Ever got pumped about an upcoming paycheck only to realize it had been slashed by taxes?
A growing number of W2’s are accelerating financial freedom by offsetting their tax liability through real estate and taking home more of what they earn.
Today I’ll show you 3 major tax benefits you can take advantage of by owning investment properties.
Btw, this is important for every W2 to know but it’s especially important for those who fall into higher income brackets with higher tax rates like commission-based salespeople, business owners, and high-income tech workers.
I’ve fallen into all those buckets and the tax benefits from real estate have come in clutch. Like when I was a first-time founder. I was running the business lean and gave myself a 72k salary - I needed EVERY $ to support my active 5 member family.
Accelerating the depreciation on my first investment, a little townhome in North Carolina, helped me take home more salary during the year and still secure a 10k tax return.
But before I get ahead of myself, here are the 3 major tax benefits:
1. Depreciation Deduction: The biggest advantage of owning rental property is the ability to take depreciation deductions. This tax benefit allows you to deduct a portion of the cost of the property from your taxable income each year, even though the property is actually appreciating in value. But there’s more. You can take 27.5 years of depreciation upfront through a cost segregation study. This is HUGE! Depending on a few factors, it’s possible to erase your entire tax liability with this benefit.
2. Deductible Expenses: When you own rental property, you can deduct certain expenses related to the property, such as mortgage interest, property taxes, insurance, repairs, and maintenance. These expenses can add up, and they can help reduce your taxable rental income.
3. 1031 Exchange: If you sell a rental property and use the proceeds to purchase another rental property, you can defer paying capital gains taxes through a 1031 exchange. This allows you to grow your portfolio tax free, as long as you reinvest the proceeds in another rental property. This can be a great way to defer paying taxes and keep your money working for you.
Keep in mind, tax laws related to real estate investing can be complex, so it's important to consult with a qualified tax professional who can advise you on the best strategies for your particular situation.
So there you have it! 3 major tax benefits of investing in real estate. And the best part? You can use all of them as a W2 working full time without telling a soul!
Chat soon, Luke