3 Ways You Win the Tax Game
Real estate is depreciable
Depreciation is a non-cash expense permitted by tax code that depreciates the value of your investment property over time. However, the value of your investment property actually appreciates. The depreciation deduction allows a real estate investor to generate a larger positive cash flow while reporting a lower income for tax purposes. This creates a higher return than you may initially realize.
Real estate has a lower tax rate
If your investment property is sold after a year, the gain is subject to capital gains tax rates, which, depending upon your individual tax bracket, is generally 15% or 20% – usually less than one’s personal tax bracket.
Real estate gains are deferrable
Our tax code, under a 1031 exchange, permits the gain on the sale of an investment property to be transferred from the property being sold to a new property being purchased, hence deferring the payment of any tax on the sale of the property.