February 12, 2023

The Tax Benefits of Investing in Healthcare Real Estate

If you are interested in optimizing your tax advantages, investing in healthcare real estate might be a wise financial move.

Over recent years, real estate investments in the healthcare industry have grown in popularity among many investors as a result of the persistent demand for healthcare facilities and services. Not only does this investment give consistent rental income, but it also provides investors the chance to benefit from a number of tax breaks.

So, what are the advantages of investing in healthcare real estate?

Depreciation Deduction

One of the most significant tax benefits of investing in healthcare real estate, depreciation deductions enable investors to deduct a percentage of their investment from their taxes each year, gradually helping to cover the cost of the property itself. Some of the things that you can claim depreciation on are the structure of the building and any medical equipment that you purchase for the property itself.

Cost Segregation

You can reclassify particular components of your property (into categories like land, building, and personal property) through cost segregation. As you are allowed to take larger deductions in the early years of ownership, the quick depreciation schedule can aid in increasing the number of depreciation deductions taken each year.

Capital Expense Deduction

Repairs, upgrades, and other capital expenses can be written off against your taxable income in the year they are incurred. For investors in healthcare real estate, this can be a huge advantage because these facilities frequently need large capital investments to retain their value and comply with shifting regulations.

1013 Exchanges

A 1013 exchange is essentially a tax-deferred exchange that allows you to postpone paying taxes on the sale of one property by investing the proceeds in another property that is similar to the one sold. As such, this can be a useful tool for real estate investors trying to optimize their return on investment and reduce their tax burden.

Tax Credits

Investors in healthcare real estate can also take advantage of a number of tax breaks, including the New Markets Tax Credit and Low-Income Housing Tax Credit. These credits can offer investors significant tax advantages—such as lowering their tax burden or receiving a cash reward from the government—and are intended to encourage investment in underserved communities.

Passive Loss Rules

By utilizing passive loss principles, investing in healthcare real estate can be advantageous to potential investors as regulation limits on passive losses can be used to offset passive income, such as rental revenue. As a result, investors can lower their taxable income by using their passive losses to offset the revenue from their investments.

Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) are another way for you to invest in healthcare real estate. REITs are publicly-listed trading companies that own and manage real estate investments. By making investments through these companies, investors can take advantage of the tax benefits of real estate investing without having to manage the property themselves.

To fully comprehend the financial ramifications of investing in healthcare real estate and ascertain which tax planning options are most appropriate for your particular situation, it is crucial to speak with a tax expert. Contact our experienced team at CPA Solutions for a consultation if you are curious to learn more about how to profit from your healthcare real estate investment.