The Best Tax Benefits Of Property Investment

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There are many things which attract people to property investment. It’s fairly stable compared to the stock and currency exchanges, and can be extremely lucrative when it’s approached the right way. One more upside to property investment is the range of tax benefits you can draw from it. If you’re on the fence about going into property investment, then here are some of the great tax deductions you may qualify for.

First of all, interest. Depending on what the money is being used for, your loan interest may be tax deductible. You may have believed otherwise, but it actually doesn’t matter which property you used to secure the loan in question. Let’s say you borrowed $50,000 by re-mortgaging your home, and then used that money as a deposit on a rental property. You would then be able to claim the interest back as you’re using it for business purposes. If you’re setting out plans for a letting business, and you plan on using your former home for it, you should seriously consider re-mortgaging. In all likelihood, all the interest on your mortgage will be tax deductible.

 

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Going into property investment will also mean that you can reap the brilliant tax benefits of a 1031 exchange. This is a straightforward and increasingly common move for property investors, and involves trading one property for another through a designated intermediary. By selling one property that you own, and then re-investing in a replacement for it, you’ll be able to defer any ordinary income and capital gain taxes. With their low adjusted cost basis, these taxes can be pretty significant. This is partly why the IRS allows investors to use this valuable exception in trading a 1031 exchange property for another commercial or investment property. When you’re able to defer these taxes, you’ll get a healthy injection of capital. You can then use this to acquire more properties with better investment benefits than you would have had otherwise.

Repairs and maintenance on rental or commercial properties is another area where you could be reaping in significant tax benefits. You may not have known it before, but you can make a provision for costs in the future, even if they haven’t actually been incurred, and claim a tax deduction. However, you’re still legally required to incur those costs. Let’s say you owned a handful of apartments which are part of a larger complex. You receive a notice letting you know that the owners of the complex are planning to have some roofing work done. After some back-and-forth with the contractors, you receive a quote saying that your share of the costs is going to be $6,000. Following this, you can make a provision for your $6,000 slice in your accounts for the same tax year, even though the contractors haven’t done any work yet. As you can imagine, the deductions on this kind of expense can be extremely helpful!

There you have some of the biggest tax benefits of property investment. You may not qualify for all of them, but if you do don’t let them slip by!

 


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