Other investment don't have these tax benefits. The only way they affect your tax is by raising them! It's a good idea to get professional tax help to ensure that your are maximizing the tax benefits from real estate.
Depreciation
Depreciation can be used to increase you deductions, which will reduce your tax burden. Improvement (the building) can be depreciated over 27.5 years. This can be deducted from any income. Other things in the house (window treatments, carpet, fixtures) can be depreciated even faster.Reducing or Eliminating Taxes on Real Estate Sales
When real estate is sold, it is often not taxed like other properties. If you sell your principle residence there is a sales tax exemption of $250,000 (or $500,00 for a married couple) if you have owned and used the property for 2 of the last 5 years. This makes it worth considering living in a investment home that you have for two years before selling it.Another way of avoiding taxes on the sale of real estate is by doing a 1031 exchange. Also known as like-kind exchanges, these allows you to sell a property and buy another one without paying the capital gains tax. A qualified intermediary must be used when doing a 1031 exchange. The IRS has a Like-Kind Exchanges Tax Tips page.