Real estate investing is popular, profitable, and the best part is… it has great benefits when tax season rolls around. In the current climate, NJ properties are hot, and the demand just keeps growing. As more and more families move out of the city in search of a quieter lifestyle, property values in many NJ neighborhoods have seen the effect.
Aside from being apart of a well-diversified investment portfolio, real estate assets are a great way to preserve wealth and protect against some of your riskier investments. Additionally, the Government rewards property owners with many tax incentives that make owning property all that more desirable.
If you’ve been considering investing in real estate or buying your first home, it is important to understand the tax benefits that you may be eligible for. We will be discussing a few of those benefits in this article:
Pay Less Tax
Arguably the best benefit real estate investors can reap is the lower capital gains tax rate. When you sell your property, the money you receive is “capital gains”. While any gains that you receive in the short term (less than 1 year) are not subject to lower taxes, long term gains are.
Capital Gains on any investment property held for more than one year have a lower tax rate (depending on your bracket). When it’s time, a tax professional can quickly help you figure out which taxes you’ll end up paying.
Another tax benefit property investors enjoy is depreciation. Over a longer time-period, depreciation is factored into properties. The amount of money the property is worth is divided by a number of years and then that number can be deducted every year. When the property is sold, the entire deduced amount, along with capital gains, can be taxed. But if there is no money made on the sale, the old depreciation amount won’t be taxed!
Additionally, if you own rental properties, you will not be subjected to a FICA tax. The Federal Insurance Contributions Act mandates that self-employed individuals are responsible for paying the entire amount themselves.
Lastly, if you own rental properties, you will not be subjected to a FICA tax. The Federal Insurance Contributions Act mandates that self-employed individuals are responsible for paying the entire amount themselves.
Thankfully, the federal government does not recognize rental property owners as “self-employed” and therefore, you do not have to pay the tax.
The large FICA tax rate on a rental property income property is completely avoidable for rental property owners. Again, something we can help you figure out.
Hopefully, this article helped highlight a couple of the best tax benefits when it comes to rental property investing. These are just a few of the many benefits real estate has to offer.
Interested in investing or real estate in general? Let us know! Our tax planning experts would be happy to assist you.