5 Tips to Maximize Your Tax Benefits Through Real Estate

Real estate can be an incredibly effective tool for building wealth, but it also offers unique tax benefits that can significantly reduce your tax liability. Whether you’re a homeowner, an investor, or someone considering entering the real estate market, understanding how to leverage tax deductions and credits can make a big difference. Here are five tips to help you maximize your tax benefits through real estate.

1. Take Advantage of Mortgage Interest Deductions

One of the most well-known tax benefits of owning real estate is the ability to deduct mortgage interest on your home loan. If you itemize your deductions, you can deduct interest paid on loans up to $750,000 (for mortgages taken after December 15, 2017) or $1 million (for mortgages taken before that date). This can be a substantial savings in the early years of your mortgage when interest payments are the highest.

Tip: Keep track of your mortgage statements and interest paid during the year to ensure you don’t miss this valuable deduction.

2. Utilize Property Tax Deductions

As a homeowner or real estate investor, you may be able to deduct property taxes paid on your primary residence and any rental properties you own. Property taxes vary by location, but in most cases, you can deduct up to $10,000 in property taxes when you file your taxes (or $5,000 if married filing separately).

Tip: Be sure to include property taxes paid on your second homes and rental properties as part of your tax filing to increase deductions.

3. Leverage Depreciation for Rental Properties

If you own rental property, depreciation can be a powerful tax benefit. Depreciation allows you to write off the decline in value of the property over time, even though the property may still be increasing in value. For residential real estate, the IRS allows a depreciation period of 27.5 years for the building, which can significantly reduce your taxable income.

Tip: Keep detailed records of improvements made to your rental properties, as these can be capitalized and depreciated as well.

4. Use the 1031 Exchange to Defer Taxes on Investment Property

A 1031 exchange is a tax-deferred strategy that allows real estate investors to sell a property and reinvest the proceeds into another "like-kind" property without paying capital gains taxes. This is particularly useful for investors looking to grow their portfolios by selling one property and purchasing another without immediately incurring tax liabilities.

Tip: To qualify for a 1031 exchange, you must follow strict guidelines, including identifying a replacement property within 45 days and completing the transaction within 180 days of the sale.

5. Take Advantage of the Home Sale Exclusion

When you sell your primary residence, you may qualify for the home sale exclusion under IRS Section 121. If you’ve owned and lived in the property for at least two of the last five years, you can exclude up to $250,000 in capital gains ($500,000 for married couples filing jointly) from your taxable income. This is a huge benefit for homeowners looking to sell after several years of appreciation.

Tip: The home sale exclusion only applies to your primary residence, so make sure to keep this in mind if you’re thinking about selling a second home or investment property.

Bonus Tip: Consider Energy-Efficient Tax Credits

If you’ve made energy-efficient upgrades to your home, you may be eligible for tax credits that can help reduce your tax liability. Upgrades like solar panels, energy-efficient windows, or insulation may qualify you for federal tax credits that cover a portion of the costs.

Tip: Check with a tax professional to see if your home improvements are eligible for tax credits, and make sure to keep receipts and documentation for your energy-efficient upgrades.

Once you’ve filed your taxes, don’t forget to securely dispose of your documents! Join us at our FREE Lucido Spring Shredding Event to safely shred any sensitive paperwork, ensuring your personal information stays protected. Bring your documents and enjoy a hassle-free experience while keeping your space clutter-free.

Event Details: Lucido Spring Shredding Event
Date: 05.03.25
Time: 9AM-12PM
Location: 10825 Birmingham Way | Woodstock, MD 21163 (in the Weis Parking Lot)

Contact us today to set up a personalized strategy session to discuss how we can position your home for success in the spring market. Whether you're selling, buying, or investing, we’ll help you craft a plan that aligns with your goals. Get in touch today to get started!