By Troy Fullwood |
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One of the most reliable and profitable investments that can be made, is investing in real estate. Whether choosing to purchase commercial buildings, residential homes, or so-called "mixed use" property that can function as both a residence and a business location, there are many options and opportunities for a return on your capital.
There are special government programs designed to facilitate these investment ventures ?grant programs for helping fund affordable houses, small business loans for minorities, low down payment options for veterans or active members of the military, and tax breaks for those who renovate and restore historical buildings, to name a few. Just by owning your own home, for example, you are guaranteed certain tax advantages in the form of deductions and exemptions. And those perks perform as “passive?investments, by saving you dollars that you would otherwise automatically part with each year at tax time.
Here are three of the most popular tax benefits enjoyed by homeowners:
Tax-free Capital Gains
If a person has lived in their home for two years or more prior to selling it, they can qualify for a 100% exception on the profit they make at closing on their investment, thanks to legislation enacted in recent years. And they can do this as many times as they want ?banking tax exempt profits on their home as often as five times a decade.
Mortgage Interest and Property Taxes Many loans are taken out to help pay for a home come with tax deductible interest payments. Yes, consumers would like to see interest rates stay low, because this helps them leverage the loan into equity. But many borrowers fail to realize that as rates rise, so do deductions that are tied to those interest rates. So in times of rising rates, tax deductions related to home ownership help to offset those costs.
Home Improvement Expenses
If someone buys a home as a fixer-upper, they may be able to deduct the cost of repairs at tax time. And if they decide to sell the home they’re living in, they may be eligible for deductions for things like landscaping, painting, wallpaper, and carpet purchased within a few months of the sale.
If you wish to expand your real estate investment beyond simple home ownership, you can do what many first-time investors do, which is to purchase a home that also doubles as an income-producing property. You can, for instance, buy a duplex and rent half of it while you live in the other half or create an office space in your garage and deduct it as your home office. If you purchase two houses you can live in one while leasing the other one to help pay both mortgages. Or you can simply buy a residence that doubles as a business, as many Bed & Breakfast proprietors have chosen to do. Ask your tax planner to explain the benefits of owning your home or purchasing property for investment income. You may be pleasantly surprised to learn that the benefits are some of the best in the entire tax code.
Keep in mind that investments in real estate are not as limited as they used to be. The traditional options of buying property to live in, lease to others, or barter as a time-share are still viable and practical ways to help grow a nest egg. But there are also numerous other methods for leveraging investments in real estate, and many of them don’t even require an actual acquisition of real estate property.
For instance, a person can decide to purchase a mutual fund that invests specifically in real estate assets, and in that way participate indirectly in the real estate market through shareholder ownership of stock. Or they can trade various real estate related options, trusts, and funds, and reap benefits from property equity without ever actually owning any buildings or land.
Whatever investment approach a person chooses, it is wise to take help from professionals who can assist you along the way. Attorneys who specialize in real estate, tax planners, Realtors, insurance brokers, and building appraisers and inspectors are among those experts who can offer guidance and insight to investors, to help them avoid risks while capitalizing on the potential that real estate offers to both experienced and first time investors |
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