Owning investment property can be a good way for Connecticut residents to build wealth. Before diving into the investment property world, though, it is good to understand the tax consequences that come along with doing so. Not all are bad, but some are misunderstood.
First, let’s cover the bad. If an investment property is ever sold, one will have to pay taxes on either long- or short-term capital gains. This can really add up, as the tax rate may be pretty high.
Now, let’s cover the good. Investment property owners can deduct some of their expenses when filing their personal tax returns. Some things that qualify for this deduction include:
- Insurance premiums
- Property taxes
Along with deducting approved expenses, landlords can deduct losses in property value. The depreciation deduction is typically taken a little at a time over the course of many years. The decline in value must come from age, standard deterioration, and wear and tear.
Finally, the final deduction investment property owners can take has to do with income losses. Sometimes, landlords pay out more in expenses than they get in income. They can deduct these losses up to a certain point. There is also a limit on how much one can deduct if one’s income level is deemed too high.
Investment property owners can ask questions and seek guidance on tax issues they are facing in order to avoid any filing errors. If mistakes are made, Connecticut residents may find themselves in trouble with the Internal Revenue Service and the Department of Revenue. Those who do find themselves facing tax inquiries can turn to legal counsel for assistance addressing the matter as quickly and quietly as possible.