Here’s a hot potato that’s somewhat counter-intuitive. One side asserts that higher taxes would crimp growth and personal spending. The other side says it is necessary to balance the budget and to allow the government to make critical infrastructure investments that will stimulate growth. Here’s our real estate two cents in the discussion. It really is a stalemate. Taxes may be necessary to reduce the budget deficit but the other side argues that the government is the worst place to send money as they will spend it least efficiently. This is like religion and we can’t solve it here. But we thought that we would take a look at some tax changes that are on the table. The first is the dividend tax that according to the Wall Street Journal, could go from 15 percent to 18.8 percent or 43.4%. What does this mean for investors? Investors like dividends for regular cash flow and the fact that it gets taxed at a lower rate. If the taxes go up, other cash flow instruments start looking attractive. Like what? You got it – Cash Flow Real Estate. Investors can own a real asset and earn comparable if not better yields than dividend stocks. The higher dividend taxes might just level the playing field for cash flow real estate investing for investors looking for a steady check. What’s more the cash flow check comes in every month.
The other tax is the holy grail of real estate. The mortgage interest tax deduction. So this tax is really an elimination of the mortgage interest deduction on your 1040. There is much noise about eliminating this or limiting the total amount of deductions based on income. So for many wage earners this would either limit or cut off a major piece of the mortgage interest deduction. This might tilt the scale towards renting over buying a home to live in. Many who buy homes do so for potential appreciation, but also for the tax write off. If the write-off is gone or limited, many may rent homes to live in and put their money elsewhere – like cash flow real estate. Buy for cash flow and not for appreciation. So what does all of this mean for you the real estate investor? It means an already great idea could get even better. But as always, you need to buy right – the right rental property in the right location – and for that go to HomeUnion®.com.