One of the most polarizing days of the year is nearly upon us: Tuesday, April 18. Referred to as Tax Day, April 18 is the deadline for which individual income tax returns are due to the federal government.
Far too many people don’t look forward to giving up their hard-earned money, and I don’t blame them.
Tax season for real estate investors, however, is an entirely different story, because If you really want to build wealth, you have to view tax season as what it really is: an opportunity to shelter your income.
One of the greatest tax benefits for building wealth is reserved for those investors with a rental portfolio, or even just one rental property for that matter. So, if you are the proud owner of an income-producing rental property, it’s entirely possible that you qualify to take advantage of one of the greatest tax benefits: Depreciation, where Investors can recover the cost of their rental properties (provided they are actively producing income) through annual tax deductions. Depreciation is defined by the I.R.S. as a reasonable allowance for exhaustion or wear and tear, including a reasonable allowance for obsolescence. In other words, the I.R.S is willing to compensate rental property owners for the inevitable deterioration of their asset, not unlike a regular business expense. And while you can’t claim the entire cost of the rental property in one year, you can claim a portion of it every year for a total of 27.5 years
Another great Tax benefit for real estate investors is The mortgage interest deduction. Those with a mortgage are able to write off the interest they pay on it. And, due in large part to the amortization of many loans, most homeowners will be able to write off larger amounts in the earlier stages of their mortgage. Since most interest is typically paid upfront, homeowners will benefit more from the mortgage interest deduction in the earlier stages of their obligation.
I can’t stress it enough: building wealth has as much to do with making money as it does with saving it, that is why taxes award savvy real estate investors a unique opportunity to grow their wealth unlike any other exit strategy.