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Chapter Three You get to take the deduction for amortization even if the bank loaned you the money to pay the fees. These tax benefits are yours even though the property may be appreciating, or going up in value. So real estate gives you benefits through depreciation, amortization, and through appreciation in value. There are additional tax benefits as well for real estate investors. When you sell your real estate, you have a choice on what you pay in taxes. If you decide to cash out, you can pay tax at the low capital-gains rate on any appreciation in your property. If you decide instead to use the proceeds from your sale to invest in another property, you can pay no tax. This is called a “like-kind” or 1031 exchange. What’s more, if you sell your property at a loss, you get to take the loss as an ordinary loss. This means that you can use the loss to offset any other type of income. This is quite different than if you were selling a stock or mutual fund, where a loss would be limited to offsetting gains from other capital assets. So if your property appreciates, you pay little or no tax, and if your property loses value, you get to use the losses to offset your ordinary income. Many countries have similar rules and tax rates on the sale of real estate and other business assets. Can you begin to see how the tax laws provide stimulus to real estate investors and business owners? (By the way, in the United States, flippers get none of these benefits and in fact, have to pay an additional tax, called self-employment tax, that investors don’t have to pay.) The tax laws are directions from your government on how they want you to use your money to improve the economy. This is especially true when you are using debt to invest in real estate and business. I’ll let Robert share some more ideas about using debt to invest.

Different ROI Most stockbrokers or real estate agents talk about a 10 percent return as being a good return. But in most cases, that is a 10 percent return on capital gains, not cash flow. It’s not real money. Again, that is the problem with getting your financial education in the S quadrant. (In most cases, 112

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Unfair advantage ebook  

by Rich Dad, Robert Kiyosaki

Unfair advantage ebook  

by Rich Dad, Robert Kiyosaki

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