The more you make does not necessarily mean the more you you keep (from the IRS). Reason? Taxes, of course. The more you earn, the more the government takes away from you. It is a crazy equation but there it is. More and more people are realizing that it makes sense to invest in real estate. The reason is excellent tax breaks.

Also, reflect on another fact. Capital gains' is taxed maximum at 15 percent and wage income at 35 percent. Of course, the tax benefit accrues to you providing you've held the property for twelve months or so by renting it out or living in it. Do you now wonder that an increasing number of people are turning towards real estate as a lucrative investment opportunity?

To be sure, there are definite tax benefits that accrue to you to if you are selling your home. Be mindful of the fact, though, that the residence would have had to be used in a ‘productive' capacity as in having lived there yourself or having rented it out. For sure, the real estate sector is on a downward trend but because it has enjoyed an unprecedented boom for so long, long-term home-owners need not worry. The longer time you own your home for, the higher the tax benefit. The tax applied would be a version of capital gains. The initial $25,000 is exempted from capital gains on the sale of your house. And if you are married, so much the better, your tax exemption goes up to $500, 000.

You are now able to roll over your gains made from rental property into any other ‘like-kind' real estate - including vacation homes - which you acquire for investment purposes. By doing so, you can now defer tax payments. This is as under IRC Section 1031, allowing you to roll your profits from a rental property into more real estate and defer paying taxes altogether. With vacation homes, the rule is that you can only use them for 14 days in a year on a personal basis or 10 percent of the time that it is rented out. Also, the exchange from the rental property has to be completed within 180 days. The exchange property must be identified with 45 days of the sale of the relinquished property (more info at www.1031exchange.com). However, personal residences cannot be involved in such ‘exchanges' as they are not used for ‘productive' purposes such as rentals or business. Also, the money you have to pay in terms of interest gets deducted from your debt.

As per IRS rules, you can claim tax deductions on the basis of ‘wear and tear' on your property. This is irrespective of your property appreciating in terms of value. While calculating depreciation you need to subtract the value of your land from the value of your property.

Generally speaking, self-employed people find the Federal Insurance Contributions Act or FICA to be a real pain as they are required to shell out the employer as well as employee portions of FICA. You will find however, that the income you earn from real estate normally doesn't come under FICA tax withholding.

As Robert Kiyosaki says, "It's not just what you make, it's what you keep" so With correct planning and knowledge of the tax system you stand to keep a lot more through the income you earn from real estate.