Robert Kiyosaki: Why You Should Invest in Real Estate for Tax Advantages
Written by
Yaël Bizouati-Kennedy
Edited by
Cynthia Measom
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Robert Kiyosaki, the bestselling author of “Rich Dad Poor Dad,” explained in a “Rich Dad” article that there are many reasons why investing in real estate can be beneficial for your taxes.
“I want to talk about how awesome investing in real estate is for saving money on taxes,” Kiyosaki wrote. “But first, I want to establish why the tax code is so important for the rich … and how the poor and middle class simply think differently about taxes than the rich do.”
Kiyosaki further argued that one of the most powerful (and his favorite) ways of using taxes to get richer is through real estate.
Here are some ways investing real estate can help reduce your taxable income.
Deductions
Kiyosaki explained that you deduct certain rental expenses, including mortgage interest, property tax, operating expenses, depreciation and repairs from your tax return.
“Make sure to keep track of deductible expenses, such as receipts, in case you are audited,” he wrote. “Also, keep track of any travel expenses you incur for rental property repairs. The IRS is a great place to read more about real estate deductions.”
Pass-Through Entities
A pass-through deduction allows you to deduct up to 20% of your qualified business income on your personal taxes. Kiyosaki said that this basically makes 20% of your profits tax-free. However, he warned of limitations and exceptions and recommended that you consult with your tax advisor first.
Low-Income Housing Tax Credits
The Low Income Housing Tax Credit program provides tax incentives to encourage developers to create affordable housing, wrote Kiyosaki.
“As an incentive to make equity investments in affordable rental housing, private investors receive a federal income tax credit,” he added.
The two main components that owners and developers must meet to qualify for the low-income housing tax credit involve income tests and gross rent tests, Rocket Mortgage explained.
Historic Building Tax Credit
The 20% federal historic building tax credit is a financial incentive that supports investment in historic buildings.
“It encourages private property owners to rehabilitate historic properties for an income-producing use, such as rental housing, office, retail, manufacturing and entertainment space,” according to the Department of Housing and Urban Development. “It is an important tool for the redevelopment of historic Main Streets and can be a catalyst for neighborhood and downtown revitalization.”
In addition, Kiyosaki noted that with the Tax Cuts and Jobs Act, taxpayers must now take this credit over five years instead of in the year they placed the building into service.
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