Tax credits for real estate investors are enormous in your overall financial planning. While many people are aware tax deductions exist, not everyone fully realizes how tax credits truly work! Learn more about them and how to put them to work for you in our latest Pitt Home Buyers post.
Know what tax credits for investors are, how they work, and how intensely they can impact your portfolio? Tax credits incentivize investors to work harder and help people while they do what they do. It will encourage the economy and revitalize neighborhoods, both beautiful things for any community. Amid deductions and the tax credits we will highlight below, real estate investors in Greenville will be able to save ample amounts on their taxes this coming year. If you don’t know much about tax credits and how they work, check out our tips below. Then contact your financial planner or CPA to learn more about how these tax credits affect you and your business. Here are a few tax credits explained for Greenville real estate investors.
What Are Tax Credits?
The IRS issues tax credits to help investors offset some of the costs they might otherwise face when it comes time to pay their taxes. All types of tax credits are available. Some of our favorites are listed below, but there are many that we do not mention here. Before taking any financial steps, consult CPA to understand better how to take advantage of your tax breaks!
Types Of Credits
Many home renovations will allow for tax credits. For instance, purchasing a property built before 1936 nets you a 10% credit to help you offset renovation costs. Green energy offers many tax credits as well. As a Greenville investor, you can elect to use things like solar, energy-efficient appliances, and small wind energy devices in your rental property to receive the Residential Energy Tax Credit. Going green not only helps the environment, but it can also reduce your bills and tax obligations!
Real estate investors in the Greenville area can receive a tax credit depending on the neighborhoods where they choose to buy property. Investors can see a hefty credit of up to 39% of what they put into the property when they decide to park their capital in low-income areas. This tax credit encourages the renewal of under-served neighborhoods and hopes to incentivize rebuilding run-down communities. While many people will avoid acquiring property in low-income areas, it’s a chance to invest in a highly appreciating and expanding part of town. Getting such a high tax credit can help keep property earnings in your pocket.
Refundable vs. Non-Refundable
The IRS offers two types of tax credits. Some are refundable, while others are considered non-refundable. A refundable credit will cut you a check if the amount of the credit is more than what you owe in taxes. On the other hand, the IRS will apply non-refundable credits to what you owe in taxes. If the credit is more than what you owe in taxes, you will not receive any money for the remaining balance of the credit. Make sure you know which kind of credit you will receive after submitting your information to the IRS.
Dealer vs. Investor
There are two categories the IRS classifies investors as if they purchase properties for a profit, an investor or a dealer. Investors are people who buy and hold a property for an extended period. They will only pay the long-term capital gains rate of 0, 15, or 20% when they sell. Dealers are property flippers. Flippers buy a house at a discounted price, fix it up, and sell it for a hefty profit. The IRS will tax the yield on these “flips” as regular income. Before you estimate your taxes in your head, make sure you classify yourself in the right way!
There are all kinds of deductions to be found as a real estate investor. However, with changes to the tax laws, these deductions are handled a bit differently. First off, you’ll be able to deduct your mortgage interest on a loan of up to $750k. You will be able to deduct property taxes levied in your name, of up to $10k. This 10k includes your state and local taxes as well.
As a Greenville real estate investor, tax credits can be tricky business. To fully understand them and how they work, consult a CPA who specializes in working with real estate investors. They will help you find and maximize the deductions and tax credits available to you. Not knowing what’s available to you can cost you a fortune over the long-term. Don’t leave money on the table! Educate yourself about the ever-changing tax code and how the rules will affect you and your business.