paying of capital gains taxes that become due when you sell assets. So long as you buy property for a similar reason within a specified duration, you save yourself this tax or at least delay having to pay it. These tax breaks were probably dreamed up by those guys on Capitol Hill who are wealthy property owners themselves – not so very surprising!
Your heirs enjoy tax benefits of property investment too.
Thanks to the step-up basis, the carried-over tax liabilities for your heirs disappear when you pass on. – Adiel Gorel
To be clear, the tax-deferred 1031 exchange is only a deferment, not an exemption. So, while you don't have to pay capital gains tax today, this doesn't negate your liability altogether. What does negate that liability, however, is when you pass on. Upon your passing, these liabilities become extinguished, and your heirs are not burdened with them. So, you can see how these tax benefits of property investment help during the life of the investor and beyond as well.
If this doesn't convince you about the wisdom of buying rental properties as an investment, then our Quarterly Property Expo will. This is where I will explain the Remote Control Retirement Riches formula more fully, and there will be other experts also going into some important details. You can sign up for free – yet another reason to take the first step toward changing your life.
ICG uses single-family home investments, bought in advantageous locations and the best U.S. markets. We enable you to enjoy the clout that comes from purchasing a multitude of houses, even if you only buy one.
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