The Tax Benefits of Real Estate Investing in Boise, Idaho
There’s a reason real estate investing is so popular and successful. Many millionaires rank real estate as the best investment to get the highest return on investment. And who doesn’t want to be a millionaire, right? So let’s cover some tax benefits of investing in real estate.
First, why are there tax benefits for real estate investors? The government provides tax incentives because real estate investing stimulates the economy. This tax benefit is an enticing advantage of being a real estate investor. These tax benefits help create wealth for an investor. The government hopes these benefits will make you a more productive investor who will buy more property to stimulate the economy.
We’ve listed what we believe to be the most compelling tax benefits below, but be sure to check with your accountant or CPA regarding your particular tax situation.
Deductions
This tax benefit allows for investors to deduct specific expenses associated with the investment property. Some examples of expenses include property tax, mortgage interest, property insurance, property management fees, and property repairs and maintenance. Repairs that don’t add value to the property but maintain its condition can also be deducted since it manages and conserves the property.
As an investor, you can also deduct a mortgage on the primary or secondary residence. The deduction can be applied to home purchases or home equity loans.
Depreciation
Depreciation is another significant tax benefit for real estate investors. It is beneficial if you own an income-generating property, like rental units, as you can recover the costs through annual tax deductions.
Depreciation is deducting a property’s loss in value over its expected life. A residential property lifespan is an average of 27.5 years, and commercial property is 39 years. Essentially, it’s an allowance given due to wear and tear.
It will be determined by the value of your property, its record period, and the depreciation method applied. Let’s look at an example. If you buy a rental property for $250,000, this is an annual depreciation of $9,090 ($250,000 / 27.5 years). You can also depreciate certain capital expenses like a roof or HVAC system after a certain period. This will add to the total amount of depreciation to your annual tax deductions.
The downside of depreciation is you’ll have to repay the depreciation when selling your property and pay taxes on it too. Think of this as a motivator to keep your property instead.
Our next blog will cover capital gains and 1031 exchanges. So be on the lookout! Always be sure to check with your accountant or CPA regarding your particular tax situation.
If you’re ready to invest in real estate and get those tax benefits, contact us today! We’d be happy to start and guide you through your investing journey. Call (208) 957-0870 or email Info@BoiseTurnkey.com.
