4 Real Estate Tax Advantages

November 20, 2020

While renting has its perks, there are numerous benefits to investing in real estate. Among them are tax advantages you will never see from a rented apartment, house, or other unit. Learn about some of the best tax-related reasons to purchase real estate before discussing options with your Encino tax consultants


When you buy a property with the idea of renting it out, you get to deduct the property’s loss over time on your taxes. Known as depreciation, it involves deducting the projected value losses throughout the property’s “life expectancy,” which for residential properties is typically 27.5 years. The lifespan of a commercial property is about 39 years. And while depreciation perks are for investment properties exclusively, they equal significant tax payoffs. 

Additional Assorted Deductions

Your Los Angeles tax consultants emphasize the many additional deductions you can enjoy from an investment property during tax season. For example, if you purchase an apartment complex and rent the units out, deductions include property tax and insurance, property management fees, mortgage interest, property repairs, advertising expenses, ongoing maintenance, and capital improvements such as new flooring or entryways. 

If you choose to invest in real estate for entity purposes, such as using it as the headquarters for your business, deductions include those for office space, related utilities and internet costs, legal and professional fees, business equipment, travel expenses, and meals among others. 

1031 Exchanges

Section 1031 of the IRS Tax Code allows you to legally exchange an investment property for a similar property to avoid depreciation recapture or capital gain-related issues on the property’s sale. For example, if you currently own an office space and want to switch it for a similar office space, you get to reap the tax benefits. 

Opportunity Zones

Such zones are defined as land in “distressed” areas of the country, many of which are rural. An incentive that was part of the Tax Cuts and Jobs Act provided investors with the chance to build in these areas and subsequently create jobs minus capital gain expenses. Investors are therefore able to defer capital gains or skip over them entirely in light of how long the investment remains in the opportunity zone fund. 

Ensure all eligible tax credits, deductions, and benefits apply to your real estate investments by working with Wallace & Associates, your accountant service in Los Angeles. We are here to guide you through the entire investment process.