How does it work with tax benefits for real estate? What can I deduct from my taxes?

We answer these and many other questions in our video blog episodes.

Here is the transcript of episode 38 to read through:

With property you have tax benefits through depreciation. You buy a property and are allowed to deduct the purchase price, excluding the land share, from your tax. And that means two or two and a half percent depreciation, usually over 40 or 50 years.

offer you a tax advantage, as this means you do not have to pay tax on a large proportion of the rent. This is one of the very, very significant advantages of property investment. Thanks to depreciation, large portions of the rent are tax-free for many, many years. In addition, if you buy investment property, you can claim the mortgage interest as a tax deduction. If you’re a landlord, mortgage interest is 100 per cent tax-deductible. And the third benefit, alongside depreciation and mortgage interest:

You are allowed to deduct additional costs for tax purposes. After all, those are the management costs. Hopefully you will have a professional management company that takes care of all the details, and you can deduct the costs for this, usually £15, 20, 25, from your tax, so that the management costs you a little more than half net, then perhaps £15 or 20. And you are allowed to deduct repairs. If at some point the facade is repainted and the management uses money from the maintenance reserve for this,

then you don't actually have to pay anything out of pocket at that moment, because a reserve fund has been built up for that over many years. But the moment the facade is painted, you can deduct a proportionate amount for your share that you contributed to it from the maintenance reserve from your tax and then you get tax benefits. That is how a property works from a tax perspective.

On the income side, the rental income must of course be taxed against this. And as a rule, this leads to a tax advantage, because the depreciation, the deduction of mortgage interest and other allowable expenses that you can claim for tax purposes amount to more than the rental income—especially due to the depreciation—meaning you get a tax advantage and save more in tax than you actually pay. And that is a very, very important advantage when it comes to generating passive income for you.

Because it helps you that not only the tenant pays for you, but the tax office as well.

Keywords:

property, tax benefits, depreciation, investment properties, loan interest, incidental costs, mortgage interest deduction