Tax Benefits for Real Estate investors
Most people believe that Depreciation is the best tax deduction (Because this is a non-cash deduction, it is a paper deduction, we love paper deductions.) Do you, or more importantly does your tax person) know about Componentizing this depreciation. Residential Real Estate can be depreciated over 27.5 years. (But watch this).
- The Building can be depreciated over 27.5 years. (most people know this)
- The Land may not be depreciated (most know this)
- The Personal property, things like A.C appliances flooring,etc,etc has accelerated depreciation over 5years ( I may have lost a few of you here)
- The Land improvements, things like fences, driveways, shrubbery, etc can be depreciated over 15 years. (Chances are this is new to most of you and even your tax person. Relax I heard this in a room of 140 people the other day and most of them were stumped as well)
Save even more by being treated as a Real Estate Professional
If you invest in real estate but do not qualify as a "real estate professional”, you are limited to $25,000 realty investment property loss deduction against your ordinary taxable income. This is called the passive loss restriction. This "loss" includes the paper loss created by depreciation. If you are a treated as a "real estate professional" who meets certain time requirements who "materially participates" in managing your investment property, who spends at least 750 hours per year on these real estate tasks you are allowed almost unlimited income tax-deductions from your investment property.
Vehicles and heavy equipment
If used for these operations, vehicles an heavy equipment also have deductions, but do not run out and by a new sports car and think you will deduct it against your real estate, but that truck may have deduction possibilities.
Sorry for the mundane disclaimer
As an investor I have learned to make sure I have a great accountants that understands these tax strategies designed to save $$$$$ you too may want to ask your tax person about these benefits. But no I am not an accountant and laws may change state to state so ask your tax preparer how this may affect you.
Happy Investing Larry