Another major advantage of investing in real estate is all the tax benefits you’re eligible to take advantage of!
Many investors can write off costs associated with depreciation, mortgage interest, operating costs, repairs, and property tax. These incredible tax benefits are a fantastic way for investors to save and build wealth.
For example, if you are charging $2,000 rent per month and you incurred $1,500 in taxdeductible expenses per month, you will only be paying tax on that $500 profit per month. That’s a large difference from paying taxes on $2,000 per month.
The profit that you make on your rental unit for the year is considered rental income and will be taxed accordingly.
It is vital that you keep good accounting records on your investment property. If you are claiming maintenance and repairs, for example, be sure to keep those receipts as proof. If you are to be audited by the government and can’t supply the proof of expenses in form of official receipts, chances are you will be disqualified from claiming those tax deductions.
The appreciation of the property will be assessed when you dispose of the property and capital tax will come into play.
You will be taxed on the capital gains that you earned on the property from when you invested and purchased the property to the day you sold it. The difference between the sale price and the price you paid to purchase will be the capital gain, which will be taxed, but only in the year that you dispose of the property.
