Exotic Wisdom | Property Investing-A Great Tax Shelter

Property Investing-A Great Tax Shelter

Property investing is better than ever for reducing tax liability.  There are at least three great reasons to use real property as a tax shelter.

Whether you are buying investment property or you are just using your own home, everyone can take advantage of the tax breaks offered by the federal government.  You don’t need to be an expert investor or a tax specialist to understand how to take advantage of these strategies.  Basic tax law awareness is all that is required to take these deductions.

First break- You can deduct all of the mortgage interest on you home.  Many people are aware of this but some are not aware that you can deduct the interest on as many properties as you own.  The only thing standing in your way is when the I.R.S determines that you need to pay the alternative minimum tax.  The AMT system uses a different set of rules for determining taxable income and also for what is considered an allowable deduction.

Second break- The property tax you pay is also deductible.  Again it does not matter if you only own one home or many; it is still possible to deduct the tax for each property.  Commercial property can be included as well.

Third break- It used to be that if your property increased in value than if you sold it you would be responsible for the capital gains of that property.  The way around paying the taxes was to put that money into a more expensive property through the 1030 tax deferred exchange.  The other way to skirt paying the taxes was to through investment property loans.  Instead of selling your property and having to pay taxes you would just get a second on the equity available in the home and use that money to buy other properties.  It is no longer necessary to have to use these methods if the capital gains do not exceed 250,000 dollars or 500,000 if you are married.  Beyond that amount the capital gains rule still applies.

Property investment companies have been using these tips to their benefit for a long time.  It is like having two businesses, the business of making money through investing while having the tax breaks that go with it.  Not only from business ownership but from property ownership, it is doubtful they pay any taxes at all.  To crunch some numbers you could use an investment property calculator but I think you will find the benefits of property ownership far exceed the potential liabilities.

Overall property investing has far reaching benefits, benefits you can take advantage of even if you only own one home.  Later if you find you would like to multiply your benefits, start with a small purchase and continue to add to your portfolio until you reach your financial goals.

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