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Tax Benefits of Owning Real Estate

Written By: MB Group

Did you know approximately 90% of the world's millionaires have created their wealth through real estate investing? Whether you're looking to pick up your first rental property or considering adding a commercial unit to your portfolio, there are also several tax benefits of owning real estate. 

At MB Group, we offer an exclusive real estate tax service to help real estate professionals and investors maximize the tax benefits of owning real estate. Let's take a closer look at a few of the key tax benefits of real estate investing. 

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Deductions Are One of the Tax Benefits of Investing in Real Estate

Without a doubt, one of the most essential tax benefits of investing and owning real estate are the tax deductions available is the ability to deduct certain expenses. The deductible expenses must be related to the property, such as: 

  • Interest on the mortgage
  • Property tax
  • Property insurance
  • Capital improvements, repairs on the property, and ongoing maintenance
  • Fees associated with property management
  • Costs associated with advertising the property 

If you're like a large number of real estate investors, you can invest in real estate through a business entity, suchtax benefits of owning real estate as a limited partnership or LLC. When you do, you open the door to several other potential tax deductions, such as: 

  • Fees for your accountant, bookkeeper, or attorney
  • Office expenses 
  • Business equipment
  • Home office or office space 
  • And more

However, it's critical to make sure you keep receipts or documentation of all of the expenses related to running or growing your budding real estate empire. 

Capital Gains Can Be Tax Benefits of Investing in Real Estate

If you sell a home or property for more than what you purchased it for, the gains or capital gains are taxed differently than standard income. Instead of paying the higher income tax, the gains will be handled under the capital gains tax, which is typically lower. The capital gains tax can be classified as one of two types:

  • Properties held for a year or less will be classified as short-term capital gains and can have a tax rate anywhere from 10% up to 37% — based on your income bracket. 
  • Properties held for approximately a year or more will have a slightly more favorable tax rate, spanning from 0% up to 20% — based on your tax bracket. 

And you can even use special tax-free or tax-deferred methods of investing in real estate to avoid paying capital gains tax. The experts at MB Group can work closely with you to execute a strategy most closely aligned to your wants, needs, and goals. 

Depreciation Is a Benefit of Investing in Real Estate

tax benefits of real estate investingDid you know if you own a property for income-producing purposes for a year or more, you can actually depreciate the cost of the property over a period of time? This practice allows you to deduct the loss of value of the property over a period of:

  • 27.5 years for residential property
  • 39 years for commercial property 

In the most simple sense, depreciation allows you to account for a decrease in value of the property for standard wear and tear. For example, if you purchased a home for $300,000, you could deduct approximately $10,909 ($300,000/27.5 years) each year for depreciation. In addition, you may be eligible to deduct certain types of capital expenses, such as installing a new HVAC system or replacing an older roof. These types of improvements can help provide more deductions on your taxes. 

Contact MB Group to Learn More Tax Benefits of Owning Real Estate 

Choosing to invest in real estate is one of the proven ways to build wealth. While there are real estate investing risks, most successful real estate investors will suggest the benefits outweigh the costs. And if you're considering investing in real estate, the team at MB Group offers years of experience working with individuals and business owners to lower tax liability through innovative tax planning strategies. We'll work closely with you to create a plan that helps you achieve your goals and maximize all of the tax benefits of real estate investing.


Tags: Real Estate

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