Investing in Hawaii real estate is arguably one of the best financial decisions. Moreover, real estate investors in Hawaii enjoy multiple tax breaks, thanks to the Tax cuts and Jobs ACT of 2018. In this post, we are going to break down some of the potential benefits accruing from investing in the real estate in Hawaii. Therefore, if you were looking forward to buying that new condominium in Kailua or putting up an apartment in Maui, you would want to familiarize yourself to these tax benefits. Besides, we will analyze the 2018 Tax Cuts and Jobs Act to see what is means for real estate investors in Hawaii.
An Overview into the Tax Cut and Jobs ACT of 2018
December 2017 was the year when significant tax reforms affecting real estate investors in Hawaii was introduced. On the surface, these tax reforms felt like they were bad for the real estate investors. However, going through the fine print I have come to realize that real estate investors stand to gain big time.
Therefore, the real estate investors in Hawaii and various other states have come to realize that the new tax law comes with an array of positive changes. This is to the federal income tax depreciation rules applicable on the real estate industry. Therefore, for realtors and real estate investors the 2018 tax reforms is arguably the most significant change to the US tax law since the 1986 Tax Reforms ACT.
The real job for real estate investors is that the new law made a number of significant positive changes to the federal income tax depreciation. The more informed real estate investors Hawaii understand the tax incentive that real estate investments come with. Therefore, it is important that we enlighten you on the few things that the real estate investors should know about the changes. However, it is worth noting that these benefits are available when you use the property as an investment. Therefore, the personal residence properties do not apply here.
Here are the major Real Estate Tax Benefits
- Tax Deduction on Real Property Depreciation
Whether you own rental properties or commercial properties in Hawaii, you qualify for the real property depreciation – tax deduction. The real estate depreciation is the income tax deduction that allows the taxpayer to recover the cost incurred on property improvements. Therefore, for the owners of residential property, this is available for the next 27.5 years since the date when the property was first placed rented out. For the commercial property, the benefit is available for the next 39 years since the first rental date. Various improvements can be made on a property. For instance, building of a tennis court, a storage building or garage, parking lot, or even constructing a swimming pool within the area where the residential property is built. The real estate depreciation tax deduction was introduced on the basis that rental property is actually declining over time because of tear and wear. To enjoy this benefit, the taxpayer must proof of property ownership.
- The personal Property Depreciation – Tax Deductions
The tangible personal property is a tax term that describes the personal property that could be physically relocated. This includes furniture, washers, dryers, and other appliances. The idea is that when purchasing an investment property, some of the inclusions with the sale are considered as personal property and not real property. In most cases, the tangible personal property will last for more than a year, and the depreciation is faster.
- The Repairs Tax Deduction
All the costs associated with ordinary repairs and generally, property management may be fully deducted in the single tax year that the expense was incurred. This might include the cost of rewiring a property, replacing electrical fixtures or even plumbing repairs. It is recommended that property owners maximize the allowable deductions by doing repairs rather than improvements.
Apart from the benefits that we have mentioned here, the real estate investors can enjoy other benefits including:
- The maintenance and association fees tax deduction
- Property management – tax deduction
- The utilities tax deduction
- Mortgage interest deduction
- Property tax deduction
- Insurance tax deduction
- Mortgage points deduction
And much more.
Consult your tax advisor to understand the various tax benefits as outlined on the 2018 Tax reforms act. The Act allows the property investors huge benefits that accrue from owning the properties. Therefore, these benefits can be considered as incentives that encourage real estate investments in Hawaii.