The Major Tax Benefits of Real Estate Investing
There’s a reason that so many real estate magnates show up when you look at lists of some of the wealthiest and most influential individuals in the world. We even have one sitting in the Oval Office right now, but we won’t get into politics here.
Real estate investing is a proven way to build wealth, and that is why we want to focus on it as our Illumination Wealth Blog theme for the month of April. Even though the real estate market has its ups and downs (as all markets do), the long-term returns on investment is a historical fact. The more intelligently you allocate your investment portfolio and incorporate real estate wisely, the more financial opportunities you can create for yourself.
Real Estate and Tax Advantages
Last month, we talked about tax planning as another way to manage wealth and put more of your earnings to work for you with tax deduction strategies. The truth is that real estate investing and tax planning go hand in hand. One of the main reasons why real estate investment is such a powerful and proven method of wealth building is because there are so many tax benefits.
We encourage you to watch this video presentation I put together for Illumination Wealth. In it, I outline 12 of the most valuable tax benefits of real estate. In this article, I want to highlight a few of those benefits, just to give you an idea of how unique real estate investment can be from a tax planning standpoint.
#1: Personal Residence Tax Exclusion
As your house appreciates in value, you are able to sell the property and take your equity gains tax-free. This is possible as long as you’ve used the house as a primary residence for at least 2 out of the last 5 years.
#2: 14 Days of Tax-Free Rental Income
I actually covered this tax tip in a recent article, along with several others. Click here to read the full article and understand how you can have your business rent out your home for 14 days. You can write off the rental for your business as a business expense while claiming the income for yourself completely tax-free.
#6: Tax-Deferred Appreciation
Unlike some other investments and interest-earning savings accounts, the appreciation of a home’s value is tax-deferred. Quite simply, you don’t pay taxes as your property increases in value over time. There may be capital gains taxes when you go to sell the property, but those are less than normal income tax rates and there are other strategies you can implement to reduce capital gains taxes on properties sold. (Pay special attention to benefits #7 and #8 in the video above).
#9: Tax-Free Cash Through Refinancing
If you refinance your mortgage loan, you may have the option to take out some of the equity that you have accrued in the property as tax-free cash. That’s money you can put into other investments (including additional real estate purchases) or back into the home itself if you want to make upgrades that will further increase the value of the property.
#11: Self-Directed IRA Investing
You can use your IRA to invest in real estate strategically. There are methods that allow you to invest your retirement savings into non-traditional investments such as real estate, rather than the traditional stocks and bonds. And as we’ve shown already, there are numerous tax benefits associated with real estate investment that you won’t find with other investment plans.
These are just a few of the 12 major tax benefits of real estate as featured in my video. To learn more about how proper tax planning and real estate investment can grow your wealth and build a brighter future for you and your family, contact Illumination Wealth today for a financial planning consultation.