What are the tax benefits of Real Estate?

With the housing market improving in most areas of the state, many people are becoming new homeowners and investors. If you’re among the new property owners, congratulations! You’ve just taken another step up the American-dream. Everyone knows that owning a home is the American dream, but did you know that borrowing to pay for one has many benefits?

Along with the joy of painting, plumbing and yard work, you now have some new tax considerations. Home mortgage interest is deductible on your income taxes. The good news is you can deduct many home-related expenses. Let’s take a look at the top three tax benefits of real estate.

  1. Mortgage Interest Deduction

Your biggest tax break is reflected in the house payment you make each month since, for most homeowners, the bulk of that check goes toward interest. And all that interest is deductible and if you own multiple properties, mortgage interest on a second home also is fully deductible. You can also write off all the other standard operating expenses that go along with owning a rental property: utilities, insurance, repairs and maintenance, yard care, association fees, and so forth.

  1. Mortgage Points (Origination) Deduction

Homeowners who paid points (origination fees) can often deduct those on their tax returns. However, the homeowner can deduct the entire amount they paid for those points in the same year of the purchase or loan origination. If you refinanced your home for home improvements, those fees must be amortized and deducted over the life of the loan.

  1. Real Estate Taxes

Homeowners can get a tax deduction for taxes they pay on their real estate. This can be paid through an escrow account that was set up by their mortgage company or directly to the tax assessor. These deductions can only be claimed if it was paid for the given year. For investment properties, the benefit is depreciation. When you buy an investment property, over time during the real estate cycle, the property will decrease in value. Depreciation is the process of claiming a deduction to compensate you for the property’s decrease in value during the year.  Depreciation only applies to investment properties. You cannot depreciate your principal residence.

About the Author

Brandon Lau grew up in Kailua and currently resides in Honolulu with his wife Andee and children Caylah, Elijah, and David. His eighteen years in real estate led him to become a Partner at ChaneyBrooks Choice Advisors. Over the past 10 years he has developed the team and systems that has created a high level of service and value for his clients.

What differentiates Brandon and his team is his consultative approach to real estate. He advises clients with relevant data and expert insight to help them make the best choices in real estate. Good choices in planning for long term dispositions, negotiating for the best price or knowing when not to pursue an investment are ways his consultative services will give you an advantage in the marketplace. His bottom line is providing service with the utmost integrity and expertise.