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Tax Benefits!!
Now, if you missed Tax Day yesterday, no fear! This year, we all get an extension to file our Federal taxes by May 17th.
We all know there are amazing benefits to investing in Rental Properties-cash flow, appreciation, etc, but do you know about the Tax Benefits that investing gives you? If not, no worries. I got you covered!
Let me break Tax Benefits for Real Estate Investors down for you...real simply!
So, first off, I am not an accountant, I am an investor but we need to be educated about where our money is going and the decisions we make. Still need an accountant? Reach out to mine here on Our Vetted Partners Page: https://www.lady-landlords.com/our-partners
It is SO important to have a knowledgeable accountant on your side. They are there to advise you as your portfolio grows and to make sure you fully understand all the benefits available to you!
But the groundwork lies with you!
We NEED professionals in our life- Mentors, Realtors, Lenders, Lawyers, etc but remember that we are the CEO of our Real Estate Investments. It is up to us to make the decisions and to control the direction of our portfolio. They are there to explain our options and to use their expertise to inform us of the pros and cons, but in the end, we are solely responsible for our choices. If you need help finding the right team members or learning the basics, start here!
For now though, here is your crash course in Tax Benefits! There are 3 D's you need to keep in mind: 1. Deductions Congrats! You bought a rental? Now, you have a business! You can deduct costs associated with the house. This could include property taxes, interest payments, and the costs to maintain and improve the property! Buuut you also have general business expenses now such as advertising costs to fill vacancies, travel costs (Please tell me I am not the only one driving to Home Depot every day! 😂), legal fees, accounting fees, and so many other deductions you can take to run your home office! Be sure to keep track of your expenses throughout the year as your accountant...and the IRS, will need them. Listen to this Lady Landlords Podcast episode for tips on how to do this!
Pro-Tip: Deductions can save you a lot of money as they lower your taxable income but remember not to deduct too much that it hurts your DTI ratio....and then you can't get a mortgage for the next property. 😉 2. Depreciation Simply stated, depreciation is wear and tear on your property over time. You can take a standard depreciation deduction over the course of many years (currently set at 27 years by the IRS) and also look at the specific depreciation of larger ticket items like a new roof or bigger cap ex project. Even in its most basic form, this is a built in deduction that can significantly lower the taxes you have to pay in any given year...well, just for the next 3 decades! 😉 3. Deferment But maybe you don't plan on owning that property for the next 30 years, so what then? Then you have to deal with taxes on Capital Gains which is the profit you make from selling your property. Now, that doesn't sound fun, does it? No reason to worry! Look into Tax Deferment options such as a 1031 exchange. You have to follow a certain process but doing a 1031 exchange is a great way to keep more money in your pocket now AND have a cash flowing asset. Sounds like a win-win to me! You can also defer taxes through investing in opportunity zones, areas that are low-income and can use economic support. So save money and do good by investing in a community in need!
Want to learn more about how to take advantage of these benefits? Get your very own Roadmap to Rental Properties in 3 Easy Steps Here!
Happy Deal Finding!