Tax Shelter

A tax shelter is a legal method of minimizing or delaying income taxes, and real estate is one of the most powerful tax shelters available. The government allows investors to deduct "depreciation" (a non-cash expense representing the theoretical wear and tear of the building) from their rental income. This often allows an investor to show a "loss" on paper for tax purposes—lowering their tax bill—even while the property is actually generating positive cash flow in the real world. Additionally, the ability to defer taxes on a sale through a "1031 Exchange" allows investors to reinvest their profits without immediately paying capital gains taxes.