Landlords get all the same tax breaks that you do on the houses they own – and live in – but, in addition, landlords also get a ton of additional tax breaks on ALL their rental properties that you don’t get on your one house.
There are several things that require clarification in your list.
1) Depreciation is real, though a non-cash expense. Depreciation is the loss of value in a property due to maintenance costs (which increase over time) & obsolescence (represented by the need to upgrade the property over time).
2) Cash-out refinances are simply borrowings which have no impact on the taxable gain on sale of the property. The gain is calculated based on the basis of the property, not the borrowing of funds that are not used to improve the property. And interest on the borrowing is not deductible unless the funds can be traced to property improvements or the purchase of a new rental.
3) Capital gain rates are the same for individual investors (landlords) & homeowners. Homeowners can exclude up to $500,000 of gain on the sale of a primary residence if certain conditions are met (e.g., own the home & use it as a primary residence for two of the five years prior to sale). That's one reason why it may be a good idea to convert a rental to a primary residence in order to exclude a large portion of the gain on the sale of a property.
4) The pass-through business deduction or qualified business income deduction is available to investor / landlords who are in the trade or business of renting properties. This isn't typically for investors in a single rental, but may be available if several rentals are owned. It is another non-cash expense which makes investing in rentals a lot more profitable.
5) Losses on rental properties may be deductible under the passive loss rules against "active" income like wages. The passive loss rules are far more complicated than can be explained here - but they are critical to making the tax rules work for the investor.
6) The basis step-up rules are a valuable planning tool for managing income tax liability for the individuals who inherit rental property. Whether or not the inheritance is maintained as a rental or is sold, the basis step-up eliminates all capital gain prior to the death of the individual investor / landlord.
7) Tax treatment of losses is another big item in tax planning. Even if passive losses are not deductible in the year incurred (see note above about the complications of the passive loss rules), it is often possible to trigger passive losses in the year of sale to offset the capital gain generated by the sale of the rental. It may be better to sell the rental than to execute a §1031 exchange because of the triggering of these passive losses in the year of sale.
8) It is possible to reap additional benefits from being a real estate professional for tax purposes. This requires a great deal of documentation in order to prove that an investor / landlord qualifies for these additional tax benefits.
Although real estate investment is a very tax advantaged investment opportunity, I don't agree with the comment by Clayton Morris. The cash flow savings from tax breaks are often tax deferrals which may become permanent under certain circumstances. The cash flow savings allow for the faster accumulation of wealth, but the economics of the rental are always the primary consideration.
There are several things that require clarification in your list.
1) Depreciation is real, though a non-cash expense. Depreciation is the loss of value in a property due to maintenance costs (which increase over time) & obsolescence (represented by the need to upgrade the property over time).
2) Cash-out refinances are simply borrowings which have no impact on the taxable gain on sale of the property. The gain is calculated based on the basis of the property, not the borrowing of funds that are not used to improve the property. And interest on the borrowing is not deductible unless the funds can be traced to property improvements or the purchase of a new rental.
3) Capital gain rates are the same for individual investors (landlords) & homeowners. Homeowners can exclude up to $500,000 of gain on the sale of a primary residence if certain conditions are met (e.g., own the home & use it as a primary residence for two of the five years prior to sale). That's one reason why it may be a good idea to convert a rental to a primary residence in order to exclude a large portion of the gain on the sale of a property.
4) The pass-through business deduction or qualified business income deduction is available to investor / landlords who are in the trade or business of renting properties. This isn't typically for investors in a single rental, but may be available if several rentals are owned. It is another non-cash expense which makes investing in rentals a lot more profitable.
5) Losses on rental properties may be deductible under the passive loss rules against "active" income like wages. The passive loss rules are far more complicated than can be explained here - but they are critical to making the tax rules work for the investor.
6) The basis step-up rules are a valuable planning tool for managing income tax liability for the individuals who inherit rental property. Whether or not the inheritance is maintained as a rental or is sold, the basis step-up eliminates all capital gain prior to the death of the individual investor / landlord.
7) Tax treatment of losses is another big item in tax planning. Even if passive losses are not deductible in the year incurred (see note above about the complications of the passive loss rules), it is often possible to trigger passive losses in the year of sale to offset the capital gain generated by the sale of the rental. It may be better to sell the rental than to execute a §1031 exchange because of the triggering of these passive losses in the year of sale.
8) It is possible to reap additional benefits from being a real estate professional for tax purposes. This requires a great deal of documentation in order to prove that an investor / landlord qualifies for these additional tax benefits.
Although real estate investment is a very tax advantaged investment opportunity, I don't agree with the comment by Clayton Morris. The cash flow savings from tax breaks are often tax deferrals which may become permanent under certain circumstances. The cash flow savings allow for the faster accumulation of wealth, but the economics of the rental are always the primary consideration.
Thanks!