Investing in real estate has several benefits, particularly when tax season arrives. And with the market value of NYC property growing for the sixth straight fiscal year in 2017, more people are investing in real estate than ever before. If you’ve been considering investing in real estate or have recently made an investment, it’s important that you understand the tax benefits that may be applicable to your situation. In this article, we’ll discuss a few common tax benefits for real estate investors.
Perhaps the biggest tax benefits investors can reap is a lower tax rate on capital gains. When you sell a property, you make capital gains. While any gains that are received from properties that are held for less than a year don’t have lower taxes, long-term gains do. Any investment property held for longer than a year has a lower tax rate depending on the income bracket of the owner. So if you hold on to your property for at least a year before selling, you could have lower tax rates. Tax preparation services can help you better determine which tax rates you’ll end up paying.
Another tax benefit property investors can have is depreciation. Over a period of time, depreciation is charged on properties. The amount of money the property is worth is divided by a number of years and then that number can be deducted every year. When the property is sold, the entire deduced amount, along with capital gains, can be taxed. But if there is no money made on the sale, the old depreciation amount won’t be taxed.
And lastly, if you own a rental property, you won’t be subjected to a FICA tax. Under the Federal Insurance Contributions Act, self-employed people are responsible for paying the entire tax themselves. But because the government doesn’t recognize rental property owners as self-employed businesses, a rental property income isn’t under FICA. This means the large FICA tax rate on income is completely avoidable for rental property owners. Tax accountants can help determine whether or not your property would be subjected to FICA taxes.
Investing in real estate offers a few great tax benefits. Hopefully, this article helped you feel better prepared for understanding tax breaks when you invest in real estate.
If you’re looking for NYC accountants to help with tax preparation services, contact George Dimov, C.P.S. at NYC Accounting and Consulting Services.
I didn’t know that waiting a year before selling your property can help you decrease your tax rates. My uncle has been interested in investing in property now that he is going to be paid on a salary basis. I’ll let him know that he may be able to save a lot of money on taxes if he waits a year before he sells his first piece of investment property.