8. Specifics of real estate investment - Tax liability and leveraging Making Real Estate Investments Real estate has been a lucrative investment for many years. Real estate provides greater diversification properties as compared to equity or fixed- income investments. Two important benefits to investing in real estate are the abilities to leverage investments and to decrease tax liability. Consider Bob's case: In 2018, Bob has an adjusted gross income from one job of $35,000 (not including any deductions from real estate loss). In addition, Bob owns an apartment building that he rents out throughout the year. The revenues he received from his apartment building amounted to $105,000 in rent payments for the year. The operating expenses (maintenance, mortgage interest, and so forth) amounted to $63,000 for the year. His income (before subtracting depreciation expenses) for the apartment building is therefore (his rental income minus his expenses). His accountant has informed him that the apartment building can be depreciated up to $47,250 for tax purposes in 2018. Because his modified adjusted gross income (MAGI) is less than $100,000, he can subtract, of the depreciation expense from his rental income (and thus not pay taxes on that amount), and the remaining $ be written off against his ordinary income. of the depreciation Suppose Bob is interested in purchasing an additional apartment building as an investment. He has $40,000 in cash and can borrow an additional $120,000 at an annual interest rate of 9% to purchase a property costing $160,000. If the property is expected to generate $17,280 per year after expenses, then the benefit from leveraging the investment the cost of paying interest on the loan. 8. Specifics of real estate investment - Tax liability and leveraging Making Real Estate Investments Real estate has been a lucrative investment for many years. Real estate provides greater diversification properties as compared to equity or fixed- income investments. Two important benefits to investing in real estate are the abilities to leverage investments and to decrease tax liability. Consider Bob's case: In 2018, Bob has an adjusted gross income from one job of $35,000 (not including any deductions from real estate loss). In addition, Bob owns an apartment building that he rents out throughout the year. The revenues he received from his apartment building amounted to $105,000 in rent payments for the year. The operating expenses (maintenance, mortgage interest, and so forth) amounted to $63,000 for the year. His income (before subtracting depreciation expenses) for the apartment building is therefore, (his rental income minus his expenses). His accountant has informed him that the apartment building can be depreciated up to $47,25 $42,000 urposes in 2018. Because his modified adjusted gross income (MAGI) is less than $100,000, he can subtract, of the de $5,250 xpense from his rental income (and thus not off against his ordinary income. pay taxes on that amount), and the remaining $ $47,250 of the depreciation Suppose Bob is interested in purchasing an additional apartment building as an investment. He has $40,000 in cash and can borrow an additional $120,000 at an annual interest rate of 9% to purchase a property costing $160,000. If the property is expected to generate $17,280 per year after expenses, then the benefit from leveraging the investment the cost of paying interest on the loan. Making Real Estate Investments Real estate has been a lucrative investment for many years. Real estate provides greater diversification properties as compared to equity or fixed- income investments. Two important benefits to investing in real estate are the abilities to leverage investments and to decrease tax liability. Consider Bob's case: In 2018, Bob has an adjusted gross income from one job of $35,000 (not including any deductions from real estate loss). In addition, Bob owns an apartment building that he rents out throughout the year. The revenues he received from his apartment building amounted to $105,000 in rent payments for the year. The operating expenses (maintenance, mortgage interest, and so forth) amounted to $63,000 for the year. His income (before subtracting depreciation expenses) for the apartment building is therefore (his rental income minus his expenses). His accountant has informed him that the apartment building can be depreciated up to $47,250 for tax purposes in 2018. Because his modified i of the depreciation expense from his rental income (and thus not adjusted gross income (MAGI) is less than $100,000, he can subtract pay taxes on that amount), and the remaining of the de $5,250 be written off against his ordinary income. Suppose Bob is interested in purchasing an additional apartment build $42,000 vestment. He has $40,000 in cash and can borrow an additional $120,000 at an annual interest rate of 9% to purchase a property cos 00. $47,250 If the property is expected to generate $17,280 per year after expenses, then the benefit from leveraging the investment the cost of paying interest on the loan. 8. Specifics of real Making Real Estate Investments Real estate has been a lucrative investment for many years. Real estate provides greater diversification properties as compared to equity or fixed- income investments. Two important benefits to investing in real estate are the abilities to leverage investments and to decrease tax liability. Consider Bob's case: In 2018, Bob has an adjusted gross income from one job of $35,000 (not including any deductions from real estate loss). In addition, Bob owns an apartment building that he rents out throughout the year. The revenues he received from his apartment building amounted to $105,000 in rent payments for the year. The operating expenses (maintenance, mortgage interest, and so forth) amounted to $63,000 for the year. His income (before subtracting depreciation expenses) for the apartment building is therefore (his rental income minus his expenses). His accountant has informed him that the apartment building can be depreciated up to $47,250 for tax purposes in 2018. Because his modified i of the depreciation expense from his rental income (and thus not adjusted gross income (MAGI) is less than $100,000, he can subtract be written off against his ordinary income. pay taxes on that amount), and the remaining $ of the depreciation. Suppose Bob is interested in purchasing an additional apartment building as an can also He has $40,000 in cash and can borrow an additional $120,000 at an annual interest rate of 9% to purchase a property costing $160, cannot If the property is expected to generate $17,280 per year after expenses, then the benefit from leveraging the investment the cost of paying interest on the loan.. 8. Specifics of real estate investment - Tax liability and leveraging Making Real Estate Investments Real estate has been a lucrative investment for many years. Real estate provides greater diversification properties as compared to equity or fixed- income investments. Two important benefits to investing in real estate are the abilities to leverage investments and to decrease tax liability. Consider Bob's case: In 2018, Bob has an adjusted gross income from one job of $35,000 (not including any deductions from real estate loss). In addition, Bob owns an apartment building that he rents out throughout the year. The revenues he received from his apartment building amounted to $105,000 in rent payments for the year. The operating expenses (maintenance, mortgage interest, and so forth) amounted to $63,000 for the year. His income (before subtracting depreciation expenses) for the apartment building is therefore (his rental income minus his expenses). His accountant has informed him that the apartment building can be depreciated up to $47,250 for tax purposes in 2018. Because his modified of the depreciation expense from his rental income (and thus not adjusted gross income (MAGI) is less than $100,000, he can subtract be written off against his ordinary income. pay taxes on that amount), and the remaining S of the depreciation Suppose Bob is interested in purchasing an additional apartment building as an investment. He has $40,000 in cash and can borrow an additional does not outweigh interest rate of 9% to purchase a property costing $160,000. outweighs ected to generate $17,280 per year after expenses, then the benefit from leveraging the investment the cost of paying interest on the loan