The Top Tax Benefits of Investing in Real Estate

Posted by TM5 Properties Agent on Tuesday, April 12th, 2016 at 11:59am


Deciding to purchase an investment property can be a huge decision, but if you look at all of the advantages you have when it comes to real estate investing, it can make your decision much easier. While they’re many benefits I could discuss today, April is tax month, so it got me thinking specifically about the tax benefits of investing in real estate. Here are some of the TOP tax benefits of investing in real estate!!

 Mortgage Interest

Your mortgage interest is by far one of the largest tax breaks you can receive if you own a home. Each time you pay down your mortgage a large percentage goes towards interest. All the interest you pay within that year is tax deductible up to a loan value of $1 million.

Did you realize you can also deduct the interest you pay on additional homes you may own? The traditional second home as well as a boat or RV. In order for it to qualify as a second home and get the tax benefit the property must be in use 14 days out of the year (with 8 home games a year, that is at least 16 days you could use your investment as your Aggie home away from home) or 10% as much time as it’s rented (whichever is longer). If you don’t comply then the IRS could consider your second property as a residential rental property and you will not be entitled to the tax write off.


Increased Tax deduction

Going back to the rental properties. Here is where the Landlord needs to remember this is a business therefore, needs to be treated as such. Track your expenses and income. Expenses such as travel expenses, supplies and property management fees you might pay can all be used to increase your tax deduction.


Depreciation is a method used to deduct the costs associated with buying and improving residential rental property. A means to take annual deductions versus one large deduction at time of purchase. The deduction amount is a calculation of the value minus what the IRS had determine the life of the investment to be; whether it be real property, fencing or an appliance within the rental property itself. More commonly known as the Modified Accelerated Cost Recovery System (MACRS). Steps to determine the depreciation (in simple form) would be to determine the basis of the property, divide out the cost of land and buildings, figure out your basis in the house and if necessary the adjusted basis.

Disclosure: We are not financial advisers. Please consult your tax adviser for your own personal situation and to make sure you have the most current information.

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