In addition to the many advantages of owning rental real estate – such as regular income, property appreciation, and leverage – you are also allowed to take certain tax benefits when you purchase this type of property as well.
While you may already be familiar with the tax advantages of deducting your home mortgage interest each year, some investors may not know that you also have similar benefits when owning investment property.
However, not only can you deduct the mortgage interest on a property that you own for investment, but you may also deduct other expenses as well.
In this case, all mortgage interest that is paid on any loan that is secured by income property will be tax deductible.
Plus, any points that are paid on any mortgage or loans secured by an income producing property will also be tax deductible over the life of the loan. On top of that, the closing costs that are connected with obtaining a loan for the income producing property can also be deductible over the life of the mortgage.
With an investment property, you will also have the benefit of using depreciation. Here, not only are you allowed to depreciation your investment property – the IRS actually requires that real estate investors depreciate such properties.
Depreciation is defined as being the “loss in value of an asset or building over time due to wear and tear, physical deterioration and age.” Oftentimes, depreciation can actually be described as a “paper loss.”
This can help to reduce your taxable income from the investment property. However, in contrast to the property taxes, mortgage interest, utilities, insurance, and repairs, depreciation doesn’t require any type of cash outlay. The type of property that you own – residential or commercial – will determine the length of time that you may depreciate it.
Want more information on how you can acquire even more benefit from your investment properties? Give me a call. Because I’m a CPA, I can provide you with the many details on how owning real estate can be even more advantageous to you.
