Investing in real estate can be a great way to generate passive income and build wealth. It is important to know the various tax benefits that come with real estate investment, however, so that you can maximize your profits. Let’s explore the different types of tax benefits you may be eligible for when investing in real estate.
Maximize Your Profits with Real Estate Investment Tax Benefits
Mortgage Interest Deduction: One of the most common tax breaks associated with real estate investments is the mortgage interest deduction. This deduction allows investors to deduct any loan interest they pay on their investment properties from their taxes. This can result in a significant reduction in your overall tax bill and help increase your bottom line.
Depreciation: Another popular real estate investment tax benefit is depreciation. This allows you to write off a portion of the cost of your property over time as it depreciates in value due to wear and tear or other factors. The depreciation period typically lasts 27 ½ years for residential rental properties and 39 years for commercial rental properties. These deductions are especially beneficial for investors who own multiple properties, as they can spread out their deductions over several years and lower their overall tax liability.
Tax Credits: In some cases, you may also be eligible for certain types of tax credits when investing in real estate. For example, some states offer energy-efficiency credits for those who make energy-efficient improvements to their rental properties, such as installing solar panels or upgrading windows and insulation. Additionally, many states offer historic preservation credits for investors who purchase historic buildings and make improvements that preserve the building’s character or history while also increasing its value. These credits can further reduce your tax liability and result in even more savings on your taxes each year.
Manage Your Real Estate Portfolio with MKS&H
Investing in real estate can be a great way to generate passive income, build wealth, and save money on taxes! Knowing the different types of tax benefits associated with real estate investments will allow you to maximize your profits by taking advantage of all the available deductions and credits available to you as an investor. With careful planning, you can ensure that you take full advantage of these benefits while minimizing your overall tax liability at the same time! By doing so, you will be able to maximize your profits from your investment property over time! A certified accountant at MKS&H can help you manage the finances of your real estate portfolio. Contact us today to learn more!
About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.