Why I Love "Uncle Sam"

-Slightly paraphrased excerpts from "How to Wake Up the Financial Genius Inside You" by Mark Haroldsen

By David Krebsbach, Investor / Realtor
Keller Williams Realty - Allen

I first learned about Real Estate from a book by Mark Haroldsen titled "How to Wake Up the Financial Genius Inside You". Among other things, he wrote in chapter 13 about Real Estate tax advantages. Here are some slightly paraphrased excerpts from that chapter:

"UNCLE SAM LOVES REAL ESTATE SO HE GAVE IT ALL THE TAX BREAKS"

…rich people pay little or no taxes. But it is the law and has been for a long time. Tax breaks were put there for a reason. The reason is to stimulate investments in Real Estate and industries in need of capital. We hear a lot about tax reform and areas of tax shelter that might be affected. We have been hearing that since the 1960s. Sure, we are always going to have more tax reform, but it is a safe bet that the basic tax advantages of Real Estate will remain intact.

Tax Loop-Holes Are For Everyone

The tax laws favoring Real Estate are for everyone, not just the rich. To take advantage of those laws does not require a battery of attorneys and accountants. The basics are quite simple.

With today's high taxes, the tax consequences of any investment can be among the most important considerations. …you must look at and at least begin to understand the basic workings of why Real Estate is such a good investment from a tax standpoint, and how you can get the most distance out of current tax laws.

When I bought my first income property, I had in mind making big capital gains. At the end of the first year, I was surprised and delighted in the gain from several improvements I had made, if I sold it then. But the real shocker was the added advantage the property gave me in the amount of taxes I would not have to pay, and the amount from other earnings that was sheltered!

Tax Shelters Work Quite Simply

The basics of what makes a good investment from a tax point of view are quite simple, although many people do not understand them. With income property, not only can interest can be deducted, but also depreciation. It is an expense that you deduct from income after all other expenses. Sometimes a property will generate CASH profit each year, but no longer show a TAXABLE profit (on paper). In fact, it may even show a taxable loss that can be deducted from other income, including salary, wages, and return on other investments.