A main reason people buy rental properties is for the return on investment. Many rental property owners may already know this. But few may be aware of the various tax benefits they can get. Here are some of them.
Depreciation
One of the first tax benefits that rental properties give their owners is depreciation. Deduct the costs involved in buying and improving the property. Instead of tax deductions being taken as a large chunk during the year the property is purchased, depreciation is spread over its useful life. You can start depreciating the property once it is leased, not when someone starts leasing it. To better understand this specific tax benefit, you may need to check with the IRS.
Dual Use Deductions
Many rental properties can be used for dual-use deductions. With the professional help of accountants, one can maximize legal tax deduction claims. Tax benefits like this are commonly applicable to properties that are located in tourist or vacation spots. For example, if you own a beachfront rental property, you can write off the deductions involved when you visit it for regular inspections.
1031 Exchanges
Do you know that you can defer capital gains taxes through a precisely structured 1031 exchange? IRC section 1031 allows you to sell a property, reinvest the proceeds in a new property, and ultimately cancel capital gains taxes. It is stated that, “No gain or loss will be recognized in the exchange of goods held for productive use in a trade or business or for investment, if said goods are exchanged only for goods of the same type that will be held for productive use in a trade or business. business or for investment.
Property owners planning to use the 1031 Exchange should carefully learn what like-kind means because the tax code does not have that definition. Better yet, consult tax advisors or real estate agents to better understand the terminology.
If you’re thinking of buying a rental property, think about the various tax benefits that may be on your side. Depreciation, dual use, and 1031 exchanges are three of them. Each of them has certain processes to follow to qualify. Consult a property tax advisor for legal advice.
For other real estate concerns, your local real estate agent can always expand their professional expertise. He or she can also connect you with tax advisors within their network.
