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 Eleanor's case: In 2018, Eleanor has an adjusted gross income from one job of $40,000 (not including any deductions from real estate loss). In addition, Eleanor owns an apartment building that she rents out throughout the year. The revenues she received from her apartment building amounted to $120,000 in rent payments for the year. The operating expenses (maintenance, mortgage interest, and so forth) amounted to $72,000 for the year. Her income (before subtracting depreciation expenses) for the apartment building is therefore (her rental income minus her expenses). Her accountant has informed her that the apartment building can be depreciated up to $54,000 for tax purposes in 2018. Because her modified adjusted gross income (MAGI) is less than $100,000, she can subtract of the depreciation expense from her rental income (and thus not pay taxes on that amount), and the remaining $ be written off against her ordinary income. of the depreciation Suppose Eleanor is interested in purchasing an additional apartment building as an investment. She has $60,000 in cash and can borrow an additional $150,000 at an annual interest rate of 10% to purchase a property costing $210,000. If the property is expected to generate $25,200 per year after expenses, then the benefit from leveraging the investment the cost of paying interest on the loan. Her income (before subtracting depreciation expenses) for the apartment building is therefore Her accountant has informed her that the apartment building can be depreciated up to $54,00 adjusted gross income (MAGI) is less than $100,000, she can subtract not pay taxes on that amount), and the remaining $ of the depreciation $54,000 (her rental income minus her expenses). rposes in 2018. Because her modified of the de $48,000 expense from her rental income (and thus ten off against her ordinary income. $6,000 Her accountant has informed her that the apartment building can be depreciated up to $54,000 for tax purposes in 2018. Because her modified adjusted gross income (MAGI) is less than $100,000, she can subtract of the depreciation expense from her rental income (and thus not pay taxes on that amount), and the remaining $ of the $48,000 be written off against her ordinary income. Suppose Eleanor is interested in purchasing an additional apartment by $6,000 investment. She has $60,000 in cash and can borrow an additional $150,000 at an annual interest rate of 10% to purchase a property cos 00. $54,000 Her accountant has informed her that the apartment building can be depreciated up to $54,000 for tax purposes in 2018. Because her modified adjusted gross income (MAGI) is less than $100,000, she can subtract of the depreciation expense from her rental income (and thus not pay taxes on that amount), and the remaining $ of the depreciation be written off against her ordinary income. cannot Suppose Eleanor is interested in purchasing an additional apartment building as an i $150,000 at an annual interest rate of 10% to purchase a property costing $210,00 can also She has $60,000 in cash and can borrow an additional Suppose Eleanor is interested in purchasing an additional apartment building as an investment. She has $60,000 in cash and can borrow an additional does not outweigh interest rate of 10% to purchase a property costing $210,000. outweighs ected to generate $25,200 per year after expenses, then the benefit from leveraging the investment the cost of paying interest on the loan.