7 Great tax benefits of investing in Real Estate.

[Fletcher Clardy]

1. Opportunity Zones - Jobs act of 2017 has stimulated growth by offering tax incentives in special zones around the United States

2. Refinancing or Tax-Free borrowing - When you refinance, you are able to borrow against the appreciation and increased equity of a property tax-free

3. 1031 Exchange - A 1031 states that a taxpayer may defer recognition of capital gains and related Federal income tax liability on the exchange of certain types of property, including real estate.

This deduction is valuable to investors because you can roll over capital gains from one investment property to the next and avoid being taxed until you sell your property

4. Depreciation -  The IRS allows you to deduct the cost of business items that have a “shelf life,” like the building itself. Some might consider this the most powerful tax benefit of investing in real estate

Over time, the real estate in which you’ve invested is going to start breaking down. Fortunately, you’re allowed to write off income-producing property based on wear and tear.

5.  No Self-Employment or FICA Taxes Paid on Rental Income - Rental income is not subject to social security and Medicare taxes. 

Depending on whether you’re employed or self-employed, you could be paying 7.65% to 15.3% toward this FICA tax on other income. The tax is in the amount of 15.3% and it is split 50/50 between the employer and the employee. If you are self-employed, however, and have no employer, you are responsible for the full 15.3%, and this is known as self-employment tax

6. Capital Gains Home Exclusion Tax - If you have owned and used a property as your primary residential home for at least two out of the last five years before selling it, you’re eligible for this exclusion.

This exclusion according to the IRS states that “if you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse

7. Short-Term and Long-Term Capital Gains - Depending on the length of time that you hold the investment before selling it, those capital gains can be classified as either short-term (less than a year) or long-term (a year or longer).

Short-term capital gains are taxed as ordinary income, so it depends on whatever tax bracket you’re. For the typical physician, this usually puts us at one of the higher brackets which could be at 35% or 37%

Please share some of your stories of benefiting from any tax incentives through your investments in real estate.

More info on topic: https://passiveincomemd.com/7-great-tax-benefits-of-investing-in-real-estate