WEALTH CREATION SECRET #2: USE DEDUCTIONS TO REDUCE YOUR TAXES
NOI is a great benchmark for the profitability of each property in your portfolio, but it doesn’t directly translate into more wealth. Why? It doesn’t include some important expenses, including taxes, capital expenditures and interest payments.
This is where Wheelwright and the WealthAbility® team come in. They are on a mission to educate the world about how to permanently reduce taxes — and do it in the way that the government wants it to be done.
“This isn’t about loopholes,” Wheelwright says. “The government wants enterprising individuals to invest in tangible, physical things like real estate. Why? The government needs its citizens to have housing and buildings for businesses, schools, health care facilities, and more. It is far more efficient for the private market to supply these than for the government to try to do it on its own. So, the government gives tax incentives to encourage people to invest in these assets.”
One of the ways the government incentivizes real estate investments is by offering tax deductions for many of the expenses associated with running a rental property. In some cases, you can deduct the full cost of an investment you make in your rental units all at once rather than depreciating the asset over time. These are called Section 179 deductions and include purchases of equipment, vehicles and software within certain price thresholds. Another way is to use bonus depreciation, which we will cover in more detail in part 2 of this article next quarter. Let’s look at how this works with one of the technology systems discussed earlier. Real estate investors can buy a complete access control solution consisting of cloud software and hardware,
like a smart video intercom, for example, and deduct up to 100% of the cost in the year it is bought. You’ll want to work with your tax advisor to choose the best path for your financial situation and goals. The companion cloud technology is a monthly subscription, so you would record this as a monthly operating expense when calculating income.
IN SOME CASES, YOU CAN DEDUCT THE FULL COST OF AN INVESTMENT YOU MAKE IN YOUR RENTAL UNITS ALL AT ONCE.
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