So how exactly does he make money on your alleged scheme, given that income tax rates are less than 100%?
I have two properties, A and B. A has annual expenses of $10,000. B has annual expenses of $15,000. I rent A out for $30,000 and leave B vacant. My total profit is ($30,000 - $10,000) + ($0 - $15,000) = $5,000. I pay (say) 40% combined income tax on that and end up with $3,000 after tax.
Now I rent out B for $10,000. Total profit is now $15,000 and after paying 40% income tax I'm left with $9,000. That's better than $3,000.
Having deductible expenses is only going to help your overall situation if you would have had to incur those expenses anyway -- so if you're going to have to pay $N for something, then sure, it's to your advantage to try to structure things so that $N is tax-deductible. But if you didn't have to pay $N, not paying $N at all will always be better for you than paying $N and taking it as a tax deduction.
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RE: that guy...
Date: 2014-08-14 04:21 pm (UTC)I have two properties, A and B. A has annual expenses of $10,000. B has annual expenses of $15,000. I rent A out for $30,000 and leave B vacant. My total profit is ($30,000 - $10,000) + ($0 - $15,000) = $5,000. I pay (say) 40% combined income tax on that and end up with $3,000 after tax.
Now I rent out B for $10,000. Total profit is now $15,000 and after paying 40% income tax I'm left with $9,000. That's better than $3,000.
Having deductible expenses is only going to help your overall situation if you would have had to incur those expenses anyway -- so if you're going to have to pay $N for something, then sure, it's to your advantage to try to structure things so that $N is tax-deductible. But if you didn't have to pay $N, not paying $N at all will always be better for you than paying $N and taking it as a tax deduction.