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As a business I can take out a mortgage and give you a rental for the exact same price. The income and “expenses” cancel out, so the profit of your business is
by pmalynin 5y ago
As a business I can take out a mortgage and give you a rental for the exact same price. The income and “expenses” cancel out, so the profit of your business is zero. Since this rental is an income producing activity the IRS (and other tax bodies) allow you to depreciate (https://www.irs.gov/publications/p946 https://www.irs.gov/publications/p946) the value of additions on the land (I.e the building) on a straight line over a 28 year period. The basis of the depreciation is the value of the property, so you divide that over 28 years and can take that away from the income as well. Now I can transfer that cost to you in rent and the profit of my business is still zero. This is a benefit that is generally only available to corporations. Then there is prop 13 which is yet another mess.
I’m not an accountant, but I’ve studied enough of it in University to be dangerous.
- nearbuy 5y agoIt's fair that you don't pay tax when don't make a profit after taking depreciation into account. Depreciation isn't a cheat code that lets you avoid tax on profit. If you depreciate the building more than its actual market value depreciation, you owe back what you deducted when you sell the building.
- pmalynin 5y agoOf course, the argument here is that as a natural person I cannot be taxed on a profit basis, nor depreciate the house I live in.