Government Support of Real Estate Investors

Disclaimer: I am not an attorney or CPA. My knowledge in this post comes from my own investing experience. Please consult your own attorney and/or CPA on your specific investments.

The US government incentivizes and supports real estate investors because it is the best case scenario for both them and us. The government knows that housing is a basic need for citizens that must be provided. They also know it is not their job to run housing projects themselves; that’s what real estate entrepreneurs and investors are for. So the government “sweetens the deal,” so to speak, to encourage the real estate market.

Government Support: Tax Codes for Real Estate Investors

The government’s legislation controls the tax code, and that’s where a lot of the magic happens. When an incentive is written into the tax code, the economy and real estate investors respond to take advantage of it.

One such advantage is depreciation, which we discussed at length before On apartment buildings, a depreciation schedule of 27.5 years is used to write off the “paper-only” loss of depreciated value over time.

Did you ever ask why depreciation exists? Or wonder why it’s specifically 27.5 years? The answer is simple: they are government-made incentives made to incentivize entrepreneurs and investors. Other government-made incentives include accelerated appreciation, so investors can write off more depreciation up front via cost segregation.

Government Support for High Income Investors

The tax codes made by the government to support real estate investors is particularly valuable for high-income earners. The paper losses from depreciation reduces taxable income on your W-2. That means doctors, dentists, executives and other high-income earners can offset some of their income that put them in such a high tax bracket. It could even be possible the tax advantages can place them in a lower tax bracket.

I’m not a CPA myself, so I recommend you speak with your personal CPA to find out how you can reap the most advantage of your particular investment and applicable taxes.

Government Support for Distressed Communities

Real estate investors have a new tax incentive in the form of Opportunity Zones. An Opportunity Zone is a designated distressed community that is in need for real estate improvement and property development (including multifamily housing).

By investing in real estate in these zones, investors can defer and reduce their tax liability for capital gains by reinvesting their capital into an “Opportunity Fund.” This is managed by a partnership or corporation that invests its holdings into qualified Opportunity Zones.

Regulations over Opportunity Zones are pretty new and complex, so it would behoove you to talk to your CPA or attorney if investing in an Opportunity Fund is right for you. Many real estate investors have already done so, and Opportunity Zones have already become a new long-term investment strategy for real estate investors.

Government Support: Loans and Grants for Real Estate Investors

As a real estate investor, you are partnering with the government to provide affordable housing for your fellow citizens. To help aid investors in amassing the capital needed for real estate purchases, the government backs loans for Fannie Mae and Freddie Mac. These two loans have loans that are advantageous to entrepreneurs and real estate investors.

By doing this, the government is focusing on the fact housing has to be affordable. If the cost of real estate is too high, investors would recoup the cost by raising rent prices. Instead, favorable loans and tax benefits keep costs low so rent can likewise be kept reasonable.

A federal block grant also available to investors is the HOME Investment Partnership Program. Funds from this grant are distributed by local government organizations to those who provide affordable housing (either for rent or ownership). Real estate investors can request this grant by partnering with these organizations. The annual grant allocation for HOME is just about $2 billion.

The government has set up a variety of grants to help fund real estate investors who want to improve, build, or even just purchase a real estate property. To receive grants, you have to look for and apply directly for them.

Partnership between Real Estate Investors and the Government

Uncle Sam needs you! Instead of a pointed finger, he’s extended a hand in partnership to real estate investors. Uncle Sam needs affordable housing for his citizens, and you have the ability to invest and provide that… all the while reaping the benefits of the tax codes and loans the government has put in place to incentivize you.

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Delphine Nguyen, Investor

Delphine Nguyen is a real estate investor and a licensed real estate broker in Illinois. She learned to be successful from a variety teachers, including her own mistakes. Real estate investing is her passion. Helping others to achieve their goals is another passion that she has. She does what she knows best, therefore, her focus is solely on multifamily and co-living investment types.

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