Real estate investment is the best source for generating passive income and improving cash flow. It is known to be one of the fastest ways to become wealthy. Along with all such advantages, real estate investment also holds potential tax benefits. One of the main reasons behind most people investing in real estate instead of putting their money somewhere else. In this article, you will be able to learn how you can enjoy potential tax benefits of the real estate investment by owning a property allowing your investment to do more for you than you think.
Capital gain is the profit earned when a property is sold. It is achieved when a property price goes up at the time of selling. When you earn profit over a property’s price; there are applied taxes which you have to pay in order to avoid any future consequences. However, there are two types of capital gains i.e. long-term and short-term capital gains and tax ratio over short-term gains is higher than the longer-term. Which is why most investors tend to face some risks and put their money in for longer terms. Longer-term capital gains are an advantage when you sell your real estate for growth or covering your expenses as only 0-20% tax is applied to them based on your tax bracket.
Depreciation is a process in which an asset breaks down over time. so depreciation allows you deduct the cost of anything that breaks down of a property and lets you save hundreds to thousands of dollars per year from the payable taxes. The reason deprecation is beneficial is that statistically, the value of a real estate asset goes up which means that although you will deduct the cost of wear and tear of the property, the actual loss never happens. Depreciation for residential properties is calculated over 27.5 years and for commercial properties, it is calculated over 39 years. One important thing that should be taken into account is that depreciation is only applicable to the property as the land on which the property is built on cannot be depreciated.
Another important tax benefit from real estate investment is refinancing of the mortgage. It offers lower interest rates on the money which enables the investor to lower his/her monthly payment. Refinancing also allows you to clear your mortgage debt in less time. As a loan can be obtained at a lower interest rate, one only needs to pay only one loan amount and save himself some cash in hand as well. The cash in hand is non-taxable which means that you can use it all anywhere you want.
Vairt is a crowdfunding platform for tokenization and liquidation of the real estate assets through blockchain. And all-in-one solution for property handlers to efficiently manage their properties. We offer transparent access to projects which will generate enough income to not only cover your expenses but also enable you to save for your future as well.