If you are a wealthy or high -income person, you need to consider real estate for the four reasons: tax incentives, passive income, long -term rising, and leverage. Real estate is now at the forefront of everyone’s radar since the crash between 2008 and 2010. But do you explain why it is an investment means to build wealth and protect your income?
No? As an investor and lawyer, I regularly advise my clients on real estate issues and support the investment. This article describes the reasons why real estate should be part of the investment portfolio and why the market is cold and should invest right away.
real estate and taxes
Real estate is one of the few asset classes that have multiple tax incentives underestimated by financial advisors. why? Financial advisors may not pay the commission, or a financial advisor may not be actually needed to enter real estate. It does not reduce the role of advisors, but no financial advisor is required to understand these tax benefits of real estate.
- Real estate can be depreciated. Yes, residential real estate can be depreciated in 27.5 years and commercial real estate in 39 years. The 26 USC Section 179 has been depreciated for real estate throughout the asset class, and in the case of real estate, he can depreciate a $ 500,000 residential real estate for 27.5 years. This means that you can subtract $ 18,181.81 depreciation every year.
- Real estate capital gains can be deferred. Under Section 1031 of the Tax Code, if you have held the property for a required holding period not defined by the tax law, you may sell the property via a like exchange using an intermediary. Acquired a new property within 45 days and close the targeted target within 180 days. This allows you to defer capital gains taxation and defer depreciation recovery while purchasing a larger and hopefully better cash flow real estate asset. This taxation mechanism therefore allows investors to receive profits and apply them to more assets, thus allowing them to grow their real estate portfolios in a tax efficient manner.
- Separation of costs. Real estate depreciation uses cost segregation studies to divide assets into different parts and separate them into separate classes so that individual components can be depreciated over 5, 7, or 15 years You can accelerate with this. This allows the asset components to be utilized in a tax efficient manner instead of using his 27.5 or 39 year class life for the entire asset. The net result of the cost segregation study is to accelerate depreciation, allowing more Section 179 depreciation to occur earlier in the asset’s useful life.
More tax nuances can be argued, but these are the tax advantages that the wealthy should consider. Additionally, by working with a sophisticated attorney who understands your individual needs and goals, you can carry forward your tax losses into the future.
real estate and unearned income
Whether using long-term residential properties, commercial storage units, short-term residential properties, or apartment syndicated agreements, properties are considered passive in the management of the property by owners and investors using property managers. It will be possible to play a role.
By using the property manager, investors have gained a sense of security that investors are properly managed for daily problems such as maintenance, and tenants know that some people can rely on the event. It is safe because it is. It is necessary. Furthermore, the cost of monthly management costs is 3-40 % of the monthly general rent, usually in short -term rental management, and long -term housing management is low, so we are worried. is not necesary to. A late -night phone that the toilet is packed.
Property managers are also performed to maintain yards, pay utility bills, have the ability they want, and to secure marketing activities for renting properties. Check that. At the end of each month, the property manager generates a profit statement, and provides checks or direct deposits to the bank account specified by the investor. True passive investment.
Asset evaluation and leverage
If the tenant pays the rent every month, or in a short -term rental, the bill owned by an investor is paid. Historically, real estate is highly valued, so the value of assets is increasing. As the value of assets rises and the debt is repaid, investors are benefiting from the growth of stocks. The unable to exaggerate the value of real estate is accompanied by the growth of the stock.
By utilizing the growth of Equity through the refinancing or the equity credit line, investors can use their internal equity to purchase additional real estate. Additional real estate purchases can create more cash flow and tax benefits. Regardless of the type of assets, short -term, long -term, or commercial real estate, the benefits of investors are specific in the form of tax deduction, maintaining monthly cash income.
Many investors are looking at the current real estate market, but it is worthwhile to consider real estate as complementing financial portfolios as long -term goals. As the iconic long -term investor Warren Buffett said, “When others are greedy, be afraid when others are afraid.”
written by Brian T. Boyd, ESQ.
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