What are the Tax Benefits of Real Estate Investing?

Investing in real estate is just the start of your real estate career, but with that, investors should also know other aspects of saving money and increasing profit percentage. Rogelio Robles says that around 25% of investors are not aware of the tax benefits of real estate investing, which minimize there performance and reduce their chances of a long lasting real estate career.

There are a number of tax benefits available in real estate investing; I am listing below some of them:

  1. Deduction on interest

If the investor has taken a loan to purchase and construct the property, a tax deduction can be claimed on the interest amount. There is no maximum limit on the amount of interest to be deducted if the property is on rent. If the property is self-occupied, you can claim up to a maximum of Rs. 2 lakh in deduction of its interest on the home loan EMI.

  1. Capital Gains

Captial gains are the revenue generated from the sale of any property. Capital gains taxes are mandatory to pay when you sell a property and make a profit from it. These gains are of two types:

  • Short term capital gains- when you sell a property within 12 months period.
  • Long term capital gains- when you sell a property after 12 months period.

Investors can claim a tax deduction on capital gains only if they fall under long-term capital gains. To claim the tax deduction, investors have to invest this amount in another project within a certain time frame.

  1. Depriciation deduction

Deprication refers to the reduction in asset value over time. Investors can take advantage of this depreciation amount every year, as they can claim the deduction of depreciation from the amount of interest payable. Thus, the amount of repairs and other improvements to the property can be claimed to be deducted from depreciation.

  1. Reduce Self employment tax

The self employed worker has to pay some percentage of the amount as federal income tax (FICA). However, if you are a real estate investor or self employed in real estate and rent out properties, you can free yourself from FICA taxes because rental incomes are not considered federal tax income. 

  1. 1031 exchange

When an investor sells any property, it becomes his liability to pay capital gain taxes. To eliminate the capital gain tax, investors can take advantage of the 1031 exchange. This can be done if you buy or reinvest in some other property of the same or higher value before paying capital gains taxes. But this reinvestment process should be done within 45 days, and the deal must be finalized within 180 days to eliminate capital gain taxes.

  1. Opportunities Zones

There are certain areas with tax benefits designated by the government that are known as opportunity zones. Investors who invest in these qualified opportunity funds/zones(QOP)  won’t pay capital gain taxes. According to Rogelio Robles, investors investing in properties that fall under opportunity zones will be liable to recognise capital gain taxes by December 2026, or when the investment will be sold. Other tax benefits are also being provided under opportunity zones. 

  1. Standard Deductions 

Standard deductions are the deductions claimed on the rental income of any property.

These can be:

  1. Tax Benefits on rental income

As tax is chargeable on the rental amount of the property, a tax dedication can be claimed up to 30% of the total rental income for expenses that occurred in that property, such as insurance, property tax, etc.

  1. Tax benefits on repairs and maintenance 

The claim for deduction of tax can be made on the expenses incurred for the repair and maintenance of property, which will also be up to 30%.

  1. Tax benefits for property developers 

Property developers are also eligible to get tax benefits. If you are constructing or developing any property, you can claim a tax deduction for the expenses that occurred while developing the property. You can claim a tax deduction if you have taken out a loan for the development of that property.

Conclusion

In conclusion, real estate investment is a great option for generating higher passive income and revenues if done with proper research and by taking advantage of the benefits available. Rogelio Robles concluded that “no one can stop you from taking your real estate career on a peek” if you are a strategic investor and you know how to take full advantage of tax benefits, You can never ever fall under the burden of tax amounts, and your profit generation percentage will always be higher than your competitors.

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