7 Tax Benefits of Real Estate Investing

6. Investment property can be sold in a tax-friendly way.

On disposition of the property, the owner may generally defer tax on gain by exchanging it for “like kind” property (under the 2017 Tax Act, like-kind exchange treatment applies only to exchanges of real property beginning in 2018). Alternatively, the buyer may be able to spread out the recognition of gain by using the installment method of reporting; however, an interest surcharge applies to certain installation sales of property with a sales price exceeding $150,000.

Furthermore, the installation method of reporting is unavailable for sales of real property held by the taxpayer for sale to customers in the ordinary course of the taxpayer’s trade or business. Because of IRC Section 1231, net losses on disposition may be treated as ordinary losses instead of capital losses, unlimited by the $3,000 cap on the ordinary income offset by capital losses.

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