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Tax Benefits of Real Estate Ownership
May 27, 2025

Tax Benefits of Real Estate Ownership

Supriyo Khan-author-image Supriyo Khan
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Owning real estate isn’t just about building equity or generating rental income—it also comes with powerful tax advantages. Whether you’re a homeowner or an investor, understanding these benefits can help you maximize savings and make smarter financial decisions.


Let’s explore the key tax benefits of real estate ownership and how they can work in your favor.




1. Mortgage Interest Deduction


One of the most well-known perks for homeowners is the ability to deduct mortgage interest on loans used to buy, build, or improve your primary or secondary residence.


  • Limit: As of 2024, you can deduct interest on up to $750,000 of mortgage debt (or $1 million for loans originated before 2018)

  • How it helps: Reduces your taxable income, especially in early years when interest payments are highest




2. Property Tax Deduction


You can deduct state and local property taxes (along with other SALT—State and Local Tax—payments), up to a combined limit of $10,000 per year.


  • Eligibility: Applies to both primary and secondary homes

  • Note: Deduction limit is per tax return, not per property




3. Depreciation (for Rental Properties)


If you own investment real estate, you can depreciate the value of the building (not the land) over 27.5 years (residential) or 39 years (commercial).


  • Example: A $275,000 rental property (building only) = $10,000/year depreciation

  • How it helps: You deduct this amount annually—even if the property appreciates in value




4. Deductible Operating Expenses


Real estate investors can write off expenses directly related to managing and maintaining the property, such as:


  • Property management fees

  • Repairs and maintenance

  • Insurance premiums

  • Utilities (for landlord-paid units)

  • Travel and mileage related to the property


Result: Reduces your rental income and lowers your tax bill.




5. Capital Gains Exclusion (Primary Residence)


When you sell your primary home, you can exclude up to $250,000 ($500,000 for married couples) of capital gains—if you’ve lived there for at least two of the last five years.


  • Applies to: Homes sold at a profit

  • Does not apply to: Rental or investment properties (unless converted to a primary residence)




6. 1031 Exchange (Investment Properties)


A Section 1031 exchange lets investors defer capital gains taxes by reinvesting proceeds from the sale of one investment property into another “like-kind” property.


  • Key rule: Must identify a new property within 45 days and close within 180 days

  • Benefit: Defer paying capital gains taxes indefinitely if exchanges are done repeatedly




7. Deductible Mortgage Insurance (PMI)


Private mortgage insurance (PMI) may be tax-deductible for qualifying homeowners, particularly if your adjusted gross income (AGI) is below a certain threshold (varies annually).


  • Benefit: Reduces tax burden if you bought with less than 20% down




8. Home Office Deduction


If you're self-employed and work from home, you may be able to deduct a portion of your home expenses (utilities, rent, insurance, etc.) based on the size of your dedicated workspace.


  • Applies to: Self-employed individuals or independent contractors

  • Note: Not available for W-2 employees working remotely for a company




9. Real Estate Professional Status (For Investors)


If you qualify as a real estate professional under IRS rules (750+ hours/year and more than 50% of working time in real estate activities), you can deduct rental losses against ordinary income—not just passive income.


  • Benefit: Huge tax break for full-time real estate investors




10. Tax Credits for Energy-Efficient Upgrades


Homeowners may qualify for federal and state tax credits when they install renewable energy systems like solar panels, energy-efficient windows, or HVAC systems.


  • Example: The Residential Clean Energy Credit (30% of installation costs through 2032)




Conclusion


Real estate offers more than just long-term appreciation—it provides powerful tax strategies that can save you thousands of dollars every year. Whether you own a home or invest in property, leveraging these tax benefits can significantly boost your financial returns.


Tip: Always consult with a tax professional to apply these benefits correctly based on your situation.

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