Most investment property in America produces a healthy return and a positive cash flow for its investors. Nevertheless, the way the tax laws are written, even such property with a positive cash flow turn into tax write off against the earned income of its owners. This occurs through depreciation and costing methods of accounting which are completely above board. In actuality, as an incentive to real estate investment, which again is the very foundation for all other enterprise, the government allows for attrition and obsolescence when there really may be none. All assets do in fact depreciate in value whether they be auto, machinery or houses. But historically real estate is the one commodity which, though it is subject to this law, still does continually increase in value. One reason the government is so liberal in their tax allowance is to provide incentive for upgrading and modernizing.

So, property tax shelter is quite an anomaly in comparison to other opportunities of investment. I personally know of no other such vehicle that provides an equal return. Some investors even go to the extent of hiring a chattel appraiser after they have purchased a property. The appraiser goes in and puts a valuation on all of the accoutrements of the property to include drapery and blinds, light fixtures and appliances – the works. When these are added to the real estate proper it raises significantly the bottom line.

In the first place, mortgage interest paid is fully deductible from one’s income for loans up to the hefty figure of one million dollars per year. That applies to the initial procurement of the property, building costs and also loans used for the improvement or remodeling of the real estate.

In addition to that, other costs associated with real estate loans are deductible, including the “points” initially paid for new loans and other loan origination fees as well.

For income producing property much more is deductible, including repairs to the property, and, like any business, loss and business expenses related to the property. An investor should always save his receipts for the repair or improvements to the property, as well as keep a record of miles driven to collect rent and get building and repair materials. Recurrent fees incurred for upkeep and maintenance of the property, administration and collection fees for overseeing the property and rents, professional and consultation fees are all deductible.

When one sells a piece of real estate, one must be aware of the capital gains. After the sale, the homeowner or investor has a limited amount of time, varying in different states, in which to reinvest the funds he has realized as a gain from the sale of the real estate without being taxed on the profit.

All of the front-end expenses of procuring a new property can be deducted, such as mortgage closing costs, Realtor fees, title fees etc. Exemptions can be up to $250,000 for single tax payers and $500,000 for married couples.

Remember, this information is meant to point you in the right direction, but a tax specialist should always be consulted for the particulars of your situation.