Why Uncle Sam Loves Real Estate Investors



Uncle Sam loves you.

It's not because you're beautiful (yes, I know, you look very nice today).

It's because you invest in real estate.

Real estate investing comes with tax advantages. The government, also known as Uncle Sam offers a lot of incentives for those who invest in real estate, saving real estate investors a bunch of money. And if you know what to do, Uncle Sam lets you pay NO TAXES when you make a big chunk of cash, more on this later. So, what are those tax advantages? There's a few of them. Here they are:

Depreciation

In real estate investing, you can offset taxable income by writing off a loss on a property because it's getting "old." It's known as depreciation. For example, the calculation of a building with value of $1,000,000 will be 1,000,000/ 27.5 years= $36,000 of reduced tax liability. The government allows for this in the IRS tax code. There's a little more to it but the basic concept is that, real estate properties usually have wear and tear with time, and because of that, tax codes are written to recapture that "loss."

Tax Free Refinance

How would life be like if you can just pull out millions of dollars every year TAX FREE? That's what real estate investors do all the time. How? When you build up enough equity, you can refinance, it's in a form of a loan. This "loan" is paid for by the property's income. Assuming you increase the income of a property, you can use this extra income to pay off the extra expense of a bigger mortgage. When this happens, millions of dollars can be taken out of the property TAX FREE while simultaneously profiting from the property through cash flow.

Interest of debt is deductible

Did you know, loans are tax deductible? Even though you pulled out millions of dollars TAX FREE, the tax codes are written (thanks Uncle Sam!) so that debt interest can be a write off. Reducing your tax liability even more.

Property Tax is deductible

This is self explanatory. Yes, property taxes are deductible

1031 exchange

Imagine, being able to trade you're property for a bigger property WITHOUT paying taxes. That is known as 1031. Of course there are some rules about it but the basic concept is "rolling over" equity built from a previous property and using that to acquire a bigger property, for more money and more profits, all doing this TAX FREE.

Tax credits

Every once in a while, real estate investors and homeowners get the lucky nod by the government for special tax credits. There's energy, "green" tax credits. It means you can write off any expense that is supposedly helping your property more energy efficient. This includes, solar panel roofs, and energy efficient windows.

Write off loss on other income

Do you have other income outside of your real estate investments? Don't worry, Uncle Sam gots your back. You'll be able to write off a portion of that income off too! Reducing your taxable income even more.