How Does Real Estate Benefit You? The Tax Advantages of Owning Property
By Therese A. Hartmann
A nurse, a client of mine, who clocks in an income of around $200k a year is looking at buying a home. I advised her to contact her tax preparer to understand the tax benefits and how it will impact her bottom line. Turns out her “tax preparer” is a bookkeeper and didn’t have a clue. Rather than check, she told my client there was no benefit. UGH! Guess I should have told my borrower to Google the information. Still, since some folks are not aware of benefits, I thought I’d detail out the advantages, by property type. In Ventura County, there are really four main property categories: • Personal residences: On your personal residence, you can look forward to mortgage interest deduction, mortgage insurance deduction, standard deduction, mortgage points charged, home office deduction, residential energy credit (if applicable) and more. • Investment properties: With investment property, you’ve hit the jackpot and you are allowed to write off mortgage interest, property taxes, depreciation, property management, maintenance, capital improvements and more. Check with your CPA.
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• Mobile homes: While mobile homes are considered personal property, the IRS considers them as qualifying for the mortgage interest deduction. This applies even if the mobile home is a second home. In this instance, the IRS definition of “home” includes any property with cooking, sleeping and toilet facilities. • Agricultural: Being able to take depreciation on ag land is one of the reasons you’ll see high-income earners become “hobby farmers.” There are some distinctions regarding what is being grown, however. While you can’t depreciate the cost of the land, because the land does not wear out or get used up, you can get some benefit for certain types of crops. Specifically, taking straight-line depreciation applies primarily to fruit and/or nut crops which are perceived to have limited production cycles. Again, always check with a qualified CPA first. As housing prices go up, people really need to take a look at the whole picture and tax benefits are key. Interest rates are still surprisingly low and sometimes, with those added tax advantages, it makes absolute sense to buy something, and yes, EVEN in a hot market!
OM — May 2021
Therese A. Hartmann has 20 years’ lending experience. She is a Licensed Broker, California Dept. of Real Estate #01048403, NMLS # 298291, affiliated with C2 Financial Corporation. For a free consultation, call Therese today at (805) 798-2158.
