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sobro heres the flaw in your scenerio. your taking the money your ex is giving you for child support and making it non taxable to yourself as income (which child support is) so your having your ex pay the bills and your taking the deduction for the child...
now make your scenerio like rental income which is taxable income to you as every penny of rent is taxable....and rethink this scenerio thru.... even make the childs deductions for what you spend unlimited like real estate rather then just the limited exmemption amount as a child would be
you have to remember rental income is taxable income to you unlike child support
heres what you will find, now . all the money the ex gives you is considered your income and is now added to any other income you have just like the rent would be . you can now deduct from that income your expenses for the child . . your taxable income goes up by a dollar for every dollar you dont spend on the child costing you about .35 in extra tax and raises your total income that year .65 cents ...
now for every dollar you do spend on the child your taxable income drops by a dollar giving you back .35 cents for every dollar you spent dropping your total income for the year by .65 cents for every dollar spent.....
now your scenerio will be the same deal simple concept as you say
On your logic, there is no point in earning money at a job either for you will be forced to pay taxes on a large majority of that (note the sarcasm). The bottom line is that the investment is deemed a good one if your building is profitable, meaning your income is higher than your expenses (including taxes on the profits that are added together with your other income). The simple obvious answer is that you come out ahead in that situation and there is no debating that point.
As your mortgage is paid off, and as rents increase -- if you are lucky that your rents increase in excess of inflation -- your profit will also increase significantly. And yes, of course as profits increase so do taxes on your personal income but again, on your logic there would be no point in seeking a raise at a job for you will pay more in taxes.
i think we got off track here, the argument wasnt whether or not a building was a good investment or not.. the argument was that the tenents are paying for the building and your taking the deductions against other income ....key word,against your other income.
i said that would only be true if the income from rent wasnt taxable like sobros child support analogy ....
otherwise all your deductions go to offsetting the rent income and there is noooooo tax relief on your other income...
in order to deduct expenses off your regular income you need to surpass the rent your getting in losses and have your building operating at a loss and that now is a real loss where you are spending 1.00 and seeing .35 cents come back.
the depreciation allowance can help but thats only a temporary writeoff that gets recaptured if you ever sell to realize your capital gains.. if you dont sell then all you have is your rental income stream
in fact the recapture is usually far worse then you saved because usually the gains when you sell a building bump you in a much higher tax bracket or even worse amt tax
as far as paying off the mortgage many landlords take interest only mortgages and then use the difference they save in payments to invest in other things...... they are betting the value of the building will rise and they will sell it and get a nice profit with little money reinvested in that building
bottom line is its all about getting the biggest bang for your buck and harvesting the most gains with the least risk. no matter how we do it.. just understand completetly exactly what your investing in and all tax implications as well
so much that people think is just folk lore that they heard but not really how things work
if you cut expenses by hiring a new super who works for half what your paying the current one your personal piggy bank has more money in it. if you hire a super for double the pay of the current one, you got a bigger write off but your piggy bank definately has less money in it even after your greater deduction and that deduction came right from money that was in your own piggy bank
Last edited by mathjak107; 01-03-2009 at 07:20 AM..
I know, i wont even try to explain that when the landlord lives in one of his apartments in a multifamily dwelling hes not living rent free....
hes actually loosing the rent that apartment could generate if he wasnt in it so what he looses is his cost..
its like if you owned a construction company and had your guys build your house.. you dont pay them but they arent out their earning you money building other homes so what your loosing is what its costing you....
if you want to say the tenants are paying your rent they have to pay their regular rent and pay you enough over that to cover the rent on your apartment too that your loosing
I know, i wont even try to explain that when the landlord lives in one of his apartments in a multifamily dwelling hes not living rent free....
hes actually loosing the rent that apartment could generate if he wasnt in it so what he looses is his cost..
its like if you owned a construction company and had your guys build your house.. you dont pay them but they arent out their earning you money building other homes so what your loosing is what its costing you....
if you want to say the tenants are paying your rent they have to pay their regular rent and pay you enough over that to cover the rent on your apartment too that your loosing
You are right...I made a 2 bedroom apartment in my building into my office where I conduct business. By me not renting out my office/apt., I'm losing about $1,400 a month or $16,800 a year.
The good side to having an office in the building is that I act like a watch dog and see everything that happens in the building or neighborhood. Any undesirable behavior I see from my tenants, I right away approach them and make sure it doesn't happen again.
It allows me to weed out the good tenants from the bad and micro-manage my business.
However, I'm still losing money which ever way you cut it.
the reason we have all these bubba meisters (like that word) flying around is because unlike buying stocks or bonds etc where your cost and profit or loss are easy to see real estate is a business with all the twists and turns of cash flow, expenses, deductable expenses,depreciation , re-investment of profits , depreciation recaptures etc .....
most people only hear half or part of something and run with that knowledge... how many timnes have you heard the tenants pay your expenses and pay for the building and you take the deductions against your other income as well as you live there free..... if you understand the flow of all the money you realize none of this is true ...
and so the end result is everyone spews what they think is true based on not understanding the flow
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