| Lower Your Taxes | | | | expenses incurred. This sort of situation is difficult |
| Tax incentives for real estate investors can often | | | | to find, but they are usually a strong and safe |
| make the difference in your tax rates. Deductions | | | | investment. An after-tax positive cash flow may |
| for rental property can often be used to offset | | | | have expenses that outweigh collected income, |
| wage income. Tax breaks can often enable | | | | but various tax breaks allow for a positive cash |
| investors to turn a loss into a profit. | | | | flow. This is more common, but it is generally not |
| For which items can investors get tax breaks? | | | | as strong or safe as a pre-tax positive cash flow. |
| You could claim deductions for actual costs you | | | | Regardless of what kind of real estate you |
| incur for financing, managing and operating the | | | | choose to invest in, timely collections from your |
| rental property. This includes mortgage interest | | | | tenants is absolutely necessary. A positive cash |
| payments, real estate taxes, insurance, | | | | flow -- whether it be pre-tax or after-tax -- |
| maintenance, repairs, property management fees, | | | | requires rental income. Be sure to find quality |
| travel, advertising, and utilities (assuming the | | | | tenants; a thorough credit and employment check |
| tenant doesn't pay them). These expenses can | | | | is probably a good idea. |
| be subtracted from your adjusted gross income | | | | Use Leverage |
| when determining your personal income taxes. Of | | | | One of the most important factors in determining |
| course, these deductions cannot exceed the | | | | a solid investment is the amount of equity you |
| amount of real estate income you receive. In | | | | are purchasing. Equity is the difference between |
| addition to deductions for operating costs, you | | | | the actual worth of the property and the |
| can also receive breaks for depreciation. Buildings | | | | balanced owed on the mortgage. |
| naturally deteriorate over time, and these "losses" | | | | Benefit from Growing Equity |
| can be deducted regardless of the actual market | | | | While investing in real estate is relatively complex, |
| value of the property. Because depreciation is a | | | | it is often worth the extra work. When compared |
| non-cash expense -- you are not actually spending | | | | to other financial investments, like bonds or CD's, |
| any money -- the tax code can get a bit tricky. | | | | the return on investment for real estate |
| For more information about depreciation and | | | | purchases can often be greater. |
| various tax alternatives, ask your tax advisor | | | | The key to real estate investing is equity. |
| about Section 1031 of the U.S. Tax Code. | | | | Determine an amount of equity that you want to |
| Have a Positive Cash Flow | | | | achieve. When you reach your goal, it's time to |
| There are two kinds of positive cash flows: | | | | sell or refinance. Determining the proper amount |
| pre-tax and after-tax. A pre-tax positive cash | | | | of equity may require the assistance of a real |
| flow occurs when income received is greater than | | | | estate professional. |