Real Asset Investments Offer Enticing Tax Advantages
Real asset investments are just that, investments in “real,” tangible assets. These include oil wells, cell towers, senior living residences, and rental properties.
Let’s take a look at two of the most tax advantaged investing opportunities in the market today:
Oil and Gas — The Greatest Tax Advantages of All
The Oil and Gas industry offers private investors enormous tax advantages, thanks to the IRS. The US government encourages investment in oil and gas exploration activities through substantial tax incentives, including:
Intangible Drilling Costs–Investors can deduct the portion of drilling costs that the IRS considers intangible. The deduction is often taken the same year that the investment is made. Imagine investing in a drilling operation on December 31st and being able to take a tax deduction on that investment almost immediately.
Tangible Drilling Costs–Tangible costs refer to drilling equipment, which can be 100% depreciated over seven years.
Depletion Allowance–The IRS allows a 15% deduction on income from producing wells. This means that for every dollar of income, you pay taxes on only 85 cents.
The website Investopedia offers an excellent overview in, “Oil: A Big Investment With Big Tax Breaks”.
Residential Rental Properties — Growth Industry with Attractive Tax Benefits
Fallout from the real estate boom and bust of the last decade has changed the landscape for real estate investors. Rental properties are now a highly attractive asset class.
Mortgages are more difficult to obtain for would-be homeowners than they were before 2008. And many potential buyers are wary of investing in property they may not be able to sell.
These factors have led to a dramatic shift from home ownership to renting of the primary residence. The trend towards rentals is a tremendous opportunity for high net-worth investors, who can afford to purchase choice properties and maintain them as rentals until the market rebounds.
In addition to steady rental income and the potential for appreciation, inventing investing in rental properties offers attractive tax advantages, including:
Depreciation–The cost of a house, apartment or other rental property is depreciated over several years. Depreciation allows investors to shelter some of the cash flow reducing taxable income.
Repairs and Improvements–Investments in repairing and improving rental properties are deductible. Again, these deductions reduce taxable income for investors.
Interest Deduction–Landlords can deduct interest on mortgages and loans used to improve rental property. Even interest on credit cards used to purchase goods and services related to rental activity can be deducted.
How Alliance Affiliated Equities Corporation Can Help You
Alliance Affiliated Equities Corporation helps high net-worth investors enter the most desirable real property investments, including tax advantaged investments. Contact Us to find out how we can help you add real property to your portfolio.