|
Real Estate Tax Incentives
by: Neda Dabestani-Ryba
Tax incentives for real estate investors can often make the difference in your tax rates. Deductions for rental property can often be used to offset wage income. Tax breaks can often enable investors to turn a loss into a profit.
For which items can investors get tax breaks? You could claim deductions for actual costs you incur for financing, managing and operating the rental property. This includes mortgage interest payments, real estate taxes, insurance, maintenance, repairs, property management fees, travel, advertising, and utilities (assuming the tenant doesn't pay them). These expenses can be subtracted from your adjusted gross income when determining your personal income taxes. Of course, these deductions cannot exceed the amount of real estate income you receive. In addition to deductions for operating costs, you can also receive breaks for depreciation. Buildings naturally deteriorate over time, and these "losses" can be deducted regardless of the actual market value of the property. Because depreciation is a non-cash expense -- you are not actually spending any money -- the tax code can get a bit tricky. For more information about depreciation and various tax alternatives, ask your tax advisor about Section 1031 of the U.S.
Tax Code.
Have a Positive Cash Flow
There are two kinds of positive cash flows: pre-tax and after-tax. A pre-tax positive cash flow occurs when income received is greater than expenses incurred. This sort of situation is difficult to find, but they are usually a strong and safe investment. An after-tax positive cash flow may have expenses that outweigh collected income, but various tax breaks allow for a positive cash flow. This is more common, but it is generally not as strong or safe as a pre-tax positive cash flow.
Regardless of what kind of real estate you choose to invest in, timely collections from your tenants is absolutely necessary. A positive cash flow -- whether it be pre-tax or after-tax -- requires rental income. Be sure to find quality tenants; a thorough credit and employment check is probably a good idea.
Use Leverage
One of the most important factors in determining a solid investment is the amount of equity you are purchasing. Equity is the difference between the actual worth of the property and the balanced owed on the mortgage.
Benefit from Growing Equity
While investing in real estate is relatively complex, it is often worth the extra work. When compared to other financial investments, like bonds or CD's, the return on investment for real estate purchases can often be greater.
The key to real estate investing is equity. Determine an amount of equity that you want to achieve. When you reach your goal, it's time to sell or refinance. Determining the proper amount of equity may require the assistance of a real estate professional.
|
About The Author
Neda Dabestani-Ryba is a licensed Realtor in Maryland. She is a member of the President's Circle of Top Real Estate Professionals. She can be reached at (800) 536-3806 or visit her website for more information: http://neda.dabestani.pcragent.com.
Prudential Carruthers REALTORS is an independently owned and operated member of Prudential Real Estate Affiliates, Inc., a Prudential Financial company. Equal Housing Opportunity.
This article was posted on June 22, 2005
|
For more information and articles on real estate see National Realtors Directory - Real Estate Articles or for other real property information and articles see National Realtors Directory.
Realtors, real estate brokers, agents and sales people, if you would like to submit an article, please go to the submit articles link below. This link is for real estate professionals only.
The opinions, statements and information contained and expressed in the foregoing article are solely those of the author. No position for or against, agreeing with or disagreeing with anything contained in said article is taken by National Realtors Directory.com
We do not assume or accept any liability for the use of the information contained herein. This article is published solely as a service to real property owners, buyers, sellers, investors and real estate brokers, agents and sales people. Anyone who does not accept this disclaimer is not authorised to read or use this article in any way.
submit your site submit articles submit news or press reports submit testimonials
realtor directory home report bad links contact us
Page Set Up © Copyright 2004 National Realtors Directory, a national directory of realtors, real estate agents, brokers and sales people. All Rights Reserved Worldwide.
|
