Tax Benefits for buying real estate in 2013

Carpe Diem...Real Estate Update

Tax Benefits Leverage, appreciation and tax breaks highlight the advantages of owning real estate. Whether you are simply a homeowner or a real estate investor, you benefit from owning property. The tax advantages of owning real estate are one aspect of investing that transcends market conditions. Mortgage Interest Deductions As a homeowner, you are entitled to itemize your tax deductions and claim all interest you pay on your mortgage as a deduction. In areas characterized by high median home value, this benefit is especially advantageous. If you are in a 28 percent tax bracket, buy a $700,000 condo in San Francisco with a 20 percent down payment and have a $560,000 mortgage at 5 percent, your mortgage interest deduction during your first year of home ownership will be just under $8,000 ($28,000 in interest times .28). Use an online mortgage calculator with an amortization schedule to calculate mortgage interest--it changes every month because the principal is reduced. There are caps on the amount of interest that can be written off and an income threshold beyond which deductions are not allowed, but the vast majority of home owners never butt up against these limitations. Tax Exempt Profits As a homeowner you are entitled to an exemption of $250,000 (if you are single) or $500,000 (if you are married) of profit on your home when you sell. You must live in your house at least two of the prior five years before the sale. You can take advantage of this tax exemption once every two years. If you are purchasing another house in the same region, you may need the proceeds to purchase your next house, but if you are downsizing or moving to a less-expensive area of the country, you will be able to pocket the proceeds. Depreciation For rental property owners, depreciation is a significant tax benefit. Depreciation is a deduction of the cost of buildings and capital improvements to buildings over their lifetimes. The IRS has determined the useful life of various classes of buildings and improvements. You use these figures to determine how much of a deduction you can take each year. If you buy an apartment building worth $1,000,000, you can deduct $36,363 from the building's income each year for 27.5 years. ($1,000,000 divided by 27.5 years.) In some cases, depreciation results in your making an actual cash profit but showing a paper loss for tax purposes. In some instances, you can carry over excess depreciation to reduce the tax liability of your employment income. Tax Deferment When you sell a rental property, you are entitled to take advantage of IRS code No. 1031 and put the profits into a new building, tax free. The 1031 exchange can be used over and over, theoretically resulting in a permanent avoidance of tax on your profits. You may also do a 1031 exchange and then refinance the new building, taking your profit out as equity, tax free. Original article.. http://homeguides.sfgate.com/tax-benefits-real-estate-7023.html Ron Goldstein, MBA Transnational Referral Certified(TRC) Quality Service Certified(QSC) Broker Associate Prudential RUBLOFF Real Estate cell (312)771-7190 rgoldstein@rubloff.com Carpe Diem.Today is your day!... Certified Eco-Broker www.chicagoluxuryrealty.com Check out my blog@ http://www.carpediemrealestate.blogspot.com