Experts suggest employing tactics such as maximising depreciation deductions and factoring in passive income can amplify profits in real estate.
The real estate sector involves complex taxation norms and it is often very hard to understand the tax liability on real estate investments. However, experts share a whole host of measures which can help individuals save on tax outgo on real estate investment. From depreciation deductions to passive income considerations, these tax hacks can help in maximising profits in the complex real estate sector.
Depreciation deductions
One of the most powerful weapons in a real estate investor’s arsenal is depreciation deductions. This strategy acknowledges that assets, including properties, diminish in value over time. By deducting a portion of this value loss as an expense investors can significantly lower their taxable income.
“Accurate utilisation of depreciation deductions can substantially reduce an investor’s tax liability, allowing them to retain a larger portion of their earnings,” explained Gunjan Goel, Director, Goel Ganga Developments.
Strategic timing
“Timing plays a pivotal role for both short term property buyers and land owners. For property short term buyers, careful consideration of tax deadlines is essential. Avoiding year-end property sales can prevent a sizeable chunk of profits from being consumed by taxes. Moreover, purchasing building materials and addressing repairs early in the year can translate to immediate tax deductions,” said LC Mittal, Director, Motia Group.
“On the other hand, land owners benefit from understanding the active versus passive nature of rental properties and losses. Partnering with a tax professional well-versed in real estate investment can aid in devising a tax-efficient strategy,” he added.
Agricultural land investments
Investing in agricultural land offers distinct tax advantages in India. Capital gains taxes may not apply to the sale of agricultural land, presenting a unique opportunity for investors to grow their wealth tax-efficiently. Additionally, the evolving landscape of agricultural investments, such as organic farming and fractional holdings, provides avenues for generating passive income.
Document everything
Successful tax planning hinges on meticulous record-keeping. “Real estate investors, particularly land owners, must document all financial transactions and property management activities. This documentation not only helps in accurate tax reporting but also demonstrates active participation in property management for potential tax benefits,” said Gunjan Goel, Director, Goel Ganga Developments.
Leverage expertise
Given the intricacy of tax laws in real estate, partnering with experienced tax specialists is imperative. “To effectively harness these opportunities, it’s essential to work closely with proficient tax professionals specialising in real estate,” emphasised LC Mittal, Director of Motia Group.
