Real Estate Tax Benefits for Buy-And-Hold
We’re coming up to tax season again and I thought I would share a great post from my personal accountants over at BDO about the real estate tax benefits for buy-and-hold properties…
This is my main model and I truly love it because it allows me to live my life without being totally immersed in real estate all day.
That’s just me.
So if you’re a buy and holder, or thinking about it, I’ve highlighted some of the real estate tax benefits from the original article here:
Buy-And-Hold Real Estate Tax Benefits:
Did you know that you can set up your buy and hold properties as capital assets?
This is GREAT for those of us who want that “passive” income.
Did you know there are TWO PARTS to every property?
This is something I learned without knowing I learned it 🙂
I bought Accountant in a Box years ago (before I started selling it here) and noticed there were two accounts set up for each property:
Land & Building
That means when you’re doing your books, a portion of the sale price must be assigned to the land.
The land is not depreciable – but the building IS!
So BE SURE you’re recording each of your properties correctly to take full advantage of your real estate tax benefits.
BTW - if you want to know that you ARE recording your stuff properly, do yourself a favor and grab a copy of AIAB.
It will not only save you headaches, but it will save you thousands in accountant and bookkeeping fees because you’ll have your stuff organized and ready to go at tax time.
Speaking of tax…
This is one of the best real estate tax benefits for buy-and-holds…
Now that you’ve got all your expenses capitalized, you can claim the Capital Cost Allowance (CCA) on the value of the building.
(You know, the part that was split out in the previous step 🙂 )
So you might wonder why a DEPRECIATING asset is a GOOD thing…
The CCA is a tax treatment – which as I understand from George, means that it will appear on your income statement as an expense…
But you didn’t ACTUALLY pay that expense to anyone! (Except for buying the property in the first place)
So CCA is basically holding on to some cash that would have gone to the tax man now, until later :).
We all know we’ll have to eventually PAY tax…it’s not about tax evasion…
But it doesn’t hurt to keep it in our pockets a little longer right?
There’s more detail here in George’s original post – if you like the numbers and stuff (and I know you do)…
Here’s a link to the full article: