Reduce Your Taxes by Investing in Real Estate

Written by admin on May 9th, 2011

Taxes are your major expense in your lifetime, so choose your source of income as you wish. Real estate has some of the best tax breaks of any investment in United States and some other countries.

The more you earn through your profession, the more you get taxed, and the system is setup that way to punish hard workers and prize investors.  Have you looked at the bottom stump of your income lately and seen how much the government steals from you?  Wage income not only requires effort, it gets taxed at a very high rate, plus the government takes FICA, which is put into a system that may be ruined when you retire.

Real estate has so many tax advantages over wage income:

Capital Gains Rates

The maximum centralized tax rate on capital gains is 15%, whereas wage income is taxed at 35%.  There are state taxes, too, and some states offer further discounts on capital gains income.  Remember, capital gains requires that you hold a property for 1 year or more before selling and that it was held for dynamic use.

Exemption for Principal Residence

If you sell your home, the first 0,000 is excused from gain or 0,000 if you are married.  Remember, this need that the residence was used as such for two of the last five years.


Under IRC Sec 1031, you can roll your profits from a rental property into more real estate and postpone paying taxes altogether.  Your tax basis rolls into the next property.  The rules are rather severe, in that the exchange must be completed with 6 months and the exchange property must be identified with 45 days of the sale of the relinquished property.

Interest Deduction

You get to subtract interest you pay on debt you have used to acquire your real estate.


For leasing properties, you get a tax subtraction for the “wear and tear” on the structure, even if the property increases in value.  Thus, you can actually break even or make money, but on paper show a loss to counterbalance other income.


Your income from real estate is general not focus to FICA tax withholding.  Regular self employment income is subject to 15.3% tax on the first 0,000 or so, and after that your earned income is subject to Medicare maintenance (which you may never get back in your lifetime the way things are going).

It is not just what you make, it is what you keep. Plan wisely where your income comes from, and you will keep a lot more.

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