Buy A Rental Home To Off-set Taxes?
Allen hears three ways that rental properties make money, and buying it for a tax write-off is not one of them.
QUESTION: Allen wants to know if he should buy a rental home to off-set income taxes.
ANSWER: There are three ways a rental property makes money:
1. If it rents for more than the payment. For example, if the payment is $500 and you charge $700, you make $200 minus any expenses.
2. If it goes up in value. If you buy it for $100,000 and it goes up to $150,000, then you sell it and make $50,000.
3. Writing off the house by depreciating it on a 27-year straight line schedule. You take the value of the house, not the property, and divide it by 27. If you had a $108,000 house, divided by 27, that’s $4,000 a year. That’s how much the house is going to depreciate and that’s called a tax shelter. You won’t have pay taxes on that.
You should not buy a rental property just for the tax write-off.