Kay Mukaigawa of Engel and Volkers joined John Veneri on Living808 once again for great information on Investment Properties. We wanted to know the benefits.
“Here are the top 3. Income, Deductions, and Depreciation. Receiving passive INCOME is a wonderful benefit to owning investment property and having your tenant help pay your mortgage. Landlords love tenants (PAUSE)….who pay on time.
When you own investment property you can deduct operating expenses, many of which you cannot deduct from your primary residence. Some of these include advertising, maintenance fees, property management fees, repair costs, property insurance and mortgage interest.
One of the greatest benefits that many don’t understand is depreciation. The depreciation deduction lowers your tax liability for each tax year you own the property, it’s simply a tax write off.
Depreciation can only be calculated on the value of the structure and not the land. Residential properties are given a deprecation time period of 27 & 1/2 years which is equivalent to approximately 3.6% each year.
So, if you have a property that is valued at $1M and the structure is valued at $300,000, you could deduct about $10,000 in depreciation credit every year from the rental income. After owning a property for 27 & 1/2 years, depreciation ends.
When a rental property is sold, any depreciation expense is recaptured and taxed at the investor’s normal income tax rate, up to a maximum of 25%.
But please remember, these are simplified examples only, please check with your tax professional about your specific situation.”
And while that is a lot of taxes, there are options.
“The recapture tax can be avoided if you perform a 1031 Tax Deferred Exchange into another investment property.”
And you can learn more at the upcoming seminar this Saturday from 10am to noon. Call for more information at (808) 725-2000 or online at https://honolulu.evrealestate.com/