There are many reasons savvy investors choose to invest in real estate, including passively generating Cash Flow, taking advantage of market appreciation, tax savings, among many other things. Tax savings come through real estate depreciation. Real Estate depreciation laws are one of the biggest reasons as to why many wealthy individuals pay little to no taxes legally, by taking advantage of Real Estate depreciation laws that can be used by anybody.
We will start off by saying that we are not qualified CPAs or accountants, and all information here should be verified independently with your own qualified professionals. Having said that, let’s get right into it.
The IRS code is composed of a series of laws detailing different tax liabilities you are liable to pay, but more importantly, the IRS code is in actuality made up mostly of many tax incentives, wherein the government gives different tax credit and benefits depending on which part of the overall economy they want to promote and grow. Due to the importance of housing, the government for many many decades now has always given very advantageous and huge tax incentives to those who invest in real estate, which explains why so many wealthy people place their money in this sector, to take advantage of tax laws and benefits that anyone else can also partake in.
The way the government promotes investors to put their money into real estate is by offering Real Estate Depreciation on investments. What this means in simple terms is as you invest in a property, the IRS calculates the value of the building and improvements of the property you invested in, and assumes that the building is getting older and therefore losing “value” on paper as time goes. You can often depreciate the vast majority of your investment and make a profit with little to no taxes at the end due to “on paper” depreciation losses.
The loss of value on paper is often called a Phantom Loss, as it isn’t a real financial loss. What matters isn’t just what you make, but how much of what you make you end up keeping at the end of the year. There are many instances where wealthy individuals make millions of dollars investing in real estate only to pay $0 in taxes legally at the end of the year.
Please check with a CPA to verify all info as depending on how you invest in real estate your tax benefits may change. Sign up on our investor portal to see current investment opportunities we have and what potential tax savings you may get, besides the Cash Flow and Appreciation benefits!