Bob Nelson – The Tax Benefits of Real Estate

Right we’re taking a look at the tax benefits of real estate.

Featuring:
Bob Nelson, Eugene real estate investment broker
Marcia Edwards, Eugene residential real estate broker

Marcia Edwards: We want to talk to you a little bit about home ownership. You think about whether you can afford a house, but a lot of people don’t consider in their numbers is the significant and hopefully forever benefits in the taxes even on your personal residence. We’ve really protected the right to have the American dream of home ownership and you need to take advantage of that, and take a look at that.

That with the interest rates being so low, the opportunity to buy now with good employment, you’ve got an opportunity that you need to understand the full extent of.

Bob Nelson: And it’s interesting because some would say, “Well, my gosh, the vast majority of my mortgage payment is interest. I’m simply feeding a lender who allowed me to acquire the property.” Well, that may be true. At the same time, the interest payment, the portion of your payment that goes toward interest is tax deductible on your tax return. So as long as you don’t owe an excess of $1 million on your mortgage and I will assure you that you have wise tax counsel if you are in that tax bracket.

Marcia Edwards: So you’ve got an opportunity in the deduction there. You also have a wonderful opportunity in ownership when it’s owner occupied. If you’ve occupied it two of the last five years, you do not have to pay capital gains on up to 250,000 as a single individual or as a married couple, 500,000. so you’ve got an opportunity to take the return without a tax hit at the time of a sale.

Bob Nelson: So as long as I haven’t done this in the last 24 months, I would be able to do it again. Is that correct?

Marcia Edwards: That’s exactly right. It’s really a wonderful opportunity. May not always be there. We’ll see what the political climate has for us in the future. But let’s talk a little bit about depreciation in investment real estate Bob, when you don’t occupy the property.

Bob Nelson: Depreciation is in allowance that the government affords you for using your capital in a way that they would like to have you use it. If you would use it in order to buy residential rental property, you would be allowed to write off the improvement portion, the building portion, if you will, over a 27 and a half year period of time. And if it was non-residential income in nature, that means it would be commercial all, the all other, it’d be over a 39-year period of time.

So basically, it’s an opportunity to climb a loss. It’s a phantom loss. You don’t have to actually lose the money in order to declare it on your tax return, but it’s a depreciation allowance because that allows you to further benefit from the ownership of that which the government would like to have you buy.

Marcia Edwards: This is a carrot, not a stick, which is uncommon today.

Join Eugene, Oregon, real estate experts: Bob Nelson, Real Estate Investment Broker with Pacwest Real Estate Investments, and Marcia Edwards, Residential Real Estate Broker with Windermere Real Estate, daily at 5:30pm on KPNW for the “Real Estate Today” radio show.