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If you’re not familiar with real estate investment trusts (REITs), this may be something to learn more about before making an investing decision. While investing in real estate one property at a time can help you develop a steady income stream, the duties that go along with property management can cut into your profits. Alternatively, investing your money with a REIT allows you to earn regular dividends from the residential, commercial, or industrial properties within the trust.

Enjoy Bigger Tax Breaks

Most people know that the government regularly amends tax laws, but many of us leave the details up to our accountants or tax attorneys. One new revision you should learn more about concerns how the IRS deals with REITs. When you invest in a REIT, the government provides a sizable deduction. If you invest in a REIT and earn less than $315,000, you can earn a 20% discount on your joint income taxes. Those filing as an individual with a reported income of $157,000 or less can also earn the same discount on their federal tax returns.

City and State Taxes Affect Real Estate Investors Differently

Another reason to consider investing in REITs over investing in real estate locally is that city and state tax laws make it more costly to own rental property. While a property owner may invest tens of thousands of dollars in the upkeep of their rental properties, most states place a limit of $10,000 on allowable deductions. This includes deductions that are claimed from paying property taxes. If you happen to own a rental property in a high-end area, most of your profits can end up going to pay taxes in this type of system.

REITs Are Convenient

All in all, investing in REITs provides a less costly way of growing your wealth. Since the funds pay out regular dividends, it can also be used as a passive type of income and, as a fund similar to a stock or mutual fund, a REIT is more liquid than owning physical real estate. In an emergency, you can cash out your REIT ownership in less time than it would take to mortgage your physical real estate.

While there are still good and bad risks involved in investing in REITs, there are many advantages that make this type of investment more alluring. As long as you do your due diligence in researching each REIT, there‚Äôs no reason REITs can’t be as lucrative as investing in real estate in your local area.