There are many benefits to owning real estate but not everyone knows about the tax benefits.
You can deduct expenses like property taxes, insurance, mortgage interest, property management fees, and maintenance expenses.
You can deduct depreciation which is the incremental loss of an asset’s value due to assumed wear and tear over time.
When you own rental property as a sole proprietor, partnership, LLC, or S Corp which are known as pass-through entities, and receive money from tenants in rent, it's considered Qualified Business Income or QBI. You’re allowed to deduct up to 20% of QBI on your personal taxes.
If you profit from the sale of an asset that you’ve held for a year or longer, you see a long-term capital gain. The tax rate on long-term capital gains tax rate is lower than the tax rate on income.
The most common and well-known pass-through deduction is a ten 31 exchange. If the new property you buy is of equal or greater value than the one you sell, the program lets you swap them for tax purposes. That means the capital gains tax on the sale of the first property is deferred. You can use ten 31 exchanges indefinitely and only pay taxes when you cash out at the end.
Typically, you need to pay both the employer and employee portion of the FICA tax which covers Social Security and Medicare if you're self-employed. However, the money you receive from your rental property isn’t classified as earned income which means you can avoid paying FICA tax.
Most real estate investors think about income earned on the monthly rent or appreciation when they sell but don’t consider the numerous benefits and savings from taxes.
Give us a call today to discuss your investment property and property management needs.
John Boruff, licensed real estate agent and managing broker, is the founder and president of Palomar Property Services. John’s experience in property management and real estate goes back to 1984, when he began leasing and managing multiple properties, including warehouses, small manufacturing plants and office buildings. He ventured into the business of residential property management by purchasing multiple single-family homes in the Oak Hill development of Escondido in 1990. John’s investment experience spans as close to home as Escondido, CA, the greater San Diego County region, and as far as St. Louis, MO. A talented negotiator, he can navigate even the most challenging real estate transactions with an intuitive ability to close the deal.
John has consistently served real estate investors with the highest level of property management services for over 12 years, and at Palomar Property Services, John and his team of licensed agents have become a one-stop, full-service real estate company. With customer service, efficiency, and state-of-the-art technology a priority to John, and combined with his extensive real estate knowledge, Palomar Property Services is second to none in San Diego County.
John consistently shows an unparalleled work ethic, earning him respect among both regional and local realtors. Throughout his professional life, honesty and integrity have been the building blocks of John’s success in his careers, resulting in one of California’s most premier property management companies.
