Real estate ownership can offer some attractive tax benefits, making it an attractive option for many people! Let’s take a look at what they are.
Deductible Mortgage Interest: Homeowners can enjoy the benefit of deducting the interest paid on their mortgage from their taxable income, up to a loan amount of $750,000. This include any PMI interest as well.
Deductible Property Taxes: Homeowners can also deduct the property taxes paid on an annual basis from their taxable income, capped at $10,000/year.
Depreciation: Rental property owners can depreciate the value of their property over 27.5 years, which can help offset any rental income they receive.
Capital Gains Tax Exclusion: If you sell your primary residence and have lived in it for at least two of the past five years, you may be eligible to exclude up to $250,000 ($500,000 for married couples) in capital gains from your taxable income.
1031 Exchanges: The US tax code, under Section 1031, enables real estate investors to defer paying capital gains taxes on the sale of a property by reinvesting the proceeds into a similar property. There are some restrictions and strict timelines must be followed.
And, as always, when it comes to taxes, it’s best to consult with a qualified tax professional to ensure you’re maximizing your benefits.
In conclusion, owning real estate can be a great way to save on taxes and build wealth over time. And just remember, the only thing better than owning real estate is owning a tax-free island!