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Tax shelter is one of the returns connected with real estate investment that benefits income property ownership. The tax shelters benefits provided by the tax code, a real estate investment can shelter some of its own income from taxation and occasionally shelter income received from other investment sources as well.

In fact there are two allowable deductions for real estate investment properties that provide tax shelter. Mortgage interest is the first of these deductions. The IRS allows you to deduct the interest you pay on the mortgage you obtained to acquire the income property. The advantage to real estate investors is that interest is really a cost connected with acquisition of property rather than operating it and the argument can be made that tenants really pay the mortgage interest for the real estate investor. Depreciation deduction is a second source of tax shelter. In this case, the IRS allows you to assume that the buildings not the land are wearing out over time and becoming less valuable, and as such permit you to take a deduction for that presumed decline in the value of your asset.

Furthermore, Depreciation is a non-cash tax shelter deduction. In full fulfillment with the tax code, you get a deduction that is not an operating expense and therefore does not affect your cash flow. In addition, depreciation can shield some or all of your property’s year-to-year income from taxation and in some cases when the depreciation deduction is large enough, it can even exceed the amount needed to shelter the property’s own income and provide tax shelter for other investment income as well.

As a matter of fact, there are other components to tax shelter. For instance, you can typically reduce capital additions over the same useful life, starting when they are placed in service. You are allowed to repay closing costs associated with the acquisition of an investment property over the same useful life and you can repay loan points over the number of months of the loan term and write them off. They kept it simple just to give you the idea of how tax shelter is associated with real estate investment and how it can benefit income property ownership.