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Owning residential real estate can offer many advantages beyond just having a place to call home. One of the most significant advantages is the potential tax benefits of owning a property. Here are some ways that owning residential real estate can help you save money on your taxes.
Mortgage Interest Deduction
If you have a mortgage on your residential property, you can deduct the interest you pay on your mortgage from your taxable income. This deduction can be especially beneficial in the early years of your mortgage when a larger portion of your payments go towards interest.
Property Tax Deduction
You can also deduct the property taxes you pay on your residential property from your taxable income. This can be especially helpful for homeowners with high property tax rates.
Depreciation Deduction
Residential real estate is considered a depreciable asset, meaning its value declines over time due to wear and tear. As a homeowner, you can deduct a portion of your property’s value each year as a depreciation expense, which can help to lower your taxable income.
Capital Gains Exclusion
When you sell a residential property you’ve owned for at least two years, you can exclude up to $250,000 in capital gains (or $500,000 for married couples filing jointly) from your taxable income. This can be a significant tax benefit, especially if you’ve owned the property for a long time and have seen significant appreciation in value.
Home Office Deduction
Use a portion of your residential property for business purposes. You may be able to deduct a portion of your mortgage interest, property taxes, and other expenses related to the home office from your taxable income.
Summary
It’s important to note that the tax laws around residential real estate can be complex and subject to change. So, it’s always a good idea to consult with a tax professional to ensure you take full advantage of all available deductions and credits.
In addition to these tax benefits, residential real estate can offer long-term financial benefits such as building equity and potential appreciation in value. It can also provide a stable source of rental income if you choose to rent out the property.
Overall, owning residential real estate can be a smart financial decision offering immediate and long-term benefits. With the potential tax advantages and the other financial benefits of homeownership, it’s worth considering as part of your overall financial plan.
Contact Jonathan Baer with questions or comments.