Real estate investors may take advantage of the following tax benefits:
- Gains on the sale of investment property may be taxed at capital gain rates.
- Depreciation can provide a source of temporary tax-free income (31.1).
- Rental income can be used to offset passive losses Chapter 10.
- Tax-free exchanges make it possible to defer tax on exchanges of real estate held for investment (31.3).
However, real estate gains may be subject to the 3.8% net investment income tax (28.3).
Losses on real estate transactions may be subject to the following disadvantages:
- Rental losses may not be deductible from other income such as salary, interest, and dividends unless you qualify as a real estate professional or for the special $25,000 rental loss allowance under the passive loss rules Chapter 10.
- Compromises of mortgage liability ...