Real Estate Tax Incentives

By Neda Dabestani-Ryba
Prudential Carruthers REALTORS

Lower Your Taxes
Tax incentives for real estate investors may generally make the difference in your tax rates. Deductions for rental property might fairly often be used to offset wage income. Tax breaks can almost always enable investors to turn a loss into a profit.
For which items can investors get taxation breaks? You could claim deductions for actual costs you incur for financing, managing and operating the rental property. This includes mortgage interest payments, real estate taxes, insurance, maintenance, repairs, property management fees, travel, selling , and utilities (assuming the tenant doesnt pay them). These expenses may be subtracted from your adjusted gross income when determining your personal income taxes. Of course, these deductions cannot exceed the amount of real estate income you receive. In addition to deductions for operating costs, you may also receive breaks for depreciation. Buildings naturally deteriorate over time, and these "losses" could be deducted regardless of the actual sell value of the property. Because depreciation is a non-cash expense -- you are not actually spending any funds -- the tax code might get a bit tricky. For more knowledge about depreciation and various tax alternatives, inquire of your taxation advisor about Section 1031 of the U.S. Tax Code.

Have a Positive Cash Flow
There are two kinds of positive cash flows: pre-taxation and after-tax. A pre-taxation positive cash flow occurs when income received is greater than expenses incurred. This sort of situation is difficult to find, but they are usually a strong and safe investment. An after-taxation positive cash flow might have expenses that outweigh collected income, but various taxation breaks allow for a positive cash flow. This is more common, but it is fairly often not as strong or safe as a pre-taxation positive cash flow.
Regardless of what kind of real estate you choose to invest in, timely collections from your tenants is absolutely necessary. A positive cash flow -- whether it be pre-tax or after-taxation -- requires rental income. Be sure to find quality tenants; a thorough credit and employment check is most likely a nice idea.
Use Leverage
One of the most important factors in determining a solid investment is the amount of equity you are purchasing. Equity is the difference between the actual worth of the property and the balanced owed on the mortgage.
Benefit from Growing Equity
While investing in real estate is relatively complex, it is commonly value the extra work. When compared to other financial investments, like bonds or CDs, the return on investment for real estate purchases may often be greater.
The key to real estate investing is equity. Determine an amount of equity that you want to achieve. When you reach your target , its measure to sell or refinance. Determining the proper amount of equity may require the assistance of a real estate professional.