Welcome to part 4 of this 4-part series on building wealth through real estate. Last, but certainly not least, tax savings are a huge benefit of real estate investing. The IRS allows real estate investors to deduct certain expenses, one of the most significant being depreciation. Depreciation allows you to deduct the cost of your property’s building over a period of 27.5 years for residential properties.
Now, let’s look at how depreciation works. If you purchase a property for $350,000, you can depreciate the “improvements”(i.e. the house itself, not the land underneath it) over 27.5 years. Suppose the land is worth $50,000, leaving $300,000 for the structure. This means you could potentially deduct around $12,272 annually ($300,000 ÷ 27.5 years) from your taxable income.
Depreciation is a paper loss, meaning it doesn’t affect your cash flow directly. But it does lower your taxable income, which reduces your overall tax burden. This can save you thousands of dollars every year, allowing you to reinvest those savings back into your real estate business or other investments.
The Takeaway
I am a real estate agent and investor, not a CPA or EA. You should always review your plans with your tax professional prior to making any investment decisions. Tax savings through depreciation can be a significant advantage for real estate investors, helping to lower your tax bill and increase your ability to reinvest. Over time, these savings can compound and contribute to the overall profitability of your portfolio.
In closing, real estate investing is a powerful tool to build wealth and generate passive income. By focusing on these four pillars—cash flow, debt paydown, appreciation, and tax savings—you can create a balanced, diversified portfolio that serves as a strong foundation for your retirement goals.
If you’ve considering adding real estate to your investment portfolio, now is the perfect time to start learning how these pillars work together. Whether you’re looking for steady cash flow, the benefits of leverage, the power of appreciation, or the tax savings, real estate can play a key role in helping you achieve long-term financial freedom.
If you’re curious whether or not real estate investing makes sense for you, give me a call to discuss your options!
Justin Rollheiser – REALTOR®
Keller Williams Realty | Diamond Partners Inc
13671 S Mur-Len Rd | Olathe, KS 66062
Direct 913-800-7653
Office 913-322-5878
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