The Tax Advantages of Real Estate – Part 1

So this time of year, if you are like me and many other folks, you are scrambling to get your taxes in before April 15th as to avoid any penalties

or interest from the dreaded IRS. Luckily many of the dreaded tax changes that were supposed to take effect this year, did not get passed into law. However, for many people, looking for ways to minimize their tax liability – “itemizing” on their 2010 Income Tax Return is a very methodical approach to doing just that. So what are the Tax Advantages of Real Estate though? Both my undergraduate and Master’s degrees are in Accounting, and I am only about a year away from obtaining my CPA license. So, this past year around real estate activities, I have been working with a man named Dan Smith or “Dan the Taxman” at A-Advantage Tax and Financial Services and have been getting some serious tax experience on my record. So, with my accounting background and with what I have learned over the past year preparing taxes, there are three main areas people can itemize or “write-off” various expenses that have incurred throughout the year:

1. Taxes you have paid.
2. Mortgage Interest
3. Charitable contributions – (cash and noncash) donations.

This article focuses on #2 and the other tax advantages associated with owning real estate. Part 2 will focus on pass-through entities and investment real estate held in entities such as LLC’s or S-Corps. Every year, one of the biggest deductions you can take on your federal income tax return is the mortgage interest you pay on any home loans you have outstanding. This is a Schedule A deduction and in addition, you can write off any real estate taxes, and mortgage insurance premiums that were paid during the course of the year. Also, if you are buying a home this year, be sure to save your HUD-1 Settlement Statement that you receive at closing because when you purchase a new home during the year, any discount points and loan origination fees that you pay at closing are also tax deductible. So let us make a list of all the tax deductions associated with owning a home:

• Write off mortgage interest paid (could be multiple properties).
• Real estate taxes

(could be multiple properties).
• Mortgage Insurance Premiums paid.
• Discount points paid at closing (see HUD-1 statement).
• Loan Origination fees.
• 2009-2010 Residential Energy Property Credit (see below).

In 2010, there was a *Residential Energy Property Credit of up to $1,500 that was available for homeowners who make qualified energy efficient improvements to their existing homes. This credit is 30 percent of the cost of all qualifying improvements. The maximum credit is $1,500 for improvements placed in service in 2009 and 2010 combined. The credit applies to improvements such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems (see IRS Website).

Having a part of the American Dream is desirable and advantages at more than one level! Not only is it a fantastic market to be in the market for a new home, but you are going to enjoy the tax savings and writeoffs that will come in many years to follow! Call Mark Hardy today to schedule a free tax consultation or to discuss your current goals and plans in obtaining your first, or 10th residential property. Mark has come from a unique background of financial, accounting, and investment experience that is coupled with years of real estate knowledge and know-how. 480-773-5195 or MarkDPRRealty@gmail.com.

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