You already know that broadening your investments is a good idea. You’ve likely heard that investing in real estate might generate a steady stream of income. Did you know that it can improve your financial situation during tax time? 

Continue reading to learn about the numerous tax advantages of real estate investment.

Capital Gains Tax

When you sell an item for a profit, such as a piece of real estate, you may be subject to capital gains tax. Short-term and long-term are the two categories to be mindful of. They all have various effects on your tax status.

Short-Term Capital Gains

A short-term capital gain occurs when you earn money from selling an asset within a year of purchasing it. 

Although you may have no option but to sell, keep in mind that doing so may result in a tax bill. This is because the profit is considered as wage income. 

Long-Term Capital Gains

A long-term capital gain, on the other hand, occurs when you benefit from the sale of an asset that you’ve owned for a year or more. 

You’ll be able to maintain more cash on hand if you wait until the anniversary of your purchase to sell because the long-term capital gains tax rate is far smaller than the income tax rate. This means that you could possibly retain every penny of the profit you make when you sell a home.

Take Advantage of Deductions

The ability to obtain real estate investment tax deductions is one of the most significant financial benefits of this revenue stream. 

You can deduct costs directly related to the parcel’s operation, administration, and upkeep, such as:

  • Property insurance
  • Property management fees
  • Property taxes
  • Any cost to repair the building
  • Costs for upkeep, such as hiring lawn maintenance
  • Mortgage interest 

If you already know about these deductions, that’s great! Did you know you can also deduct most of the things used to support your investments? This can include advertising, marketing, travel expenses, and more! Even having someone come to repair a chimney from is something you can deduct! 

Use a Pass-Through Deduction

You can deduct up to 20% of your qualifying business income on your personal taxes using a pass-through deduction. The money you collect in rent as a sole owner, an LLC, partnership, or an S Corp is considered qualifying business income.

Let’s say you own an apartment building through an LLC. You earn $50,000 in rental revenue each year. You can deduct up to $8,000 on your personal tax return by employing a pass-through deduction. It’s important to keep in mind there are requirements for this, so it’s best to speak with a tax professional.

By Eddy

Eddy is the editorial columnist in Business Fundas, and oversees partner relationships. He posts articles of partners on various topics related to strategy, marketing, supply chain, technology management, social media, e-business, finance, economics and operations management. The articles posted are copyrighted under a Creative Commons unported license 4.0. To contact him, please direct your emails to [email protected].