It's tax time again.
Sure seems to come around often. Just reminds me that when I complain about paying too much tax, my CPA always has the same advice, “If you want to pay less in taxes, buy more real estate.” Well, I already have a personal residence that offers great deductions for that huge portion of my monthly payment that represents the amount I pay for interest and property taxes, but I still pay too much to the IRS. My CPA says, “Every CPA knows that as a tax shelter, it’s better to own your personal residence than to rent, but have you looked into real estate investment properties as a means to reduce your taxes at an even faster rate than your personal residence?” So I decided to check into that possibility to see what merit it had. After all, I had heard stories all my life of the great fortunes made by investment in real estate, so I surely wouldn’t be wasting my time.
What I’ve discovered is so much more than just saving taxes, but also the big benefit of in using other people’s money (the mortgage loan) to buy, and also in getting someone else to make the payments (the tenant) on my property. All this In addition to deductions for interest and property taxes as I do on my personal residence, plus I deduct insurance costs, all maintenance, and management expenses, homeowner Association fees, if any, all leasing, legal, utility service fees, and any other expenses I incur. If the property in not near where I live, then I can deduct travel expenses to visit the property a couple of times a year. And finally, here is the big hidden, or often overlooked deduction: Depreciation. This is a wear-out allowance for the property for a life of something like 29 years, currently, for residential investment properties. And, believe it or not, I still get this deduction despite the biggest of all benefits i.e. the appreciating value of the property which is something in the neighborhood of 6 percent annually (nationally over past 30 years per FHA).
In addition to all these tax deduction benefits and the appreciating value of my investment, I also note the value of getting a 4% loan on my property. Especially when it is a certainty that in a few very short years, all my friends who decided to hold off on making this timely decision, will have a payment on a comparable property that is higher by a few hundred dollars monthly than mine. For my money, this means that I need to get the benefit of this tax deduction while there are several other appealing benefits to go along with it.