Question
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
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 Nehas case:
In 2018, Neha has an adjusted gross income from one job of $35,000 (not including any deductions from real estate loss). In addition, Neha owns an apartment building that she rents out throughout the year. The revenues she received from her 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.
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 $47,250 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.
Suppose Neha is interested in purchasing an additional apartment building as an investment. She 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.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started