Her accountant has informed her that the apartment building can be depreciated upto $54,000 for tax purposes in 2011; therefore, she can subtract$48,000 of the depreciation expense from her rental income (and thus not pay taxes on that amount) and50% of the remainder of the depreciation amount against her ordinary income.

Suppose Terese 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 9% to purchase a property costing $210,000. If the property is expected to generate $22,680 per year after expenses, then the benefit from leveraging the investment the cost of paying interest on the loan.

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