Author Topic: Tax Benefits of Investment Real Estate  (Read 339 times)

rhandler62

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Tax Benefits of Investment Real Estate
« on: June 10, 2019, 10:02:27 PM »
Hi all,

I have a job and am looking to invest in some real estate.

I plan to put $50k down on a ~$150k property.

I am trying to figure out the potential tax benefits.   I know that if I travel to the property I can deduct that from its income.

So let's say that the annual financial are:

Rent: $10k
Mortgage: $5k
Taxes: $1k
Repairs: $1k

Does that mean that I can deduct the $7k and then pay income tax on the $3k?

If I pay the money into the mortgage/take a 15y note instead of a 30 does that mean I pay no income tax on it?

Also, if anyone has tips on other deductions or depreciation, I would love to learn about it :)

 

waltworks

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Re: Tax Benefits of Investment Real Estate
« Reply #1 on: June 10, 2019, 10:10:11 PM »
You can deduct the mortgage interest, but not the principal portion.

Depreciation only applies to the structure, not the land, so you'll need to figure out the relative values of those.

In your specific case (something like $850 a month in rent is TERRIBLE for a $150k property, btw) assuming your numbers are correct you'll probably have no taxes due, and possibly a small loss to offset other income after accounting for depreciation.

You may in fact lose quite a bit more money than you think after paying for insurance and management, accounting for some amount of vacancy, and building in a SHTF factor for the possibility of getting meth-makers for tenants or the sewer line bursting.

I'd suggest going to the library and getting a few books on RE (rental RE, not flipping) investing. Or just stroll over to the RE forum here.

-Walt

rhandler62

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Re: Tax Benefits of Investment Real Estate
« Reply #2 on: June 10, 2019, 11:31:44 PM »
Thanks for the clarification on the mortgage deduction.

Sorry for the confusion, the numbers are examples, not actuals. (I get the 1% rule.)   :)

crammarc

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Re: Tax Benefits of Investment Real Estate
« Reply #3 on: June 11, 2019, 09:34:55 AM »
Completely agree with what Waltworks said.  I want to add-on that if you are currently in a higher tax bracket the benefits of depreciation can be very nice since you defer paying taxes on that money and likely will pay a much lower rate in the future win-win :).  Also, that money not spent on taxes today can be reinvested to generate additional returns.  I definitely did not fully appreciate some of these when I first started.