The Passive Income MD Podcast #85: 7 Great Tax Benefits of Investing in Real Estate
Dec 13, 2021
Dive into the intriguing world of real estate tax benefits! Discover how appreciation, cash flow, and mortgage paydown contribute to wealth creation. Learn the nuances of short- and long-term capital gains and the perks of home sale exclusions. Did you know rental income isn't subject to self-employment taxes? Explore the power of depreciation and the magic of 1031 exchanges. Plus, uncover tax-free borrowing strategies and the advantages of opportunity zones. It's a treasure trove of insights to enhance your investment game!
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Long-Term Holding Cuts Capital Gains Tax
- Long-term real estate holds are taxed as long-term capital gains, which carry much lower rates than ordinary income.
- Holding property over a year can save tens of thousands in taxes compared with short-term sale at ordinary rates.
Use The Primary-Residence Exclusion
- Use the primary-residence exclusion by living in a house two of the last five years before sale to exclude up to $500,000 for married filers.
- Plan timing of personal use versus rental to qualify and shield large gains from tax.
Rental Income Avoids FICA Taxes
- Rental income is not subject to Social Security and Medicare (FICA) taxes like earned income.
- That tax treatment increases the after-tax value of passive rental income compared with wages or self-employment income.