7 Great Tax Benefits of Investing in Real Estate

Apart from the passive income that real estate investments can throw off, there are other benefits that can accrue to investors as well – including some that aren’t quite as obvious as mailbox money showing up every month. Taxes are an important win you can get from properly structured real estate investments.

There are a few parts of the tax code that especially favor real estate, and of course, it makes sense to ensure you’re able to derive benefit as much as you can from those areas. In this post, which originally appeared on Passive Income MD, learn about the different tax benefits real estate can give you.

I’ve previously mentioned the top ways to make money through investing in real estate. As a quick summary though, the main four ways to do this are: 1. Appreciation – The property goes up in value over time. 2. Cash Flow – Real estate can be a source of monthly recurring cash flow. 3. Mortgage paydown – Your mortgage gets paid down by your tenant increasing the amount of equity you have in the property.

Capital Gains


Depending on the length of time that you hold the investment before selling it, those capital gains can be classified as either short-term (less than a year) or long-term (a year or longer). Short-term capital gains are taxed as ordinary income, so it depends on whatever tax bracket you’re.

1. Short-Term and Long-Term Capital Gains

However, long-term capital gains fall into one of three buckets depending on the income and your marital status. See the chart below.

So, with all that in mind, let’s say that you sold a rental property for a profit of $450,000. As a married couple filing jointly, you would be paying a capital gains tax of 15% on that profit, which equates to $67,500. Compare this to if you had to pay the normal 35%. If you’re in that tax bracket, you’d pay $157,500– a $90,000 difference!

This exclusion according to the IRS states that “if you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse.”

2. Capital Gains Home Exclusion Tax Benefit