Real Estate Industry News

Founder of Keepmore.com and author of “Hidden Investing: What the Wealthiest 1% Know That We Don’t.”

I’ve dedicated the last few years of my life to doing everything I can to raise the level of financial literacy among the people I know and love. I even recently published a book with the mission of spreading the truth about how the wealthy think about money and investing. I wrote the book for people like me who grew up learning about 401(k)s, that our primary home is an excellent wealth-building vehicle, how to hire a financial advisor — and the list of passed-down wisdom goes on and on.

At 58, I’ve found through personal experience that most of what society teaches us about money is not the whole story by any means. In fact, I’ve come to believe that many of the lessons I was taught about money and investing were myths and half-truths. The real truth of the matter is that people who are very wealthy often take advantage of investment opportunities that are largely hidden from most of the public. They’re not secret — just hidden — because no one tells us about them. And to find them, you simply have to know where to look.

Our tax code, for instance, is there for everyone to see and take advantage of, and we as citizens are required by law to follow it. Most people seem to believe that our tax code is just designed to tell us how much tax we owe, but that’s not the whole story. In actuality, much of the tax code contains incentives that are designed to get us to do things that the government wants us to do, and one of the things that the government really wants us to do is invest in real estate. 

Real estate investment not only provides housing; it also creates many jobs and tax revenue for our cities. You see, landlords don’t just sit back and collect the rent and make tons of money. There are many expenses that impact their profits, and all those expenses create employment opportunities for others: property managers, real estate agents, construction companies, roofers, landscapers, plumbers and leasing agents, to name a few. Then there are the property taxes, school taxes and income taxes for the entity (business) that owns the property.

Importantly, there are also deductions and incentives that can, and should, legally be taken advantage of by any American. Here are a few of the incentives that can help real estate investors during tax time.

Depreciation

Depreciation incentivizes property owners to keep their property nice and up to date. Depreciation enables investors to deduct the costs of assets that have a limited life span but are necessary to make the property a good place for tenants to live. Rental property depreciation has recently become an even more valuable deduction because of the Tax Cuts and Jobs Act. Due to that bill, assets that used to be depreciated over many years can now be depreciated in the first year of ownership, and those deductions can be quite significant. Typically, when you purchase a rental property, you are able to deduct the entire cost of items such as furniture, appliances, roofs, HVAC units, fire alarms, security devices and even landscaping. 

Mortgage Interest

Although individuals are only able to deduct their mortgage interest up to a certain point, with investment real estate, there are no limits. As a matter of fact, many commercial loans are interest-only for a number of years, and in that case, the entire payment is deductible against the income of the property.

Net Worth

Think about your personal home. If your house is worth $500,000 and you owe $200,000, technically on paper you do indeed owe 200,000. That is called leverage, and owing only $200,000 on a house that is worth $500,000 is a good thing, not a bad thing. As long as the underlying assets are worth more than the mortgage, then all is well.

Operating Expenses

Finally, the U.S. government allows real estate investors to deduct what are called “ordinary and necessary expenses” for managing, conserving and maintaining their rental property. Ordinary expenses are those that are common and generally accepted in business, such as taxes, advertising, maintenance, utilities and insurance.

Of course, it should be noted that I’m not a CPA or financial advisor, and I don’t sell real estate or securities. I know what I know now based on my own investing journey, and it’s why I love real estate investing. Any interested potential investor should always speak with a professional about their particular situation — and always follow the tax code.


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