Top 5 Tax Advantages of Buying a Property

Top 5 Tax Advantages of Buying a Property

Home and property owners can have some pretty high expenses. This is why you should be looking for all of the tax advantages that you can find. If you are investing in property, then you should make yourself aware of every benefit that is available.

Directly Invest in Real Estate

As a direct investor, you are eligible to receive a K-1. This allows you to get the maximum of write-offs and even depreciation on the property. It does not matter whether it is a fund, LLC, or S corporation; you still get a great deduction on your tax form.

Use Cost Segregation for Greater Tax Advantages

Studying cost segregation can help you find the best ways to improve the depreciation. This applies to the value of the home as well as any improvements that you make, such as improvements to floors and countertops. Normally, a building like a multi-family unit will have a straight-line depreciation over 27.5 years. With cost segregation, you can accelerate the depreciation, giving yourself more tax advantages. The shorter your depreciation, the more you save.

Refinance Your Loans and Re-Invest

As with a home loan, a property loan can be refinanced, tax-free. This becomes capital that you can put to other uses. You can invest the money into a new property or use it to maintain existing properties.

Utilize the 1031 Exchange

You can use the 1031 exchange in the event that you decided to sell your property. Normally, you would have to pay a fair bit of tax on it. Above all else, though, you are a smart individual who has already done your research by using all of the existing tax advantages. A 1031 allows you to buy another property, like the one that you just sold, with the money from the sale. This lets you defer your capital gains tax and save the rest of your income.

Classify Deductible Expenses Correctly

Sometimes, expenses are capitalized and spread out too much. Due to this mistake, you can be losing out on deductions and write-offs. It is important to involve yourself to make sure that these things do not happen. Also, ensure that you have a bookkeeper who understands property tax. Finally, hire a CPA to maximize your tax advantages. This one is less of an advantage of buying property and more of a strategy that can help you increase your returns. A qualified CPA can tell you if you need to itemize or if the standard deduction will work better.