Real Estate

Tax donations for real estate owners

Is the real estate sector still a good investment? As a landlord dealing with sometimes noisy tenants or unexpected repairs, you may be wondering if it’s still worth it or not. Despite these headaches and the current pessimism being reported about real estate prices, owning investment real estate continues to provide a number of benefits. Buying a property offers a number of favorable tax benefits, a way to generate income, diversify a personal investment allowance, and, in some cases, have a tenant pay for your personal housing expenses.

As an investment property owner, you can deduct a number of expenses related to operating the property, including mortgage interest, property taxes, utilities, and repairs. Aside from actual expenses incurred, homeowners also benefit from a valuable non-cash expense: depreciation.

Losses from rental activities are generally considered “passive activity losses,” with the exception of real estate professionals. These losses can be used to offset other passive income from another real estate investment or other type of passive investment, such as in a private limited partnership. Disallowed passive activity losses and credits are deferred until passive income is generated or the property is disposed of in a taxable transaction.

Like all good rules, there are exceptions. Although “passive activity” losses should as a rule be used to offset other income from passive activities, there are additional tax benefits available for those who are low- or middle-income households.

For those who have adjusted gross income below $ 100,000 and are “actively involved” in managing the rental property, a real estate investor can use up to $ 25,000 in passive activity losses to offset non-passive income such as wage income. or a business. .

This remains one of the few tax shelters available to moderate income taxpayers. And like any other gift from the IRS, it comes with certain conditions. In this case, the ability to use this passive activity loss exception is phased out above certain income thresholds starting at $ 100,000 of AGI reduced by $ 1 for every $ 2 of income above the threshold until it is eliminated to $ 150,000 from AGI.

The key to “active participation” generally means getting involved in property management decisions. Choose the type of paint or wallpaper? Reviewing offers for different contractors? Collect the rent? All can be considered part of the owner’s active participation.

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