Tax Tips For Real Estate Investors

Understanding The Tax Code

Whether investing in commercial or residential real estate, there are certain tax advantages and credits that should be considered. This is especially true considering the fact that better understanding the tax code when it comes to investing in real estate can ultimately increase investment bottom line performance on an annual basis. Here are a few simple points to consider when investing in real estate with the goal of always maximizing tax advantage.

General Home Office Deduction

For example, those investing in real estate should understand the option of using a residency as a business. In short, it is easy to deduct a portion of a residency that is being used for real estate related business. However, the space must be used exclusively for that purpose. Investors have a choice of using an actual percentage of square footage of the space or invoking the general home office deduction. Ultimately, this can save investors on an annual tax bill.

Life Of The Mortgage

In addition, mortgage interest and points should always be taken into account in terms of investing in real estate. In most cases the first and any subsequent mortgages or home equity lines of credit are deductible from a mortgage interest perspective. Even better, any points paid are indeed deductible over the entire life of the mortgage. Whether it is an original loan or refinancing, original points paid are always deductible.

Investor's Income

Equally important is to consider any capital gains related taxation. Anacortes real estate investors can expect that a portion of the original cost of the property plus any improvements less the actual sale price will be subject to lower tax or capital gains tax that can range anywhere from zero percent up to 15%. This is usually predicated on the investor's income. Talk with your accountant or tax advisor to know for sure when it comes to capital gains taxes.

Pass Along Depreciation

Investors who are considering selling a real estate investment over the short term may find that it is better to pass on depreciation as a way to save money. It is also important to note that real estate losses are usually passive in nature. This means that the maximum amount an investor can deduct in a year without any passive income is usually expected to be $3000. However, if an investor qualifies as a real estate professional and their income is less than $100,000 they can deduct up to $25,000 each year.

Lucrative And Rewarding

At the end of the day it is always best to consult with a tax professional, accountant or tax advisor regarding your specific investment strategies and tax situation. Investing in real estate can be highly lucrative and rewarding. Take the time to understand all tax complexities and advantages as well as disadvantages to ensure that you enjoy the maximum return on your real estate investment dollars. With interest rates at record lows, now is the best time to take full advantage of all the modern Anacortes real estate investing has to offer.

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