Investing in property may not be 100 percent safe practice, yet, it’s definitely one of the better ways for you to make a living. However, the profitability of this effort doesn’t depend only on the state of the market but also on your ability to get the most out of your investment. One of the ways to do so is to consider all the potential tax deductions that you’ll become eligible for. Only in this way can you get a real picture and fully grasp what kind of profit margin can you encounter. So, with that in mind and without further ado, here are some real estate tax advantages that a property investor can expect.
1. Mortgage interest tax deductions from income
The first thing you need to take into consideration is the fact that you can deduct your mortgage interest expense from your income. The perk of this lies in the fact that it significantly lowers your tax liability. The thing is that this is only available in the U.S. which means that in Canada or Australia, there is no such benefit. Due to the fact that in the U.S. there’s also a progressive tax income, this means that the higher your income is, the more valuable this deduction will become. In fact, people with more than $400,000 taxable income can see as much as 39.6 percent of deduction. Needless to say, this is just huge for any investor out there.
2. Depreciation deduction from income
Over the course of time, the value of the real estate may steadily drop, which is known as the phenomenon of depreciation. Therefore, as an owner of the real estate, it would be absurd to make the same value of payment year after year, for the piece of real estate that’s losing value over time. This is why you need to look for an agency like WRC Quantity Surveying which can help you get a tax depreciation report without the fear of getting audited. This can save you from a world of stress in the future, seeing as how an audit is definitely not something that you want to face, even if you’re 100 percent sure that you’re in the right. This practice is particularly popular in Australia, even though it’s practiced by real estate investors worldwide.
3. Cost of repairs, maintenance, and upkeep
Another thing you need to understand is that investing in property is not the same thing as buying your family home. Regardless if you’re purchasing a property in order to diversify your portfolio, become a landlord or resell the place for profit, you’ll still have to run it as a business. What this means is that you’ll have an overhead consisting of expenses around the cost of repairs, maintenance, and upkeep. Similarly, to the issue of depreciation, this too is something that has to be considered over the course of time. This is also why it’s important to try and make an estimate of how much money and effort you’ll have to commit to restoring the place before you decide to invest in it.
It’s also vital to mention that here you can also look for depreciation in a form of the cost of necessary services. For instance, if you aim to use this as a rental property and are, therefore, forced to hire someone to manage it, you can deduct a part of this cost, as well. Aside from this, every real estate property investor has to consult a legal expert before making any move, which is a reason to add legal consultation services to this list, as well.
4. Travel associated with the property
Even with a reliable representative on-spot, you’ll still have to make in-person inspections of the property you’ve purchased. Sometimes this will be in order to check how the repair is going, at other times to see how the person you’ve put in charge is doing their job. This is why you can even list the gas spent or the value of the purchased ticket as the cost of doing business. Over the course of years, this can amount to a significant saving and provide you with a surplus that can be better used elsewhere.
5. How you own the property makes the difference
One thing that a lot of people are completely oblivious of is the fact that you can own property through an LLC that you own or have a share in or directly in your name, through the IRA/SDIRA. The first one protects your other assets from the ramifications related to this property investment, while the second method helps you find some additional ways of real estate savings. Keep in mind, nonetheless, that if you aim to purchase more property in the future, you need to do it via the same model. Therefore, when making a choice, remember that it’s something that will follow you for years to come.
6. Rental property
At the very end, we’ve already mentioned the issue of rental property in the past, however, there’s much more to it than that. Here, you also need to weight in the factors such as equity growth and cash flow, both of which come with their own set of real estate tax benefits. For this reason alone, going into the business of rental property might be deemed as a good idea. Whether this is true in your case is left for you to decide.
At the very end, it’s more than obvious that the real estate industry is ideal for those looking for tax deductions. In fact, one could state that one’s profitability in the world of real estate can be brought down to their ability to discover and utilize all the deductions that are available or those that they are eligible for. Therefore, you need to do your homework but make sure that you do the research for your own tax system. As we could see in the first example, some conveniences are available only locally. This is why it would be smart to consult a local expert before deciding to definitely join this industry.