Frequently asked Tax Law Questions in Real Estate
Real estate is an ever evolving market. Land often happens to possess great monetary value. The business involving land needs to be kept under check by the government so that there are no chances of evasion or fraud. Similarly, real estate needs to be subjected to tax laws because big money involvement helps in the generation of more tax revenue. If you happen to be a real estate agent you must know about the tax laws applied to this field. You need to know about them as they can at times help you and your clients save money while making investments. We have listed down a few frequently asked tax law questions:
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Why are investors only concerned about the land and the building but not the depreciation cost?
This question has been lingering in the real estate market since ages. What real estate investors do normally is that they only consider the land and the building. By doing this they get less savings on taxes. All they need to do is to divide their investments into land, building and personal property, land improvement pairs. By doing as such, they can nail more savings on the taxes..
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What if I have an investment real estate that is part residential and part non-residential?
You must have seen such building almost everywhere in America. To state an example, consider a building with a bakery on the ground floor and apartments on the higher floors. You need to have at least 80% of the income coming from the apartments to get it listed as a residential building. As an investor you need to know that the depreciation on residential buildings is different from non-residential ones. A good example would be a building on Main Street that is a bakery on the lower level and four apartments upstairs. What type of building is that? In order to be a residential rental property, 80% or more of the income must come from the apartments. Therefore, if less than 80% of the income comes from the apartments, the building would be non-residential (residential: 27½ years; non-residential: 39 years).
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How often changes are made in the real estate tax laws?
This question is not easy to predict. You can be able to judge about this after looking at what is going on in the press. If some politician is asking for pushing laws through the parliament then you should buckle up. Similarly, you can see a tax manager. He can help you predict there the taxes might go to and they ways to save money on taxes in case there is a sudden change of rules. Overall a good tax manager will save you money than others cost you.
Whether you are an investor or an agent who specializes in investment real estate, it’s important to have a solid understanding of real estate tax laws, as well as a good tax manager. Otherwise, you may end up paying unnecessary taxes, effectively causing you (or your clients) to miss out on a lot of potential savings.