Investing in a tangible asset like real estate may seem to offer a greater sense of control. You can walk through a house, after all, which somehow feels safer than subjecting your savings to the whims of the stock market…
THE TAX IMPLICATIONS Rental income is taxed at ordinary income rates, but experts say you can often post a tax loss while still generating a profit. That’s because you can deduct the depreciation of the rental — but not the underlying land — to account for wear and tear (the cost of improvements, closing costs and the cost of appliances are all depreciable, too). In most cases, the building is depreciated over 27.5 years. So if the actual structure is worth $200,000, you can deduct about $7,200 a year. Coupled with operating expenses, that is often enough to wipe out any profit on paper…
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