Is Real Estate Really the Best Tax Strategy?
Summary
This article from BiggerPockets discusses the tax advantages of real estate investing, which can significantly boost your after-tax returns. Hosts should pay close attention to depreciation, deductible expenses, and leverage, as these can help minimize your tax burden and maximize profitability. Consider consulting with a tax professional to optimize your real estate tax strategy.
Key Insights
- •Investors can deduct a wide range of expenses related to operating and maintaining their rentals, including mortgage interest, property taxes, insurance, repairs and maintenance, property management fees, and utilities.
- •Depreciation allows investors to deduct a portion of the property’s value each year, even if the property is gaining value; residential properties depreciate over 27.5 years, and commercial properties over 39 years.
- •Many landlords qualify for the Section 199A qualified business income deduction, which allows you to deduct up to 20% of your rental income.
Action Items
- ✓Track home improvements, closing costs, and contractor invoices to increase your property’s basis and reduce future capital gains.Effort: mediumImpact: medium
- ✓Consider the tax implications of repairs vs. improvements; repairs are immediately deductible, while improvements must be depreciated.Effort: lowImpact: medium
Tools & Resources
- →Range: The article mentions Range as a tool to help with tax planning.
Common Mistakes
- ⚠A common mistake is poor documentation and missing basis adjustments, which can lead to higher taxes when selling.
- ⚠Misunderstanding passive loss rules can result in assuming all losses are deductible against wages or business income, or missing out on passive loss carryforwards.
- ⚠Misclassifying repairs vs. improvements can lead to incorrect deductions or IRS scrutiny.
More from Regulations & Compliance
Carson City, Nevada, is refining its short-term rental regulations. City supervisors are currently reviewing and modifying the local ordinance during a retreat. This review aims to address operational aspects, potentially impacting local hosts through new or revised rules, emphasizing compliance.
A 21-unit vacation rental in Dunedin, Florida, has been approved, signaling potential growth in the local short-term rental market. This approval could lead to increased accommodation options for tourists visiting the area. This news could also influence local regulations.
St. Louis aldermen have approved a short-term rental fee, though a legal battle over existing rules continues. This indicates a focus on regulating the STR market within the city. Hosts in St. Louis should be aware of these new fees, which may impact their profitability. Find out how this affects your STR business.
Curated by Learn STR by GoStudioM