Ownership of investment real estate has always allowed owners significant tax advantages, which include:
Equity Wealth Tax Deferement:
As your property goes up through appreciation and inflation, and your equity grows further through debt reduction, the resulting overall gain in your equity is not taxable until you sell the property.
i.e. If you equity in a property has increased by $100,000 over 5 years, your net worth will have also gone up by $100,000, but you do not pay tax on that net worth increase until you realize the gain through selling your property.
However, until we sell the property, we can still use that net gain of $100,000 to secure further loans for other investments.
Capital Gains Taxation Rate:
Rather than pay tax at your personal marginal taxation rate on any profit you make on the sale of your property, by claiming a capital gain, the first 25% of your gain is “tax exempt” with the balance being taxed at your marginal rate.
Deductible Expenses:
As an investment property owner there are certain expenses you can claim as an expense that will reduce your personal tax payable such as:
- Advertising
- Management Fees
- Minor Repairs
- Interest Payments
- Accounting Fees
- Auto Expenses
- Maintenance
Be sure to always consult an accountant or a lawyer for detailed tax information.\