Making the decision to purchase land offers lifetime benefits. The more time you have owning the property, the more your land will appreciate.
But that’s not the only benefit you’ll get out of this worthwhile investment!
As a landowner, you may be eligible for certain tax deductions depending on the property and the purpose it serves, and the land developers at SRC Land want to discuss this a little more in depth for your benefit.
But before we dive in, if you are new to buying land in Harlingen–whether it be for commercial or residential purposes–don’t forget to check out our other blogs that demystify the initial process.
Land Investors Get Deductions
As someone who invests in land, you are considered someone with hopes that it will ring in appreciation and raise in value. Whether you decide to buy raw land or property that you intend on renting out for income, deductions should be available.
- Interest Deduction
The same process someone would follow to acquire a loan to finance a home applies to investors who might need to borrow money to buy their land. Interest will add up based on how many years you own and pay for the property.
You can be eligible for deductions on interest when choosing to file taxes as an itemized personal deduction. A yearly deduction or “net investment income” is limited to the difference between the annual cost of property tax costs and investment expenses (not including interest expenses).
If you own the investment land by yourself, you may also wish to get back interest deductions on IRS Schedule E. - Property Tax Deduction
Those who have invested in property with the intent of building a home but have not yet done so may not be able to claim interest and property taxes unless they have a loan ready for the process of preconstruction.
Vacant land owners should ensure that their loan is secured before filing their taxes to offer some security being placed into their future potential home. If the loan for home building is voided, then vacant landowners may not request property taxes.
It is in your best interest to have tax deductions for “raw land” filed as a personal itemized deduction under Schedule A for those that have a loan prepared. - Rental Property Deductions
Property owners may take deductions if they happen to rent out the property by filing under IRS Schedule E along with their corporate tax return.
Depreciation deductions can be sought out if you rent your investment property for buildings like apartment-style homes or even commercial businesses. These kinds of deductions are applicable for whatever is affected by the renter.
These deductions may also apply for property improvements which are being prepared for commercial usage, including developing streets on the land for businesses to use.
Capital Gains and Reduced Tax Rates
Capital gains are the profits that investors make when selling their property, whether it be residential, commercial, or industrial property. Capital gains provide a reduced tax rate contrasted with average income tax.
There are primarily two ways this is taxed:
- Short-term: These gains on property are held in less than a year. There are no special tax benefits that come from short-term gains since it can fall 10% to 37% depending on your income.
- Long-term: These gains come from property that was upheld for more than a year. This is mostly relative to rental properties and guarantees a significantly lower tax rate when compared to short-term gains.
As an investor, you want to make sure you have leverage on long-term capital gains. Not only will you have a decreased tax rate, but you can also take advantage of deductions acquired over the property-ownership period to reduce the taxable estimate.
How Deductions are Different for Real Estate Dealers
Individuals who are investing in land for the purpose of re-selling at a higher rate are also able to apply for deductions. They would be able to access the same deductions that an investor would be, such as interest and taxes deductions. As a sole proprietor, you would file under IRS Schedule C. The only thing you wouldn’t be eligible for is depreciation bills.
Investing in Land Is a Worthwhile Investment With SRC Land
Even though you will be expected to pay off taxes when you buy land, it is a worthwhile investment due to the simple fact that land can increase in value as time progresses, or you can even make an influx of income while renting it out.
If you have an interest in investing in a property, remember that all forms of land purchasers can apply to some degree of deduction on tax and interest.
Find the right investment for you when you call SRC Land for more information on our reasonably priced properties for sale in Harlingen.
