How to Use Real Estate to Cut Your Tax Bill

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How can you use real estate to cut your tax bill?

No one likes to pay more taxes than they have to, and real estate is a great vehicle to cut taxes down. The government loves when people invest in real estate and gives out favorable tax cuts to those who do so.  

I often read about potential home buyers who pay $1,000 a month in rent fretting that if they buy a home, then their mortgage will only increase that monthly payment to $1,400. What they don’t know is that homeowners can deduct both their property taxes and their mortgage interest rate. When you figure those two things in, your effective cost often ends up being less than what you were paying in rent.

Favorable tax treatment not only extends to single-family homes but also to income properties. I just bought an income property, and it’s going to give a 40% cash-on-cash return. That figure’s going to be hard to replicate in today’s stock market, but the point is that this is in stark contrast to investment properties, which are depreciated over 27.5 years. Depreciation is a non-cash expense, meaning that even if the property’s tax is positive when you calculate the depreciation expense, it may actually show a loss.

I’m also flipping a house right now. Unfortunately, my personal income taxes are very high, but when I’m flipping a house, I only have to pay the capital gains tax, not the social security or self-employment taxes. The gains on the flip, then, will be much lower than my ordinary income tax rate.

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You absolutely must own real estate to get ahead in today’s market.

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If you’re a high-income earner or a first-time home buyer, give me a call or send me an email and let me show you how real estate can save you money on your tax bills and why you absolutely must own it to get ahead in today’s market.