04 Tax Benefits of Real Estate Investing

Are you thinking of investing in the real estate market, but still have doubts about whether it is worth it? There are several tax benefits of real estate investing that can help you make this important decision and start investing in real estate today.

In fact, the benefits that we will present are valid both for those who are going to buy the property. And for those who already have but do not yet know the tax benefits of real estate investing.

We will explain all the strategies to pay less taxes when owning a property. All this in 5 minutes, read on.

1. Property appreciation on sale

If you bought a property for a value and managed to sell it for a higher price, congratulations, you obtained a capital gain.

This profit happens when there is appreciation of the asset over time. This is very common in residential, commercial or even rental properties.

The most interesting thing is that capital gains usually have a lighter taxation than ordinary income. Therefore, from a tax point of view, they offer an advantage to those who invest in the real estate market, focusing on increasing their capital.

The government taxes these gains in two ways, based on how long you held the property and the type of transaction you completed. Let’s look at the two ways:

Short-Term Capital Gains (Tax Benefits of Real Estate Investing)

If you bought a property as an investment and sold it in less than a year, the profit you make falls into the short-term category.

Attention! There is no special tax benefit in this type of operation. The reason for this is that short-term earnings are treated as ordinary income. Therefore, the tax rate will be the same as what you already pay on your normal income.

Therefore, selling a property quickly can even generate a good financial return, but it requires attention to the tax impact.

In fact, in many cases, keeping the property for a longer period is more attractive, thinking about paying less taxes. both for the appreciation and for the savings in taxes.

Long-term capital gains

If you held a property for more than a year before selling it for a profit, this gain falls into the long-term category and this can make all the difference in your pocket.

In the sale after a long period, the rates are lower. Being 0%, 15% or 20%, depending on your income range.

In practice, by insuring the property for a longer period, you will pay less tax on the profit obtained.

2. Advance rates, saving on payment

If you invest in the real estate market, there is a smart way to postpone paying taxes and continue making your money yield. To do this, we recommend that you use IRS Code 1031.

This allows you to defer paying capital gain tax when selling a property, as long as you use the profit to buy another property of equal or greater value.

That way, as long as you continue to reinvest the sale value in new properties, you will not have to pay the tax at that time.

Stay tuned! There are a few important rules to follow. First, within 45 days to identify the new property you intend to purchase and up to 180 days to complete the purchase.

In addition, the properties involved in the exchange must be of the same type, that is. Investment properties exchanged for other investment properties, and not for funds or residential properties.

3. FICA Tax (Tax Benefits of Real Estate Investing)

The FICA (Federal Insurance Contributions Act) tax is the contribution that funds Social Security and Medicare. Usually, it is divided between employee and employer.

As a self-employed professional, you pay the entire 15.3% tax yourself.

There is good news for those who invest in rental properties. The reason for this is that this type of income is not considered “earned income”. That is, it is not classified as a self-employed business and is therefore exempt from the FICA tax.

Therefore, by generating revenue through rents, you will not have to pay the 15.3% that would normally be charged if the income came from your work.

That way, you will have more money in your pocket and another good reason to consider the real estate market as a strategic source of passive income and efficient from a tax point of view.

4. Depreciation

One of the best advantages that is often overlooked is depreciation. Even if the property is generating a profit, the Internal Revenue Service (IRS) allows you to write off some of that amount as if it were an expense, legally reducing how much you must pay in taxes.

But what depreciation? Depreciation is the loss of value of a property over time, caused by natural wear and tear. For residential properties used as an investment, you can deduct this depreciation over 27.5 years. In the case of commercial real estate, this period rises to 39 years.

That’s the key point, even if you don’t spend a dime on that loss, you can still deduct it. Thus, your property may be generating a great cash flow, but on paper it shows a loss that reduces your tax. Repairs, maintenance and conservation are included as separate expenses — plus tax relief.

This deduction is not available to those who live in the property, only to those who invest for rental purposes. And although the tax life of a property is considered to be 27.5 years. In reality, real estate lasts much longer, which guarantees the investor a very valuable tax benefit in the first years of the investment.

Conclusion (Tax Benefits of Real Estate Investing)

Based on the main tax benefits of real estate investing. It is clear that investing in real estate is much more than just generating income from rent or appreciation. It is actually a strategy to build wealth efficiently, taking advantage of advantages such as depreciation, FICA tax exemption, and long-term capital gains.

In addition, tools such as Permuta 1031 allow you to defer tax payments and reinvest intelligently. Accelerating your growth in the real estate market. All this makes real estate an excellent option for those looking for profitability combined with effective tax planning.

Therefore, we recommend that you explore these opportunities carefully and strategically. With the right knowledge, you can turn real estate into highly profitable assets, reducing the amount of taxes and increasing real gains over time.

Now that you know how beneficial this market can be, we recommend that you explore real estate investment opportunities.