There are tax incentives for both personal residences and rental properties in Chico CA. This is one of the many advantages of investing in Chico CA. real estate as either a homeowner or a real estate investor. The tax advantages of owning real estate in Chico CA. are one aspect of investing that transcends market conditions.
Mortgage Interest Deductions advantages of Real Estate in Chico Ca
For homeowners in Chico CA, you can get a tax break on any interest payments you make on your home loan mortgage. You are able to claim all interest you pay on your mortgage as a tax deduction. If you pay 28 percent tax and you purchase a $700,000 home in Chico CA. with a 20 percent down payment and have a $560,000 mortgage at 5 percent, your mortgage interest deduction during your first year of home ownership will be just under $8,000 ($28,000 in interest times .28). There are limits on the amount of interest that can be deducted from your tax and an income threshold beyond which deductions are not allowed, but the vast majority of Chico CA. homeowners never reach these limitations.
Tax Benefits of Real Estate in Chico CA
For Chico CA real estate investors who own rental property, depreciation is a significant tax benefit.Depreciation is a deduction of the cost of buildings and capital improvements to buildings over their lifetimes. You use the figures provided by the IRS which determines the useful life of various classes of buildings and improvements in order to determine the tax break for depreciation. For example, if you purchase a Chico California home for rental worth $1,000,000, you can deduct $36,363 from the building’s income each year for 27.5 years. ($1,000,000 divided by 27.5 years.) It is possible via depreciation to make an actual cash profit on your rental income but shows a paper loss for tax purposes. In some instances, you can carry over excess depreciation to reduce the tax liability of your employment income.
Tax Exempt Profits advantages of Real Estate in Chico CA
As a Chico CA. homeowner you are entitled to an exemption of $250,000 (if you are single) or $500,000 (if you are married) of profit in your home when you sell it. To qualify for this exemption you must live in your house at least two of the prior five years before the sale. You are able to get this exemption once every two years.
Tax Deferment advantages of Real Estate in Chico CA
When you sell your Chico CA. rental property, you may take advantage of IRS code No. 1031 and put the profits into a new real estate property in Chico CA, tax-free. The 1031 exchange can be used over and over, theoretically resulting in a permanent avoidance of tax on your profits. You may also do a 1031 exchange and then refinance the new building, taking your profit out as equity, tax-free.
With these advantages in owning real estate in Chico CA, why contact the best Chico CA. realtor to fully explain these beneficial benefits.