Tax Benefits for Property Investments
June 17, 2020
Real estate continues to be one of the most preferred investment choices for securing and amplifying one’s monetary assets. In addition to generating regular cash flow, investing in a real estate property also opens the treasure chest of tax incentives on everything from apartments, villas, to vacant plots.
Property investment is an excellent way to create residual income, secure your future, as well as diversify your investment portfolio, however, it is also one of the most popular ways to make the most of the tax advantages it offers. Take a look at the top four benefits of investing in real estate and earn from tax savings:
If you are using your residential investment for income-generating purposes, such as rental, you can take advantage of depreciating the cost of the property over time. Since depreciation can only be used on properties used for investment purposes, the tax benefit is a huge sum available to only real estate investors. The investor can annually deduct the depreciation allowance for wear and tear of the property, making this a huge tax break.
Another tax benefit targeted mainly at rental properties, this is the most basic and advantageous benefit of property investment. The investor can deduct the necessary expenses for maintaining and managing the property, usually including write-offs like utility, maintenance, advertising, property taxes, and repairs.
Pass-Through Deductions or Passive Income
It refers to any earnings made where the investor does not physically work for it, most commonly earned from rental income. According to the recently passed Tax Cuts and Jobs Act, all profitable rental businesses can pass up to 20% of the taxable income using a pass-through deduction. A primary note to remember here is that you can only take benefit of this deduction if your business is profitable.
When you sell your property for more than the value it was originally purchased for, the profit amount is taxed as a short-term or long-term capital gain. This tax amount is usually at a lower rate than income tax. Long-term capital gains (properties held for over a year) are more beneficial to investors as it is a lower tax rate, in comparison to short term capital gains (properties held for one year or less).
Some of the best benefits of investing in real estate properties are the tax write-offs it offers. The trick is to know how and when to take advantage of it, and this simple tax benefit guide can help you make the most of your investment. If you are searching for your next real estate investment, then check out Casagrand’s plots, Villas and apartments in Chennai. These luxury properties offer an all-inclusive lifestyle with world-class amenities and creatively designed living spaces, making it an excellent investment opportunity for rental income as well as high return on income.