When it comes to taxes, there are a lot of things to think about. For real estate investors, understanding the tax implications of their investments is critical to making informed decisions. Here are four of the top tax benefits of real estate investing.
1. Depreciation Costs Over Time
As a real estate investor, you can deduct depreciation as an expense on your taxes. For example, if you purchase a property for $100,000 and it depreciates by $20,000 over the course of 20 years, you can deduct $20,000 from your taxes. That way, you’ll lower your taxable income and lower your tax liability.
2. The Property Management Fee Deduction
Another tax benefit of owning real estate is that you get some deductions on your property management fees. If you hire a property manager to manage your investment property, you can deduct the fees you pay them from your taxes. It’s possible to enjoy management fee deductions if you’re a DIY landlord as long as you keep a record of all the expenses you incur. This is a great way to offset some of the costs associated with owning an investment property.
3. The Mortgage Interest Deduction
Another tax benefit of real estate investing is the mortgage interest deduction which allows you to deduct the interest you pay on your mortgage from your taxes. The deduction is available for both primary residences and investment properties. For example, if you have a $100,000 mortgage with an interest rate of four percent, you can deduct $4,000 from your taxes.
4. The Capital Gains Exclusion
The capital gains exclusion excludes up to $250,000 of capital gains from your taxes when you sell your property. This is a great benefit for those looking to invest in real estate and then sell it for a profit.
Interested in Investing in the Minnesota Real Estate Market?
While there are many great tax benefits of real estate investing, be sure to speak with a tax professional to learn more about the tax benefits of real estate investing. But if you’ll love to work with a real estate agent with a diverse portfolio in Minnesota, contact Ryan Luthi at (612) 406-6020 to discuss your real estate investment goals.