How many of you would agree that the greatest expense you will have in your lifetime is taxes? Real estate can help you avoid taxes legally. There is a big line of difference between tax evasion and tax avoidance. We simply want to take advantage of the legal tax ‘loopholes’ that government allows us to take, because since the founding of the Financial constitution, the laws have favored property owners. Today, the tax laws still contain ‘loopholes’ for real estate investors. Government since ages gives you all kinds of financial reasons to invest in real estate.
Real estate investments are beneficial for people because they provide good returns and relatively risk free investment options (provided you have chosen the right developer and right property to put your resources into). In addition to these, investors find that there are many tax benefits that they can get from real estate investment. Real estate investment is also considered as a business, so if you are a full time investor then you can get more significant tax benefits than a regular homeowner. This prevents the income that you make from your real estate from being over-taxed. You can get the following tax deduction by trying out your hand at real estate investment.
The mortgage loan interest that you pay can be deducted from your tax returns in the same way as a regular home mortgage. This allows you to conveniently prevent taxation of a certain amount of the income that you earn off your property.
Regardless of the type of property you own, whether residential, commercial or un-built land, you will have to pay a certain amount of taxes on them. However, these are tax deductible payments for property owners. Therefore, the higher the property tax that you pay, the greater amount you will be able to save on your taxes.
Homeowners cannot deduct the home owner’s insurance premiums from the taxable income but if you are an investment property owner then the amount can be totally deducted from the taxable income. The money you pay to protect your investment property is deductible on your tax return.
All homeowners must know that owning a home involves a lot of repairs and renovations. In most countries (not all) if your property is bank owned, then all the repairs that you carry out on the home can also be counted as tax deductible. These repairs can range from any work done on the structure to painting and remodeling jobs. Older buildings can require a lot of repair and the costs can accumulate quite fast. Deducting these costs can help you in saving a lot on tax returns. Remember that property improvements are considered different to maintenance costs.
In the field of accounting, a gradual decline in the value of an asset takes place over time. This is known as depreciation. While doing your taxes, remember to depreciate the value of your property which will reduce the amount of taxable income that you have. This depreciation of properties is a completely theoretical concept, as we know that the value of a property increases over a given period of time. The depreciation does not affect the monetary value of the property, but is a requirement of the IRS.
You can see that the benefits of real estate investments go much further than returns and a place to live in. The tax benefits in themselves make it the first choice for the people, who are looking to earn a good amount of profit in the market.