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What is Investment Property Tax?

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  • Written By: Charity Delich
  • Edited By: Bronwyn Harris
  • Last Modified Date: 21 March 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Investment property tax is a type of tariff levied on a piece of real estate that is not an individual’s primary residence. A vacation cabin, a condo leased to renters, a storefront, and an empty plot of land are some examples of properties that may be subject to investment property tax. As a general rule, the registered owner of an investment property is responsible for paying all of the taxes associated with the property, even if he or she acquired the real estate unintentionally, like through inheritance.

Both residential and commercial investment properties may be subject to investment property tax. Potential liabilities include rental income and corporation tax as well as capital gains, stamp duty, and inheritance levies. Rental income tax is an excise assessed on individuals, partnerships, or trusts when their property investments result in net rental profits. Corporation tax may be levied on limited companies that earn rental income or that realize capital gains from selling a property.

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Capital gains tariffs, which are paid on the profits earned from a sale, are generally assessed when investment properties are sold. Typically, the capital gain is the difference between the sales price and the base property price, once deductions for closing costs and the like have been made. A stamp duty tax may be charged when a piece of real estate is purchased. Usually, it is paid by the purchaser and is based on the property’s value. Investment property taxes may also include inheritance tax, which is paid by an individual who acquires a property as a gift.

Property owners are often able to claim tax deductions for their investment properties. This is particularly true for properties that are rented out to individuals or entities. For example, an owner may be able to claim tax deductions for expenses such as homeowner’s insurance premiums, mortgage loan interest, homeowner’s association fees, or repairs to a rental property. In some countries, investment property tax that is paid to state or local governments may be deductible from federal taxes. These kinds of expenses are customarily deductible only for the year in which they were paid.

In some cases, property investment tax may be deductible over a period of years, depending on a country’s particular tax laws. These expenditures frequently include borrowing costs and asset depreciation expenses. Home improvement costs are also frequently tax deductible for rental real estate. Usually, any home improvement expenses are added to the property’s cost basis, which has the effect of increasing losses or lowering gains when the property is sold.

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