Tax Advantages of Owning Rental Property
Author: Alvin Clavines
The three major taxes that we pay by law are Federal tax, State tax and FICA tax. The percentages someone gets taxed depends on several different factors. But the thing you have to remember is that it is a myth if you think that the more income you make the more you get taxed in a higher bracket. If someone informs you that, it only proves they have no clear understanding of how the federal tax system works.
To clearly understand how government taxation works, particulary the deductions, let us use an example so you can appreciate this better. Say, for example, our taxpayer is John and he decides to buy a house in January for two hundred fifty thousand dollars. He does not have any money to pay for the down payment so he will make a full loan. He takes two loans: an 80 percent and a 20 percent loan. The eighty percent loan has 6.5 percent mortgage rate and the twenty percent has an 8 percent mortgage rate. So if you do the computation, on the 80 percent loan he is going to be paying one thousand eighty three dollars of monthly interest and on the twenty percent loan he is going to be paying a monthly interest of three hundred thirty three dollars.
When he bought this property there were fees included with the transaction. And one of them is the origination fee that is one percent and another one percent for the discount fee. Overall, that would be five thousand dollars in today’s market so we mormally see the seller pay for closing cost. So even if John did not pay for this five thousand dollars directly, he can still use this five thousand as a deduction for the said year.
Again, if you do the math of the loan per month, that is equivalent to one thousand four hundred sixteen dollars per month. In a year you can have sixteen thousand nine hundred and ninety two dollars and five thousand origination and discount fees, you could have a total of twenty two thousand nine hundred ninety two dollars that he can get as tax deduction for that year.
One of the a larger number of benefits of having your own home specially having rental property is getting advantage of your tax return. For the majority of those who own their own home generally involves deducting their interest market values and property taxes every year. In fact, if you are working from home you may even get a greater amount of tax deductions given that you pass the requirements surveyed from a person working based at home. To qualify for tax deductions, you need to have an exclusive home business area. It does not need to be a big room, but part of the room needs to you have your business resources and supply. But if you are using your
dining room as your business area, you do not qualify for the tax deduction since you use it both for business and personalized purposes. Surely, you will be more than glad to know how much deductions you can get and the advantages there is from having a
rental property.
if you think that the more income you make the more you get taxed in a higher bracket.
About the Author:
Casa Grande Homes with Swimming Pools come with a wealth of amenities. Locate a great property in
Litchfield Park Golf Course Property and Fixer Upper Homes for Sale in Paradise Valley.
Article Source: ArticlesBase.com – Tax Advantages of Owning Rental Property
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