Happy October, and welcome to Q4 2022! You’re probably formulating your holiday plans right now … and it wouldn’t hurt to start formulating a Q4 capital allocation plan along with it.
Q4 is a busy time at MartelTurnkey. Our long-time investors usually pull up their shopping carts, looking for deals. Of course, this means our inventory will probably get far more slim over the next month or two, so if you’re thinking about investing, we should probably move forward the conversation ASAP.
Why is Q4 a great time to invest? The answer, as it so often is in real estate investing, is tax advantages. Buying a turnkey rental in the back quarter of 2022 can make the tax return you file in April 2023 much happier. (Or at least, happier for you. Maybe not so happy for the IRS.)
You get two major tax advantages for investing in Q4 …
Deductible Expenses
As we have discussed in previous articles, real estate investment is a business. If you own rental real estate — even a single turnkey rental house or condo — you are a business owner, and as such you are eligible to deduct a slew of expenses that homeowners just don’t get to.
Homeowners get to deduct their mortgage interest … but they don’t get to deduct their insurance premiums, repair expenses, utilities, etc.
This is true of every real estate investment, but Q4 amplifies that effect. The most expense-intensive times in the life of a real estate investment are at purchase and at sale. In the case of purchase, you have closing costs, loan fees, and startup costs.
That’s a lot of deductible expenses that you can tack on to your 2022 tax return at the eleventh hour. There are ways to maximize that deduction even more — for example, pre-paying your insurance premiums for a full year.
Year-1 Depreciation
Again, we’ve talked about this before, but it bears repeating — depreciation is a real estate investor’s best friend.
What is it? It’s a deduction you’re allowed to write off your taxes for “wear and tear” of the property, based on the assumption that the property gets less valuable with age and use.
Of course, real estate tends to appreciate in value over time … but you still get to take the deduction. It’s a writeoff that you don’t have to actually spend money to claim!
Homeowners don’t get to do this — only real estate investors. You have to “recapture” that depreciation if you sell the property for a profit … but your recapture of that depreciation may be capped.
You can start depreciating your property as soon as you acquire it. Your first-year depreciation will be prorated based on the percentage of the year you owned the property.
For investors who want more deductible expenses in 2022, investing in real estate in Q4 is a no-brainer.
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If you want these tax advantages for 2022, time is running out. Our inventory is limited, and we expect significant demand per usual in Q4. If you want one of these renovated, tenant-in-place, cash-flow-generating turnkey rentals to be yours, reach out to us today!