Real Estate Investments That Make Sense

Our mission is to provide unbiased information and advice to residential real estate investors nationwide. Steve Setka, the owner and primary consultant at Nationwide, is available to provide you with information and insights that will position you to acquire income property investments with a high probability of yielding an exceptional return with a minimum amount of risk. Real estate investments are the key to an increasing level of wealth.

TAX ADVANTAGES ASSOCIATED WITH REAL ESTATE INVESTMENTS  

Real estate investments enjoy two unique tax advantages as compared to most other investments. The tax code allows owners of real estate to depreciate the value of the structures over time. An even bigger advantage is the ability to defer capital gains taxes when you sell your real estate investment.

When you own income producing real property, you are required to pay income taxes on the profit from the property every year. The tax forms have a section to report the rents received and expenses associated with owning and operating the property. Some examples are property taxes, interest on the loan, repairs, and property insurance. Additionally, the tax code also allows real property owners to deduct as an expense a portion of the structure’s value every year. The term for this expense is depreciation. This is a big advantage because the depreciation expense didn’t require expending actual funds. The depreciation expense increases expenses, reduces the taxable income, and lowers your tax liability.

A bigger advantage of real estate investments is the ability to sell your property and acquire another without any tax liability on the profit from the sale that year. This is called a “tax deferred exchange” or “1031 exchange”. If your sale and purchase conform to the Internal Revenue Service requirements contained in section 1031 of the tax code, no taxes are due in the year of the exchange; the tax liability is postponed to a later date. The taxable gain on the sold property moves to the next property, when that property is sold and not exchanged, the tax is paid on the gain from the first and second sale in the year of the second sale. Many savvy real estate investors never sell real estate without a corresponding exchange; they buy and sell their whole life, each time exchanging to a new property and deferring the payment of the taxes on the gain.