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 Musashis case:

In 2018, Musashi has an adjusted gross income from one job of $35,000 (not including any deductions from real estate loss). In addition, Musashi 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 $_______ of the depreciation (Cannot / Can also) be written off against his ordinary income.

Suppose Musashi 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 ( Outweighs / does not outweigh) the cost of paying interest on the loan.