Real estate investing - Tax benefits

Real estate investing in Pennsylvania continues to be the platform for many to build wealth and to cut taxes. As a real estate investor, you should always be concerned with the rules and regulations, especially when it comes to paying your taxes and it also includes the following like: Which tax saving strategy for real estate investor can take advantage of?..How can being an investor really affect your income tax return? What sort of positive boost to your state tax refund and federal tax refund can you see as a real estate investor? And so on… This article will bring out the little-known tax benefits of the same which will make your tax filing a lot more beneficial and fun.

  • Deduction: Every time you file your annual income tax, you have the advantage of deducting certain costs and expenses which are explained in detail below:
    • Mortgage interest- Classified under the category of one of the biggest deductions one can take advantage of, the only drawback is that it doesn’t apply to an original loan on a primary residence. Apart from this, it also applies to investment property loans, refinanced mortgages, and home equity loans or lines of credit too. As you take delivery of your annual Form 1098 from your mortgage lender, whether it’s tax season 2017 or some other year, specifying all the interest you paid throughout the year, you will see which parts are deductible and how much. This deduction applies to insurance premiums and payments that went through an escrow account as well.
    • Business expenses- The expenses that you make to manage your property can be deducted from your tax bill; this includes expenses for your home office (e.g. internet/phone bills, etc) or every trip you take to view a property to real estate investing in Pennsylvania.
  • Depreciation: Because IRS takes into account the possible wear-and-tear of a building as time flies, you can cut down your tax liability and with depreciation factor you can also make a yearly tax write-off.
  • 1031 exchange: This is basically a way to delay paying taxes when selling a property, in order to enjoy this, as a real estate investor one should qualify or meet the following criteria:
    • The Like-Kind Exchange: The property must be of the same nature in all means, meaning, you can’t put up for sale a residential property, only to purchase a set of franchises. The value should not be less than the old property, but it can be equal.
    • Time-sensitive investment: As said in certified documents, within 45 days of selling, you need to identify a replacement property, within 180 days after the sale of the old property the deal should be closed.

Upon failing to meet these aforesaid decisive factors, you will be disqualified from the 1031 exchange and you would be subject to pay taxes on your property sale gains.

Having said all that in real estate investing in Pennsylvania, there are two others ways through which a real estate investor can reduce their tax bills and it includes a self-directed IRA and long-term capital gains.