The 7 BEST Tax Write-Offs when Investing in Real Estate!

Here are my 7 favorite tax write offs when it comes to owning real estate or investment property and a few examples of how each of them apply. Enjoy! Feel free to add me on Snapchat / Instagram: GPStephan

Owning real estate is much more than just owning a cash producing property that provides monthly profits, what makes it really unique against almost every other investment is the tax write offs associated with it. In real estate, a return could be calculated in so many different ways besides “I get $1000 per month in rent.” What makes real estate really special is that you could often make money every month, but on paper show a loss…and this cancels out your tax obligation. Here are some of the tax write offs that make real estate a phenomenal investment.

1. Mortgage interest write off - On an investment property, the interest that you pay on your mortgage is a write off against your rental income. On a primary residence, the mortgage interest on the first $750,000 could also be a write off, potentially saving thousands in owed taxes.

2. Property taxes - This is another deduction you can write off against your rental and personal income. As a primary residence, you’re allowed to deduct the first $10,000 of your property tax against your personal income As an investment property, you can still deduct 100% of your property taxes against your rental income.

3. Depreciation - This is what often leads you to be positive in your bank account each month, but on paper you could show a loss, lowering the amount you’d pay taxes on. With rental property, you’re allowed to depreciate the asset over a certain period of time. Cost segregation analysis can sometimes speed this dramatically. However, keep in mind that because you’re depreciating a property, eventually the tax you depreciate will need to be paid at the time of sale if you DON’T 1031 it, so it’s not a tax avoidance entirely, but this works great if you plan to keep the home as a rental or eventually do a 1031 exchange later on.

4. 1031 exchange. This is a very popular real estate tax benefit that almost every real estate investor uses. This means that you can sell your property and “Exchange” it for a like property of similar or greater value without paying taxes at the time of the same sale. This is how many people can buy and sell millions without ever paying capital gains taxes, as long as they don’t sell and continue 1031 exchanging properties.

5. Capital gains exclusion on a primary residence: As long as you’ve lived in the home for 2 of the last 5 years, you can sell a your primary residence up to $250,000 HIGHER than you bought it for if you’re single, or $500,000 if you’re married, without owning capital gains tax.

6. Cash out refinance - When used against a rental property, you can refinance the extra equity in the property and pull out the profits tax free. Even though this is technically a loan you have to pay back, you’re borrowing from the existing equity and using that money without paying taxes on the money that hit your account. This gets a little more complicated as a primary residence, but on a rental, this is a huge advantage because the new mortgage you pay on the amount pulled out counts against your rental income…so you can use this money for pretty much whatever you want, hopefully just to re-invest.

7. Finally, rental property income is not taxed as self employment income, which carries a 15.3% self employment tax (not fun). But keep in mind this is also dependent on how you hold the property and specific ways you’re treating your income.

Disclosure: I am not a tax consultant or CPA. These are just a few tax advantages I have used myself and I have simplified these significantly for purposes of explaining them on YouTube. Check with your own accountant or CPA because every situation is going to be unique.

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[ahmedm]

This video was a huge help. Real estate tax benefits explained in a nutshell without trying to mystify anything or complicate things. Love it! Most people can't explain it in a simple way because they don't understand it.

[shawnblack]

Once again Graham delivers with extremely valuable information. Thank you, Graham, for sharing with us and spreading the wealth!

[jakehamilton]

The kitchen example would actually be depreciated at 5 years for the cabinets, crown molding etc and 7 years for the lighting 15 years for the flooring aside from carpets. The savings would be far more than what was described, for a $10k kitchen alone it’s probably $1, 500 a year in extra depreciation expense write offs. This could be applied to the whole house and just wipe out the income entirely and then some, resulting in a carry forward for the additional write offs. Graham is right though, depreciation can put money in your pocket as a realtor I️ have all my investor clients do cost segregation and they instantly make more money and more cash flow because of I️t.

[drakebeaulieu]

Can you make an updated video on this topic with the updated tax laws. I have many investors that I would love to share this information with.

[DarrellColemanShamrock]

Thank you for this video. There are so many people that don’t understand business taxes including myself. You’re break down is simple to understand

[Abduliscool]

People need to realize the tax code was written by landlords :D

[RosannaD.]

Graham, Thank you so much. You are a treasure trove of information! I thank God for you!

[touher]

These reasons on top of others makes real estate investing so advantageous over other types of investment. The concept of "paper loss" from a tax perspective really equates to more money in the investor's bank. Another quality video Gram. Keep it up man.

[herbertmcgurk]

Your explanations and examples are very helpful. Thank you for making the complicated world tax deductions understandable and the benefits of owning real estate investments.

[ritadougherty]

Oh wow!!! Thank you so much for this one! So excellent... Love you Graham!

[Jaacker]

You the man. Love your vids. Keep it up

[harukoyama]

Viola bought a small apartment building and sold it six years later for $300, 000. Her starting basis was $200, 000. During the time she owned the property she took $43, 000 in depreciation deductions and paid $13, 000 for a new roof (an improvement). Her depreciation deductions reduced the property's basis, but the roof improvement increased it. Her basis at the time of the sale is $170, 000. Viola calculates her taxable gain on the property by subtracting her adjusted basis from the sales price: $300, 000 – $170, 000 = $130, 000.



As you can see, when you sell your property, you effectively give back the depreciation deductions you took on it. Since they reduce your adjusted basis, they increase your taxable gain. Thus, Viola’s taxable gain was increased by the $43, 000 in depreciation deductions she took. The amount of your gain attributable to the depreciation deductions you took in prior years is taxed at a single 25% rate. Viola, for example, would have to pay a 25% tax on the $43, 000 in depreciation deductions she received. The remaining gain on the sale is taxed at capital gains rates (usually 15%, 20% for taxpayers in the top tax bracket).


So basically there is no benefit to depreciate property. Uncle Sam will get you either now or later. Correct?


Can you explain your theory that you do not need to pay tax after write off? I do not understand how it can work that way...

[ThargyalKungaTV]

This is soo informative, thanks graham

[marziyehnasirishoja]

You explain so good, I was trying to learn all these since 2days ago. But now I learned after watching your video 👍🌺

[brownue]

graham always with the fire. thanks for the info.

[Stormy_Dawn]

Had to come back & rewatch in 2021!! Loving this info!

[mojogrip]

I had to buy a notepad to watch your videos man. Good info.

[KellanJames]

The tax advantages to real estate are SO awesome, especially when compared to simple job income.

[cynthiaiskandar]

The tempo is much better. Not too fast and not to slow. And thank you for the valuable tax info

[JackandJ-La]

Awesome Info Graham.
Thanks for keeping us informed especially Tax time is coming up soon.