Tax refund season is here, and it could be a great thing for Michigan’s real estate market. Last year, over 111 million tax refunds were issued. This year, the IRS says it expects over 70% of taxpayers to receive a refund. Where will it be spent?
In years past, tax refunds have often been splurged on consumer goods and replaying loans. Car dealers love this time of year, as consumers are plush with cash to put toward down payments on new rides. A BankRate.com survey shows 30% of those receiving a tax refund plan to pay down debt like student loans. 28% say they will invest or save their refunds this year. 26% intend to use refund money on basics like food and utilities. Lastly, 7% of Americans say they plan to blow it on shopping sprees or vacations.
A decreasing number of Americans maintain substantial savings accounts. Higher interest rates and housing costs continue growing faster than wages. At the same time, an increasing number of people are learning about the tax benefits of living on investment income versus earned income. These upcoming investors know real estate is still one of the hottest opportunities to earn passive income.
“The early bird catches the worm”
John Ray, 1670
Of course, many higher income earners like business owners, entrepreneurs, and boomers will not receive tax refunds. Many will owe the IRS. Those not getting a refund, and concerned about their retirement finances and rising stock prices, should consider stepping up to self-directed IRA’s. These tax saving vehicles can empower individuals to invest in real estate, while keeping all the tax advantages of a 401k or IRA. More are also becoming aware of tools like 1031 exchanges, which can be used to defer taxes on real estate gains while growing an investment portfolio. This may fuel more real estate transactions throughout the state as individuals and families get serious about minimizing taxes and maximizing their finances.
Even renters can win with tax refunds, allowing them to catch up on rent or move on up. That’s a plus for landlords and investors, too!
This is your tax return, Michigan—spend it responsibly.
- Your title partners at Michigan Investment Title.