Suppose that your child in college plans to move off-campus next semester. At the same time, you’re looking to buy real estate to shelter income from tax. This could be an opportunity to kill two birds with one stone.
Strategy: Buy real estate property near the school and rent a unit to your child. This provides reliable housing for your offspring and a tax shelter that likely will appreciate in value.
If you eventually sell the property, any gain will be taxed at favorable long-term capital gain rates if you’ve owned the real estate for more than one year. Currently, the maximum tax rate on long-term capital gains is only 15% (20% for someone in the top ordinary income tax bracket). However, gains attributable to depreciation deductions are taxed at a maximum federal rate of 25%. The 3.8% net investment income tax may also apply.
Here’s the whole story: As with other rental real estate investments, the rent received from te...(register to read more)