The benefits of owning vacant land may not be apparent at first but they can certainly have a huge financial impact – especially when it comes to your taxes. That’s right!
Beyond growing in value as an investment, owning property can actually save you money as well.
At Santa Cruz Properties, we have specialized in owner financed land for sale in Hidalgo and Starr counties since 1993. We know all about the tax benefits of owning vacant property and we are here to share a few of those with you.
Consider the following information.
4 Tax Benefits of Owning Property
1. Interest and Property Taxes
Property interest and property taxes are deductible. Depending on how you choose to utilize this tax deduction you can either place these on a Schedule A form as itemized deductions or on a Schedule E form as supplemental income and loss. This way, you are still able to claim expenses even if you are subject to Alternative Minimum Tax or do not itemize your personal deductions.
Though the IRS will not allow you to apply depreciation to the land itself, you may be able to apply this tax deduction to any improvements you have made to the land such as building roads, any structures, excavations, and other construction jobs. The only condition is that this work needs to be done to support structures that are on your land.
The IRS will allow you to depreciate this work over a 15 year period which means bigger tax breaks for you.
Vacant land is an investment which does not necessarily require daily maintenance. However, you will find that it needs some maintenance over time. Good news is that most expenses regarding the maintenance and improvement of the land are tax deductible.
Expenses can include but are not limited to:
- Clean up services
- Building and construction work
- Advertising for tenants
- Operating expenses
- Gas spent driving to make sure your land is in a good state
These expenses can be quite costly so it is important to be aware of every expense you pay as you can generally deduct them from your taxes.
4. Passive Activity Loss
Passive Activity Losses (PALs) can be extremely beneficial if you own multiple properties that are not generating (much or any) gains.
After accounting for all the expenses of your property, you might find that you have actually lost money. You can use this loss to lower the total taxable income from your lands on a Schedule E form.
For example, if Plot A generated an income of $15,000 but Plot B lost you $5,000, you can claim a PAL. This way you will only be paying taxes for a total income amount of $10,000.
However, PAL does have limits. You can only claim up to $25,000 in a PAL if your adjusted gross income is $100,000 or less. If your income is $150,000 or higher you cannot claim a PAL deduction.
Let the realty specialists at Santa Cruz Properties guide you to the perfect owner financed lot.
Tax deductions can make owning land an excellent investment choice.
Santa Cruz Properties wants to make owning land possible for any family. If you are searching for owner financed land for sale in Hidalgo County and Starr County, contact us today!