Occasionally we find someone who is unaware of some tax advantages of owning real estate. While most of us are not accountants we have learned through classes offered by the Associations of Realtors in Coeur d’Alene, at the State and National Association levels.
Perhaps the most obvious tax benefit is the ability to take the interest paid on a mortgage as a deduction from your tax liability. Especially in the early years of ownership this may well be the largest deduction available to you. Many look at this deduction as a subsidy for homeownership. Realtors, through our political action committee, invest a lot of money to keep the deduction as necessary to our industry and to the economy as a whole.
In Idaho, we have a deduction that may be taken for a home as your primary residence. Last year the Legislature capped this “homeowner’s exemption” at $100,000 or half of the home’s market value, whichever is less to minimize your property tax on your primary home. Due to changing market conditions the Legislature initiated this cap to nail down the moving target that previously exempted half your home’s value. Legislation has been introduced this session to increase that cap to $250,000. Of course we will let you know here when and if that should happen.
If you own acreage, the exemption will apply to your home and 1 acre of your property that is considered a home site. If you have more than 6 acres, there are deductions available for grazing or managing timber that may further decrease your property taxes.
If you are a senior or disabled and are on limited income, there is an additional deduction called a “circuit breaker.” The need for this deduction has to be proven annually by providing income statements to the county which demonstrate that you meet the requirements to qualify for minimum taxes on your primary residence.
When investors buy real estate, it is for income from leasing or renting the property usually, but there are other benefits from owning investment real estate. One of the tax incentives allows the investor to depreciate the entire value of the property over a term of 32 years. Portions of the property that serve the habitable structure — appurtenances — can be depreciated in a 15-year period while appliances and other personal property to serve the tenants can be deducted over a five-year period. You can easily see the potential to earn a profit, particularly in the early years of an investment, and still have no tax liability because of the depreciation.
It is no wonder then that 37 percent of home sales last year were to people who do not intend to reside in them. Ask your tax adviser about the advantages of investing in real estate. You might be surprised to learn that you can buy real estate with your IRA.
Trust an expert…call a Realtor. Call your Realtor or visit www.cdarealtors.com to search properties on the Multiple Listing Service or to find a Realtor member who will represent your best interests.
Kim Cooper is a real estate broker and the spokesman for the Coeur d’Alene Association of Realtors. Kim and the association invite your feedback and input for this column. You may contact them by writing to the Coeur d’Alene Association of Realtors, 409 W. Neider, Coeur d’Alene, ID 83815 or by calling (208) 667-0664.