At GayRealEstate.com, we are dedicated to helping members of the LGBTQ community with all of their real estate needs. We realize that each of our clients is unique, and each client has his or own story, goals, and real estate dreams. Many of our clients have made the decision not only to purchase personal homes, but also to purchase rental and investment properties, and it has been our privilege to pair those clients with agents who know their communities well and who can help them find the perfect properties to suit those needs.
Depreciation Deduction and Recapture
Many who own real estate investment properties are aware that the tax code allows a depreciation deduction for each year you own a rental property – and certainly, a deduction is something that most of us are happy about. In fact, for many real estate investors, depreciation deductions can result in significant tax savings each year when it is time to report rental income to the IRS.
What many people don’t realize, however, is that when you go to sell the rental property, you must pay what is called “depreciation recapture”. Imagine this – you’ve owned, maintained, and successfully rented an investment property for several years. Over the years that you’ve owned the property, you’ve taken a depreciation deduction each year as you’re entitled to do, even better, the property has increased in value. When you sell it, you expect to realize a significant profit. Unfortunately, however, after you do so, you receive a tax bill and you’re hit with the sudden realization that most (or even all) of the profit you’ve made is going to taxes.
Essentially, the concept of depreciation recapture means that you have to report the gain you realize when you sell your investment property as ordinary income for tax purposes. While the concept can be somewhat complicated, in essence, it means that you all of the deductions you’ve taken over the years will be considered as taxable capital gains income when you sell. Depending on the number of years for which you’ve taken deductions, this can amount to a significant amount of taxable income.
The 1031 Exchange Option
If you’ve ever owned an investment property, you may be familiar with what’s known as a 1031 Exchange – and if you aren’t, it’s important information to learn. Also known as a tax-deferred exchange, a 1031 exchange often provides significant tax advantages to commercial and investment property owners.
This provision of the tax code allows real estate investors to sell a property, and then reinvest the profits from that property into another, replacement property in order to defer a potentially significant tax payment on the sale. There are a number of rules and details that will apply to utilizing the 1031 option, but it is one worth considering, particularly if you are planning on purchasing another investment rental property.
Call GayRealEstate.com Today
If you own a rental investment property and you are considering the possibility of using the 1031 Exchange option, it is always a wise choice to consult with your financial advisor, if you have one, and your real estate agent as well. If you need help finding a real estate agent who will work well with you and who understands the unique needs of LGBTQ real estate investors, we would be glad to help pair you with the perfect person. Call us soon 1-888-420-MOVE (6683).