wning investment property the market cools off? Will we
is a tremendous wealth simply see a price plateau or an
building strategy. actual drop in prices? While
Thousands upon thousands of nobody is sure, the clear
individuals have amassed great consensus is property owners
wealth by investing in rental should move to preserve equity
properties. while they can.
Unfortunately, few investment Protecting Equity Gains
property owners learn how to
leverage equity in a way that Protecting equity gains in your
maximizes tax deductions while investment property requires
creating and locking in equity careful planning. This leveraging
gains. Instead, they leave strategy is fairly simple, but
themselves open to price can sound complex. Please keep in
fluctuations in the residential mind this is just an introduction
property market. These to the investment property tax
fluctuations can wipe out or strategy. You will need to
severely reduce equity positions contact us to learn more.
in property.
The investment property tax
Housing Boom To End? strategy protects your equity
gains by separating and
There is little doubt we are leveraging them. The leveraging
coming to the end of a huge boom process is best explained with an
market in residential properties. example.
For the last four years,
properties have appreciated at Scenario 1 - Without Tax Strategy
unheard of rates. The question,
of course, is what happens when
Assume you purchased a rental is taken out of the property and
property in 1999 for $250,000 placed into an equity index
with nothing down. As of July insurance product. The equity
2005, the combination of loan percentage is arrived at by
payments and appreciation has determining the payment amount
resulted in a gain of $250,000. you can afford on the loan.
You have amassed wealth, but all Typically, it is tailored to
of it is at risk. If prices drop match your current loan payment
twenty percent over the next amount.
year, you will lose $100,000 of
your equity in the rental Going back to our scenario, what
property. happens if property prices pull
back 20% over the next year? You
Scenario 2 - With Tax Strategy do not suffer the loss of
$100,000 because the gain is
We are going to use the same sitting in your equity index
exact scenario. It is July 2005, insurance product. Essentially,
you have $250,000 in rental it is a wash and you have
property equity, but all of it is protected the capital gains while
risk. You decide to implement the capturing a stock market-based
investment property tax strategy rate of return.
and the following occurs.
Ah, but it gets better.
Our goal is to protect the
$250,000 in gain on the rental Equity Index Insurance
property while also maximizing
tax reductions. The first step is The investment grade insurance
to refinance the property with, product isn't just any policy.
typically, an interest only loan. Instead, the policy we use is
A percentage of the equity gain tied to a stock market index.
What if the stock market suffers home price fluctuations. Second,
a loss? Not to worry, this policy you have leveraged your equity
carries a guarantee that you will into two growth channels, the
never lose a dollar, even if the stock market and appreciating
market crashes. If the stock house prices. Third, you have
market did crash, the policy converted taxable growth
would simply credit you with [property appreciation] into
nominal growth for the year in tax-free growth [insurance].
question. In all other years, the
policy would grow with the stock With housing markets ready to
market. On top of all of this, cool down, this strategy
the money in the insurance effectively locks in your
product grows tax-free. profits. Preserving equity gains
should be a primary goal of any
So, what has been accomplished? investment property owner.
First, you have protected your
rental property equity gains from
About the Author:
Richard Chapo is CEO of http://www.businesstaxrecovery.com - Obtaining tax refunds for overpaid business taxes. Visit http://www.businesstaxrecovery.com/articles for more tax strategies and articles.
Source: www.isnare.com
