Quebec, QC · Member since 2018 · 3 posts · 0 votes
Hi everyone! I hope that you are fine.
I am new in the Biggerpockets website. I have a little question and I didn't find the answer anywhere else.
Does anyone knows what is the interest rate that the government takes from the net earned income from our rental propreties?
Is it the same taxation rate on net income from real estate investments if someone buys cash a property, or if 70% of the property is financed by the Bank?
Thank you very much for your answers. Also, do you have any book recomendation about taxation in real estate? Have a great day!
I assume you are asking for these answers as they apply to real estate in Canada?
I hope a CPA familiar with GAAP/IFRS that can speak to any international differences, if any, chimes in.
My uninformed understanding, however, is that the financing picture and use of leverage is more or less completely insulated from uncle sam. I believe they are interested in your cost basis vs sell price during a sale event (for capital gains purposes) - and then for a rental, they are interested in your cash flow ie: net income minus depreciation. I know our CPA always asks for what items are 'improvements' that increase the cost basis (as I understand it) vs simply 'repairs' that would simply be a cost item from the cash flow perspective. Depreciation allows for the biggest ongoing advantage from a tax basis.
During sale events always be aware of the ability to 1031, which essentially lets you defer your capital gains til your 'endpoint' - and do like kind trades with no tax events.
There are numerous experts on those vehicles active on these forums.
I assume you are asking for these answers as they apply to real estate in Canada?
I hope a CPA familiar with GAAP/IFRS that can speak to any international differences, if any, chimes in.
My uninformed understanding, however, is that the financing picture and use of leverage is more or less completely insulated from uncle sam. I believe they are interested in your cost basis vs sell price during a sale event (for capital gains purposes) - and then for a rental, they are interested in your cash flow ie: net income minus depreciation. I know our CPA always asks for what items are 'improvements' that increase the cost basis (as I understand it) vs simply 'repairs' that would simply be a cost item from the cash flow perspective. Depreciation allows for the biggest ongoing advantage from a tax basis.
During sale events always be aware of the ability to 1031, which essentially lets you defer your capital gains til your 'endpoint' - and do like kind trades with no tax events.
There are numerous experts on those vehicles active on these forums.
Yes, Canada. I forgot to mention it. Haha. And, I wanted to know the difference between taxation rates on income from renting a house (for example) if someone buys the hole house cash versus if the house is financed at 70% by a bank (so if someone asks the bank for a loan)? I heard that a loan isn't taxed on the income it produces until the loan is paid. I don't know if it is true. Thank you for you time.
If you buy the house cash or finance it doesn't matter for tax purposes. IRS doesn't care about loans (with rare exemptions) The only difference between the two is you get to deduct the interest on the loan from your tax return vs buying cash you don't.
If you buy cash, of course, you don't have to pay a loan or pay interest, but this has nothing to do with taxes. It has to do with liquidity and leverage.