November 2023 Updates

Key Takeaways:

The Power of Real Estate Tax Advantages – discover how Real Estate’s tax benefits can transform your wealth

Resilience in Rental Rates – navigating rental rate corrections

Depreciation as Your Income – how to turn property depreciation into a powerful income stream

Real Estate a- a year-round wealth builder

The Power of Real Estate Tax Advantages

Even when the income producing real estate market is bad, it may be a good investment.

This is largely due to the tax laws in this great country being written such that property owners are granted a myriad of deductions and depreciation. These typically generate a deductible loss regardless of the amount of cash flow.

Of course there are exceptions to this. Not sure what, but they are out there.

Individual tax situations can vary making these losses more or less accretive to reducing their taxes, taxable income or both. However, the vast majority of real estate investors benefit from what are generally referred to as passive losses.

The source of this well of tax advantages is largely based on the IRS’s myopic view that buildings only last 27.5 years at which time they are worth 0.

To make it even sweeter, if you die owning a building with a basis of 0, ie you held it more than 27.5 years, your heirs do not recapture any deferred taxes that I am aware of.

Resilience in rental rates – Navigating rental rate corrections: Real Estate’s consistency

In today’s market, people reading this may know that generally rental rates on apartments are correcting after a rapid rise during the pandemic.

This varies by city, but generally rental rate growth far exceeded 3%, wage growth and most other methods tracking the cost of living from 2020 to around June of 2023.

This means if you are invested in a cash flowing property, those distributions may be set to decline if they haven’t done so already.

Turning property depreciation into a powerful income stream

This is of course bad news.

However, unlike stock or bond that stops paying a dividend, even with no cash flow in the form of distributions, ownership of real estate still throws off losses from the property created by depreciation which can be used to offset your tax burden from income derived elsewhere.

Real Estate a year-round wealth builder

In other words, when the income producing real estate market is healthy, it’s a massive wealth building tool, and when the market is bad, it ain’t so bad then either.


Jason Buxbaum | Post Author
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