Tax advantages are what give real estate an edge over other investment opportunities.
The most important factor is depreciation. You reduce the property's tax value each year, although it may be increasing in value. Depreciation can create a "loss" on your tax return, sometimes even if the property has a positive cash flow. That loss can be money in your pocket.
For example: Suppose you're in the 28 percent federal income tax bracket and 5.25 percent Arizona bracket (say, a household income between $60,000 and $100,000). You pay $332.50 in taxes for every additional $1,000 you earn.
A $400 negative cash flow and $3,600 depreciation on a property knocks $4,000 off your taxable income, reducing the taxes you pay by $1,330.
After you pay the $400 of expenses that exceed the rental income, you have $930 more to spend than without owning a property that is "losing money." If you had invested $8,000 as the down payment, that's an 11.6% return -- before appreciation -- on your investment.
In order to get the most out of any real estate investment, it is essential that an investor gets in touch with a reliable tax advisor to learn about all available choices. We can help you find the best one for your situation. Click Here to contact us. |
