If your child will be entering or returning to college this fall, he or she may prefer off-campus housing to living in a dorm. At the same time, you could be looking to acquire real estate property for the investment and tax benefits.
Fortunately, there’s a way you can kill two birds with one stone.
Strategy: Buy real estate property near the school and rent a unit to your child. For your child, this provides housing at a reasonable cost from a known landlord. For you, it’s a real estate tax shelter that might appreciate in value.
With this arrangement, you can even write off the cost of visiting your child at college. When you eventually sell the property, most of the gain will be favorably taxed capital gain. For 2012, the maximum federal tax rate for long-term capital gain is 15% (scheduled to increase to 20% in 2013). The maximum federal rate on gain attributable to depreciation deductions is 25%.