How do the tax benefits for real estate work? What can I deduct from my taxes?

We answer these and many other questions in our video blog editions.

Here is the transcript of episode 38 to read:

With real estate, you have tax advantages through depreciation. You buy a property and are allowed to deduct the purchase price, except for the land portion, from your taxes. And that means two or two-and-a-half percent depreciation, usually over 40 or 50 years,

bring you a tax advantage, because you do not have to pay tax on a large part of the rent. That is one of the very, very important advantages of real estate. Because you have many, many years large parts of the rent tax-free by the depreciation. In addition, if you buy investment property, you can deduct the interest on the loan from your taxes. Loan interest is then 100 % tax deductible if you are a landlord. And the third part besides depreciation and loan interest:

You can deduct the incidental costs for tax purposes. These are the administration costs. You will hopefully have a professional management that takes care of all the details and the costs for that, usually 15, 20, 25 €, you can deduct from the tax, so that the management costs you net a little more than half, then maybe 15 or 20 €. And you can deduct repairs. If at some point the facade is repainted and the administration takes money for it from the maintenance of the reserve,

then you don't have to pay anything for it personally at that moment, because a reserve was formed for it over many years. But the moment the facade is painted, you can deduct your share of the maintenance reserve from your taxes and receive tax benefits. That's how real estate works from a tax perspective.

On the other hand, on the income side, of course, the rents have to be taxed. And as a rule, it leads to a tax advantage, because the depreciation of the debt interest deduction and the other income-related expenses that you can claim for tax purposes represent a higher amount against the rent, especially due to the depreciation, and you therefore have a tax advantage and save more taxes than you pay in taxes. And that is a very, very important advantage when it comes to passive income for you.

Because it helps you that not only the tenant pays for you, but also the tax office.

Keywords:

Real estate, tax benefits, depreciation, capital investment real estate, loan interest, incidental expenses, debt interest deduction.