Admit it. You've watched that late-night infomercial describing how you can become a multimillionaire virtually overnight...

Admit it. You've watched that late-night infomercial describing how you can become a multimillionaire virtually overnight by leveraging your good looks and sparkling personality (and little else...) to invest in real estate. All joking aside, investing in real estate does present some opportunity for the creation of wealth, much like any other investment does. Taxation of rental real estate, however, does present some unique rules, and these rules can have a dramatic impact on the investor's realized gain or loss from the real-estate rental activity. Let's begin outlining the tax consequences by describing the various capacities in which an individual can own and rent real estate. Asked differently, are there distinctions in the tax law that depend on the manner in which the property is held or used, such as between those who rent real estate as a full-time business and those who merely rent a vacation home? What are the rules that we follow in telling one type of rental property or rental ownership from another?

Answer in your own words, ty

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Expert Solution

An individual can invest in real estate for the following purposes:

1. For his own : No tax consequences.

2. For business purpose: If the object of his business is giving rentals to others, then this will be treated as business income. Accordingly it will taxed after dedcuting the busniness expenses at the rate applicable to respective country ( Ex - In india All individuals are taxed based on slab rates)

3. For retal purpose: An individual who bought a property and given renatal to others which is not his business objective, then it will be treated as incomefrom house property. It will taxed by deducting some municipal taxes , some standard deduction and taxed based on the rates applicable to repective countries.

4. For sale: Individuals who invest in real estate and treats them as an investment and will be sold later in further years should pay tax on capital gains at the time of sale( Sale value - Purchase value).

Rules that we follow in telling the property as rental one or owned one will entirely based on the business objective, MOA, rental agreements and other documents.

ekkarill92 answered 1 year ago

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