A popular clip makes ‘earn no income, pay no taxes’ sound easy: take $10 million out of one deal, buy a $40 million property that throws off $600,000 a year, and pay zero tax on that income for the first three years because of depreciation. The real version is more complicated.
Depreciation can offset income now, but it also reduces your basis. When you later sell the property, that lower basis can increase the tax you owe. Ticker Tape looks at these issues constantly, because we invest in assets such as hotels and emergency rooms where depreciation is part of the underwriting. The strategy can be useful, but only with the right structure and advisors. Don’t invest based on what you see in a short clip. This is general information, not tax advice.
Key points
- Real estate depreciation can reduce taxable income in the early years of a property.
- That benefit also reduces your basis, which can raise the tax you owe when you sell.
- The structure, the hold period and the advisors matter as much as the headline deduction.
- Don’t copy a ‘pay no taxes’ clip without understanding the long-term consequences.
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