Tax Incentives for Real Estate Investors


What to consider before investing in an income generating real estate asset?

Honestly, there is serious coin to be made in this sector which has now hit rock bottom. Real estate fetches handsome returns over the years and given the depressed prices and the added bountiful tax write-offs has made this an attractive investment destination. Investing in real estate has the need for some market information which needs to be tempered with subjectivity. The employer, employee or even the self-employed can avail these tax breaks.
The authorities are working overtime to make investing in real estate a happy choice through attractive tax incentives:

1. IRS has notified a Rehabilitation Tax Credit which applies to old constructions and NOT new construction, which is basically claiming a percentage off on the costs incurred as well as one for property in specific disaster areas which can be used to offset tax liabilities. (IR code Section 47). Old properties which are often let out to people in difficult situations (students, indigents, immigrants etc.) do fetch a premium for the income generating ability as well as provide the benefit of certain tax breaks.

2. The threshold limit for tax credits has been raised to more than 50% under rule 168(h) for periods beginning 1.1.2008

3. Real estate affected by hurricanes between August 27, 2005 and January 1, 2012 has been offered a tax break

4. What happens if the disaster was beyond these very specific dates? There is relief here too but, is applicable only to Midwestern areas

5. There is an array of sources to protect incomes – mortgage loan interest, property taxes (home owners too), insurance premiums (investors only) etc. Maintenance expenses (investors only), depreciation (period differs for residential and commercial ones) too can help one save on income tax

6. Depreciation is a sure fire way to achieve the goals of investing – all the while, the market value isn’t affected!

7. Businesses continue with the 25% income tax liability but can think of these avenues of real estate investments too in reducing such liabilities after evaluation with methods like market-extraction method, build-up method, band-of-investment method etc.

8. There is another idea for businesses – investing in some property that generates environmental wastes, the cleanup costs are legitimate business expenses (see publication 135 of IRS)

9. Heritage sites are a good investment ideas for income generation as well as tax breaks

10. There is the tax break offered to commercial properties which contribute to energy efficiency norms (see section 179D of the IR code

Many more such tax breaks are on offer and official documents will guide one through the arcane jargon.