This is the third in my series that details why I like real estate. If you haven’t yet, take a look at Part I and Part II where I talk about control and leverage.

It’s no secret that real estate has great tax benefits, but they seem to be largely ignored sometimes and often downplayed. When you look at real estate as an investment and compare it to other investment options such as the stock market, you can’t ignore the tax incentives you get with real estate. They can significantly add to the bottom line of your investment.

First off, let me say that I’m not a tax expert, but I do have a rental property and have firsthand experience with the benefits that I’m talking about. They’re real and can be used by anyone who is willing to learn and seek professional advice. So now let’s talk about some of the specifics.

When you operate a rental property, it is a business and is able to be treated as such. Expenses that are associated with the property are deductible from any income that the property generates. It shouldn’t come as a surprise that the mortgage interest of any loans on the property are deductible. You can also deduct any expenses associated with maintenance of the property. Another great deduction is any travel associated with the property. For example, if the property is out of state from where you live, you can deduct the cost of the plane ticket or the mileage needed to visit it. This is something that not everyone is aware of, but can be a great perk.

You are also able to depreciate the property over a set number of years which is different depending on whether the property is commercial or residential. For residential properties it is depreciated over 27.5 years. Basically this means that you take the purchase price of the property and divide it by 27.5; this is the amount that you can deduct in any given year. This is what is called a paper loss. You’re deducting an amount of money that you never really spent, it just occurs on paper. Using this deduction you can actually offset some of your positive cash flow and essentially give yourself some tax free earnings.

These are just some of the tax benefits associated with real estate, and every property will have a little bit different scenario. If you happen to also take a real estate course or seminar, you can deduct the cost of it as well. All of these tax benefits add another element that should be considered in your comparison of investments, and they’re another reason that I like real estate.

 Subscribe to Fiscal Musings | Digg This! | Stumble it!