Making Taxes Work for You

Taxation has been a thorny issue plaguing the US since the nation’s birth. While people may disagree about who pays taxes, and how much they pay (or don’t), we’re all affected by taxation in ways large and small. Although taxes work against us most of the time, in some situations US tax laws offer some significant breaks, allowing real estate investors, among others, to put, or keep, money in their pockets every year.

Under some new tax laws, small businesses can be eligible for deductions for such things as hiring a veteran or someone who’s been unemployed long term. Other kinds of breaks help people return to school or

start a business. But these are largely one-time or limited deductions, credits or incentives. In rental real estate, though, investors can claim numerous write offs and deductions for every year of the life of their investment.

Along with recommendations to invest wisely with good counsel, Jason Hartman’s 10 Commandments for Successful Investing advises investing in assets that offer tax breaks. Commandment 10 states, “Thou shalt invest only in tax-favored assets.” And rental real estate offers a number of non-cash write-offs and deductions that can be taken every year for virtually any activity associated with the property.

As Jason Hartman says, “income property is the most tax-favored asset in America.” Since this type of investment is also one that appreciates over time, it offers investors a number of ways to reap financial benefits, from tenant rents to the tax breaks for depreciation, repair and capital improvements that can be taken for the life of your investment.

Real estate co

nsists of just two things: land and the structures on the land. And while the land isn’t going anywhere, there are limited options for what to do with it. But the structures on the land – “packaged commodities,” to use Jason Hartman’s term – can be fluid, as the prices of housing components fluctuate depending on local and global demand. And it’s these commodities that offer improvement value which can contribute to financial gains in a number of ways.

According to current US tax laws, virtually any funds an investor directs toward maintaining or improving an investment property can be tax deductible. Some deductions can also apply to periods of vacancy – the so-called passive activity loss break – as well as a non-cash write off for the simple depreciation of the structures themselves, calculated over about a 30 year period.

Travel related to managing the property is also tax-deductible, as are other costs of doing business such as maintaining a home office or fees associated with hiring consultants, specialists or managers. Some benefits also reward hands-on management, with additional breaks for owners who spend a certain amount of hours annually on activities associated with maintaining the property. Unlike other kinds of endeavors and investments, the deductions related to rental income property are the gifts that keep on giving – for the entire life of the investment. (Top image: Flickr/ClearlyAmbiguous)

The American Monetary Association Team

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