If you’re on this page, you’re probably considering investing in real estate to save money on taxes.
You might have heard on social media apps about people like Donald Trump investing in real estate and paying zero dollars in taxes and wondered how you can do it too.
In this blog, I will explain how you can invest in real estate and save money on taxes.
I will also give you a general idea of how lucrative it can be to invest in real estate, assuming you have the proper tax strategies in place.
Let’s get started, shall we?
Can Real Estate Really Save Me Money on Taxes?
Real estate properties are assets. Similar to stocks, when purchasing an asset like real estate, what you’re doing is considered investing.
Yet even though purchasing real estate is considered investing, that doesn’t mean you can write off the purchase of the property. Meaning you can’t buy a property for 40,000 and expect to write off 40,000 just for the purchase of the property.
However, what you can do is write off any loss that occurs.
In the next section, we will explore one of the most common losses when investing in real estate, called depreciation.
What Is Depreciation, & Can It Save Me Money on Taxes?
Like any other asset, real estate properties (commercial or residential) get old and start to lose their value.
Over time, the very foundation that held the property up gets weaker, and it’s no longer in the same state it was at the time of purchase. This is what we call depreciation.
Fortunately, the IRS allows you to write off the depreciation of your investment property. So, you can save money on taxes every year that your property depreciates.
How Does Real Estate Save Me Money on Taxes?
When you invest in real estate, it gives you something called a paper loss. A paper loss is what we call an unrealized loss. It occurs when the value of your asset drops below its original price, but the investment is not yet sold.
In this case, you’re still holding on to the investment property. However, it’s still decreasing in value yearly due to depreciation. This is a good thing because, on your tax return, you’re losing money due to your assets depreciating. This allows you to claim a tax deduction.
There are tax strategies you can use to maximize your depreciation to increase how much in taxes you can deduct. But in general, the high the property’s value, the more you’ll be able to deduct in depreciation.
The Lucrative Side Of Owning Rental Properties.
Now that you understand how to save money on taxes by investing in real estate and leveraging deprecation, I will explain how things can get more lucrative.
As you know, you can claim a loss on your tax returns due to the depreciation of your investment property. However, that’s not the end of the story (far from it).
If you invest in a rental property, you can make money and save money on taxes simultaneously.
That’s because even though on paper you are claiming a loss and deducting thousands of dollars on taxes, you still have a positive cash flow from your renters.
That means you’re getting the best of both worlds. Thousands of dollars in passive income and thousands of dollars in tax write-offs.
Will The IRS Allow Me to Use Real Estate As a Tax Deduction?
Investing in real estate to save money on taxes is 100% legal and allowed by the IRS. That said, you can’t go in blind and start investing in real estate without a proper tax planning strategy.
That said, if you need help finding powerful real estate tax strategies, check out our Tax Alchemy Program. Tax Alchemy is a program designed for real estate investors to help them save money on taxes.
This program uses cutting-edge tax strategies that are working right now in real-time and helping thousands of investors save a fortune on taxes every year.
If you’re interested, click the link below to learn more about our Tax Alchemy program.