Do you love paying taxes? Of course not! If you’re like me, you do your best to pay as little as the rules allow. All you need is some education and a good accountant. What many people don’t realize is that real estate investing can lower your tax bill too.
But first, a quick disclaimer: these ideas are general information only. Always talk to a qualified professional accountant before you act on them.
"Most people fail to realize that in life, it's not how much money you make, it's how much money you keep."
— Robert Kiyosaki, Rich Dad Poor Dad
Here are three ways real estate can help you keep more:
- Expense deductions: You pay tax on your net rental income, which is your rent minus eligible expenses, not on everything you collect. You can deduct property taxes, utilities, insurance, property management fees, advertising, repairs and maintenance. You can also deduct the interest part of your mortgage payments. The principal part is not deductible.
- Capital Cost Allowance (CCA): CCA lets you claim depreciation on the building and other capital assets over time, which can lower your taxable income a lot. Your accountant will also explain its limits: it can’t be used to create a rental loss, and some of it may be “recaptured” (added back to your income) when you sell.
- Capital gains: If you sell for a profit, only 50% of the gain is taxed at your marginal rate (as of this writing). Better still, you decide when to sell, so you can choose a year when your income and tax rate are lower.
By strategically planning with your accountant how and when you will pay taxes, you can minimize the impact of taxes and increase the profitability of your real estate investments. Make sure you speak with an experienced accountant before you buy a property to create a proper tax strategy.