Real Estate Investing

The Biggest Tax Benefits of Real Estate Investing

Have you thought about how your investment can benefit you? Do you feel the need to save taxes when you make a profit? Investment in real estate is one of the most effective ways to take advantage of the tax savings available. Real estate investment not only provides you with passive income but with various other benefits, Tax benefits being the important one. Does that get you excited to learn more about tax savings? Did you hear the debate between Hillary and Trump about Taxes?

Have you ever wondered why Real Estate Investment is one of the most beneficial types of investments in terms of tax benefits?

1. Capital Gains

You can generate a capital gain either over a short-term or over a long-term period. Income taxes allow you to claim capital gains. Because short-term capital is taxed as ordinary income, tax brackets determine whether it is taxable. Capital is a long-term asset that is dependent on your income, spouse, and other factors. Most of the time the capital gains are long-term as you are holding these assets for a long term.

2. Depreciation

In many people’s minds, depreciation is the most powerful tax benefit of investing in real estate. Investing in real estate can be made easier by utilizing depreciation on investment properties alone.

Real estate investors can reduce their tax liabilities by deducting depreciation expense, which is typically the largest tax deduction available to them. One’s real estate property breaks down over time after investing in it. A property that generates income is entitled to a write-off based on wear and tear.  It becomes really valuable when you take advantage of the cost segregation and accelerated depreciation.

3. Defer Taxes With Incentive Programs 

To entice investors, the government sometimes introduces a special tax code. Let’s take a look at the 1031 exchange and redevelopment opportunity zones, two important tax breaks-

1031 Exchange

Those who reinvest their real estate profits in new deals are rewarded with 1031 exchanges well-recognized method for tax savings. The program permits you to swap properties for tax purposes as long as the new one you buy is worth the same as the one you sell. Therefore, you will be able to delay the payment of capital gains tax until after the first property has been sold.                       

Indefinitely, you can use 1031 exchanges. However, if you want to cash out your profits, you’ll have to pay any taxes you owe. Based on the timing of the purchase and sale transactions, different types of programs are available. It’s a good idea to consult a qualified financial professional as the program can be confusing and difficult to understand.

Opportunity Zones

Opportunity zones are areas that are low-income or disadvantaged. Providing tax breaks to investors allows the 2017 Tax Cuts and Jobs Act to promote investment into local communities and promote economic development. Qualified Opportunity Funds allow you to invest unrealized capital gains alongside other investors. Its purpose is to improve the area chosen.

As well as deferring capital gains or paying no capital gains, qualified capital gains are allowed to be invested in an opportunity zone fund. This depends, however, on how long the investment has been in the fund.

Real Estate Investing

4. Deduct Your Expenses 

Tax deductions for real estate investments are one of the biggest benefits of this type of income stream. If you own a parcel, you get to deduct expenses directly related to the operation, maintenance, and management of the parcel, such as the following:

  • Property taxes
  • Property insurance
  • Mortgage interest
  • Property management fees
  • Cost to maintain and repair the building


Tax-advantaged multifamily investments are an excellent investment option for busy professionals. As well as tax benefits, any investment you make may also benefit from appreciation in its value, equity buildup, and the ability to leverage it.

If you are a busy investor and you do not have the time to research decreasing tax opportunities, schedule a consultation with a tax professional and legal counsel about the tax exemptions available for real estate investments. Neither tax nor legal advice is offered here but is for informational and entertainment purposes. There are several other methods available to increase the tax efficiency of real estate investments.

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