Phil Kronlage - CPA, discusses the tax advantages of owning real estate
STEVE: Hi, this is Steve Westmark. Thanks for watching my video blog this week. Today, I’ve brought in a professional financial adviser, Phil Kronlage, who’s a CPA, to talk a little bit about the benefits of owning real estate.
PHIL: Thanks for inviting me in today. I really appreciate the opportunity to talk with you about this. I’ve been advising clients for over 35 years on whether to buy or rent property and certainly their personal residences. The reason that people like to purchase their person residence is because they get an itemized deduction for their mortgage interest and they also get an itemized deduction for their real estate taxes that they pay on that property.
And when you rent an apartment or rent a house, the full rent payment goes directly to your landlord and you get absolutely no tax benefits from that whatsoever. So when you’re looking at buying a property versus renting a property, you really have to take into consideration what the tax effects of that is going to be because that will actually put more money back into your pocket. So if the mortgage payment seems a little bit higher than your rent, you need to take into consideration the taxes that you’re going to save.
And generally, those types of expenses are deductible on your federal return and on your state return. So looking at both of those, your mortgage payment may even be less than your rental payment.
STEVE: And Phil, I know another big area that I find is a positive is when you do finally go to sell your property after 20, 30 years, there are some tax benefits for owning real estate.
PHIL: Absolutely, Steve. Right now, the government allows us on a joint return to avoid tax on the first $500,000 of gain of your personal residence if you meet all of the criteria, which is basically very easy to meet. If you’ve lived in the home for at least two years, the first $500,000 of that gain is not taxable. And if you’re single, the first $250,000 of that gain is not taxable. So it’s a great, great tax advantage for individuals who own personal residences.
STEVE: It’s important to have a really good tax professional involved in when you buy a piece of real estate. And if you kind of wondered rent versus buy analysis, I’m sure that’s something you could help anybody with if they wanted to make a call to you on that. Is that true?
PHIL: Absolutely. We basically just need to know what their tax information is to calculate their taxable income and then show what the tax would be if they purchased a home and then what the tax would be if they rented a property.
STEVE: Great. Well, thank you very much, Phil. Have a great day.
