Real Estate Investing Guide The Difference Between Income Tax And Property Tax

Real Estate Investing Guide: the​ Difference Between Income Tax And Property Tax
Just like in​ any other business,​ real estate investing would require you​ to​ pay different kinds of​ taxes .​
Two of​ which are income tax and property tax .​
To know the​ twists and turns of​ real estate investing,​ you​ should know what these taxes are,​ when do you​ pay them and their difference.
Income Tax
As the​ name suggests,​ income tax is​ tax that is​ deducted from your income .​
It is​ charged on​ the​ financial income of​ people,​ corporations or​ further legal entities .​
There are different systems of​ this kind of​ tax coupled with different degrees of​ incidence .​
Charging this kind of​ tax can be proportional,​ progressive or​ regressive .​
When tax is​ imposed on​ incomes of​ companies,​ then this may be called corporate tax,​ profit tax,​ or​ corporate income tax .​
Tax from the​ earnings of​ an​ individual is​ usually charged from his total income .​
But in​ the​ case of​ corporations,​ the​ tax is​ usually charged from the​ net income of​ the​ corporation.
In terms of​ real estate investing,​ income tax comes in​ when you​ are profiting or​ having income from your property .​
For example,​ you​ have invested in​ a​ piece of​ land and leased it,​ then you​ would have to​ pay income tax from the​ income you​ get from your rentals.
This includes your gross income or​ all amounts that you​ received as​ rent .​
Rental income is​ considered to​ be any payment that you​ received for the​ use or​ the​ occupation of​ your property.
However,​ the​ positive side effect of​ charging income tax in​ real estate investing is​ that you​ can deduct different expenses of​ renting property from your total rental income .​
Generally,​ the​ rule is​ that you​ deduct your rental expenses during the​ year in​ which you​ pay them .​
Expenses that you​ can deduct include advertising,​ cleaning and maintenance,​ utilities,​ insurance,​ taxes,​ interest points,​ commissions,​ tax return preparation fees,​ travel expenses,​ rental payments and expenses on​ local transportation.
If you​ are a​ taxpayer under cash basis,​ you​ usually report your rental income on​ your return in​ the​ same year that you​ constructively or​ actually received it .​
You fall under this category if​ you​ report income the​ same year that you​ receive it,​ despite the​ month you​ earned it .​
Property Tax
In real estate investing,​ you​ also pay property tax .​
This is​ also known as​ millage tax .​
Property tax is​ said to​ be an​ ad-valorem tax,​ where a​ property owner pays depending on​ the​ value of​ the​ property being charged.
There are basically three different kinds of​ property .​
First is​ land,​ then your improvements to​ the​ land,​ such as​ buildings; and last but not the​ least,​ personality like manmade objects that are movable .​
Real property,​ real estate and realty are all terms used to​ pertain to​ the​ combination of​ improvements and land .​
In real estate investing,​ the​ taxing authority usually requires or​ does an​ appraisal of​ the​ property's monetary value,​ and then tax is​ assessed in​ ratio to​ the​ value .​
If you​ really want to​ get into real estate investing,​ then you​ should know what form of​ property tax that is​ used in​ the​ municipality you​ are investing in.
One common mistake that real estate investors make is​ their confusion between special assessment and property tax .​
These are actually two different forms of​ taxation .​
One is​ an​ ad-valorem tax,​ which highly relies on​ the​ property's fair market value for justification,​ while the​ other highly depends on​ a​ special enhancement that is​ called a​ benefit for its justification.
In real estate investing,​ the​ rate of​ your property tax usually comes in​ percentage form .​
To calculate your property tax,​ you​ multiply the​ assessed value of​ your property with the​ mill rate and then divide them by one thousand.
Real Estate Investing Guide The Difference Between Income Tax And Property Tax Real Estate Investing Guide The Difference Between Income Tax And
Property Tax Reviewed by Henda Yesti on June 26, 2018 Rating: 5

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