Contributed By Allen Matkins Leck Gamble Mallory & Natsis LLP
Investors holding real estate directly or through a partnership or LLC may be able to clam an interest deduction. The asset may be depreciable, and the property taxes paid by the owner may be deductible. Other expenses from the operation of the property also may be deductible. An investor may be able to use accumulated losses from a particular real estate investment to offset other income from other real estate investments in their portfolio.
Ordinary income is taxed at a different rate than capital gains. Real property gains are generally taxed at capital gains rates, rather than ordinary income rates. Real property losses, however, can sometimes be categorized as ordinary losses, which are often more useful to taxpayers in offsetting a broader category of gains. Investors may be able to defer paying taxes on gains through a 1031 exchange, by investing the proceeds from the sale of one real estate investment in a new real estate investment.