Are There Tax Benefits for Owning Land?

Being a property owner can come with an abundance of benefits, including tax breaks that can ease the financial burden of owning a property. 

The team at SRC Land is very knowledgeable about the tax benefits that come with owning land. We would love to share what’s in store for those who own property or are considering buying property for sale in Harlingen, TX. 

Growing From Tax Protection

Most property owners strive to make their properties more valuable over time. Some growth can come from your mortgage payments, which increase your equity ownership of the property. 

Other instances of growth include the doubling of your property’s value due to a prosperous market or as a result of increasing net operating income. The IRS doesn’t recognize capital gain unless you sell the property, therefore, your revenue continues to grow as long as it stays in the property. 

Fewer Taxes Due To Cash Flow

The IRS only requires you to pay taxes on the profit you earned from your property. If you want an approximation of how much you profited, add all of your sources of income and subtract it from your land expenses. 

Expenses include:

  • mortgage interest
  • repairs and renovations
  • property taxes
  • management fees
  • cost of travel

Depreciation of your land allows you to write off some of the property’s purchase price. It is at no cost to you to acquire the depreciation deduction, and doing so can help counteract other income, decreasing your tax liability.

Passive Activity Loss Deductions

Expenses made on your investment property usually result in a taxable loss.

The IRS allows you to claim at least $25,000 in passive activity losses from rental real estate against your income. To qualify for this benefit, your modified adjusted gross income must be under $100,00 or less than $50,000 if you file separately from your spouse (if married). If your income is more than the modified adjusted gross income, you are eligible to claim a passive activity loss of $1 for every $2 of income. 

Exchanges Excluding Taxes

If you sell your land and use that money to invest in buying more land, regardless of the differences, you can arrange the sale as a tax-deferred exchange. 

You can take the cost from your previous property into your new land while abiding by the IRS rules. The IRS doesn’t perceive this kind of transaction as a sale, so you are not obligated to pay any capital gain taxes or depreciation taxes on the transaction. 

Long-Term Capital Gains

It is greatly suggested to choose long-term capital gains to be less taxed in regards to selling and paying capital gains. Taking this suggestion will grant you the opportunity to deposit on your deductions to decrease your taxable summary.

When you rent out the property, you should expect it to go through some wear and tear. That would be seen as the depreciation of the property, which you can eliminate. Even if your property has an abundant cash flow from rental prices, you can remove depreciation costs from wear and tear. 

SRC Land Wants To Make Your Dream of Owning Property a Reality

Owning land can be one of the best investments to make because of potential profit and tax deductions. 

SRC Land gives anyone and everyone who wants to own land a chance to make it possible. If you are interested in seller-financed land for sale in Harlingen, contact us today!

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