Taxes and Equity

[cmaq]

Does anyone know if there is any way to benefit tax wise by reinvesting income from a residential building into the equity of the building?

Thanks

 

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[MJ DeMarco]

Add improvements ... it increases the basis of the property.

 

[cmaq]

Thanks for the response. I'm aware of MCI's etc. But I'm curious if there are any tax benefits, to dumping income from the property into the equity. Such as avoid tax on the income? etc.

 

[MJ DeMarco]

Take this with a grain of salt since I'm not an accountant, but using profits to make improvement would increase your operating expenses and hence reduce your net income ... reductions from net income immediately reduce the tax. Perhaps one of the accountants can clarify ...

A way of looking at is this: You are getting a 30% discount on improvements, or whatever your marginal tax rate is. If its 20%, the discount is 20%.

Again, I'm not an expert and I could be wrong ... business and rental property aren't exactly the same.

 

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[cmaq]

Well with an MCI you can also raise rents based on the total value of the improvements. I appreciate the effort in trying to help in that situation. But I'm more interested in finding out if there are any tax benefits to feeding income to equity.

 

[MJ DeMarco]

I have no clue what "feed income to equity" means. Equity is determined on the net value of the property less the loan. The only way to increase equity is to 1) Raise market value (improvements) or 2) pay down the loan. There are no tax benefits to reducing the loan and if anything, will raise your tax burden since your interest deduction will be reduced. (This assumes US laws)

 

[cmaq]

Actually, I believe you answered my question. What I meant to say was using the NOI from the property and paying off the loan sooner to build up the equity. I was wondering if there were any types of tax benefits or tax shelters by taking the NOI and redirecting it to the loan.

 

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