Real Estate Investment Articles

Capital Gains Vs. Ordinary Income

By: Hughes Brothers

ORDINARY INCOME

VS
CAPITAL GAINS

If you hold investment houses at least 5 years, you can sell them and pay only 8% federal income tax (and 3% state tax if you live in Illinois) on any appreciation.

For example:

-you and your spouse earn $100,000/year ordinary income
-you are in the 30% federal income tax bracket
-you are in the 3% state income tax bracket

$100,000 income
33% fed & state tax rate
33,000 total tax due
vs
$100,000 capital gains
11% fed & state cap gains rate
11,000 total tax due

$22,000 TAX SAVINGS!

You can buy two 100K sfhs with $11,000 down each with this savings. In 5 years you will have $255,256 worth of houses (at 5% appreciation rate) that you paid $200,000 for. You will have $55,256 in equity PLUS your original $22,000 or, $77,256 in total equity (not including principal reduction or cash flow!)

Moral of the Story?

It is better to create capital gains income than it is to create ordinary income!

*note: you may pay up to 25% income tax (depending on your personal tax bracket) on depreciation recapture – not appreciation

PUT THIS GOOD INFORMATION TO WORK!
View our Products Page and buy Tools to help you protect your assets like the RICH protect theirs!

Do you have a Real Estate question?

Please click the image below to access our Forums

<<Back