The Property Step-Up Basis Tax Benefit – Yet Another Gift You May Not Know Exists for Investors

Written by: Adiel Gorel
Here’s Why It’s a Gift You Can Leave for Your Heirs I've been making myself hoarse telling people about the marvelous gift of the property step-up basis tax benefit and the 30-year fixed-rate loan, which gives Americans a serious shot at creating wealth. In this great country, this is far from the only gift that […]
Published on September 26, 2023
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Est. Reading: 3 minutes

Here’s Why It’s a Gift You Can Leave for Your Heirs

I've been making myself hoarse telling people about the marvelous gift of the property step-up basis tax benefit and the 30-year fixed-rate loan, which gives Americans a serious shot at creating wealth. In this great country, this is far from the only gift that we investors get. There is also depreciation! With so many advantages and benefits, there is every reason for even the most fiscally conservative person to invest in real estate, as I explain in this real estate podcast.

Tax breaks for real estate investors.

Step-up basis

The step-up basis is one more in a long list of unbelievable gifts available to the buyers of rental homes in the United States. – Adiel Gorel

Did you know if you buy a rental home as an investment, you get tax breaks for this? Yes, it is true! Rather like a car or a piece of machinery, the house that you buy is also something that is seen to have depreciating value when in fact, it may actually be increasing in value. So, while it increases in value and is also earning you rent, it is seen as depreciating. As such, you can claim a tax deduction on your real estate investment.

To understand, let us take an example of a house you bought for, say, $100,000. Now that you have calculated depreciation on this house, you can claim tax deductions. The notional value keeps going down, but the real value actually goes up. Now suppose the property prices in the area go up insanely, and the home is now worth a million dollars. Now if you want to sell this property – because the value has shot up and you're going to make such a big profit – you would have to pay a significant tax. The great thing is you can even avoid that tax. How? By using the property step-up basis tax benefit. Read on.

When dying is a good tax strategy.

Now suppose you don't sell off this million-dollar home. You continue to hold on to it, and then one day, in the fullness of time, you pass on. When this happens, the ‘basis’ of the property ‘steps up’ to the value of your property. This means that your heirs do not have to pay the tax that you would have had to pay when selling the property. The property step-up basis tax benefit is a provision that helps your heirs. They can now sell off the house if they want and not pay the taxes you would have had to!
This is why I often joke that dying is a good tax strategy! While your family may mourn your passing, one thing they will not mourn is the lovely, tax-free bequest you left behind for them! Now you can see why real estate is the one investment that has the genuine ability to create generational wealth for you and your family. Not only does the rental income give you greater liquidity right away, but you also give yourself the ability to retire early and very comfortably at that. Plus, you give your family the gift of prosperity even after you through the property step-up basis tax benefit!
If you think real estate investing is complicated and intimidating, think again. We at ICG Real Estate have devised what we call the Remote Control Retirement Riches formula, which helps investors invest with the least effort and zero headaches. To know more, register for our upcoming expo.

 

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