The Best Tax Benefits of Owning Real Estate
Smart property owners explore these options to increase their tax savings.
Owning real estate isn’t just a smart investment—it also comes with significant tax advantages that can help homeowners and investors save money. Whether you own a primary residence, a rental property, or an investment portfolio, understanding these tax benefits can help you maximize your returns.
1. Mortgage Interest Deduction
One of the biggest tax perks of homeownership is the ability to deduct mortgage interest on loans up to $750,000 (or $375,000 if married filing separately). This deduction can result in significant savings, especially in the early years of a mortgage when interest payments are highest.
2. Property Tax Deduction
Homeowners can deduct up to $10,000 ($5,000 if married filing separately) in combined state and local property taxes. This deduction helps offset the ongoing costs of owning a home and can be especially beneficial in areas with high property taxes.
3. Capital Gains Exclusion
If you sell your primary residence for a profit, you may be able to exclude up to $250,000 in capital gains ($500,000 for married couples filing jointly), provided you have lived in the home for at least two of the past five years. This is a major advantage over other investments, where capital gains are typically taxed.
4. Depreciation for Rental Properties
Real estate investors can take advantage of depreciation, which allows them to deduct the cost of the property over 27.5 years (for residential rentals). This reduces taxable income each year, even if the property is appreciating in value.
5. 1031 Exchange for Investment Properties
A 1031 exchange allows real estate investors to defer capital gains taxes by reinvesting proceeds from a sold property into a similar or "like-kind" property. This strategy helps investors grow their portfolios without an immediate tax burden.
6. Deductible Expenses for Rental Properties
Landlords can deduct many expenses related to owning and managing rental properties, including:
Mortgage interest
Property taxes
Maintenance and repairs
Insurance premiums
Property management fees
Utilities (if paid by the owner)
7. Home Office Deduction
If you run a business from home, you may be eligible for a home office deduction. This allows you to deduct a portion of your housing expenses, including mortgage interest, utilities, and repairs, based on the size of your workspace.
8. Energy-Efficient Home Credits
Homeowners who make energy-efficient upgrades—such as installing solar panels, energy-efficient windows, or upgraded HVAC systems—may qualify for federal tax credits, reducing their overall tax bill.
9. Opportunity Zone Tax Benefits
Investors who put capital gains into a Qualified Opportunity Fund (QOF) that develops properties in designated Opportunity Zones can defer taxes on their gains and potentially eliminate some taxes on future appreciation.
Your Key Takeaways
Real estate offers some of the best tax advantages of any investment. Whether you own a home or invest in rental properties, understanding these tax benefits can help you save money and build long-term wealth. Consulting a tax professional can ensure you maximize these opportunities while staying compliant with IRS rules.
Are you taking full advantage of the tax benefits of real estate? Chat with us today about your most strategic opportunities in 2025.