Tell me something I don't know.

I have had a few capital gains here and there. Rs like for these sources of income to be tax free. Personally I have never understood why. Its how I make money (and any other person who owns commercial real estate). Why should I be allowed income tax free when my friend Sloride who works for wages has to pay taxes? Warren Buffet, one of the richest men in the world pays a lower tax rate than his secretary, where is the fairness in that?

Here is how commercial real estate investment works:
1. you have to come up with cash (at least theoretically) to put down. 20% is the traditional number.

2. You get a mortgage for the rest.

3. With some luck you will have positive cash flow, meaning simply that after paying your expenses from the rent received you have money left over to spend or do as you wish with.

4. At tax time you get to deduct the interest and this thing called "depreciation". Lets say that your investment is worth 1 million. So you take the mil and divide by 33 (IIRC) and you take that off on your taxes as an expense $30,330/ year. You might have a postitive cash flow but if it is less than 30,000 per year you get to claim the property as operating as a loss.

This is perfectly legal but why? Theoretically it is done as an incentive so investors will invest in buildings and or land instead of some other place.

5. So then when you sell for $2,000,000 ten years later after taking income out of it for ten years and possiblly sheltering other income, you basically take off the original amount you paid for it, $1,000,000 and you have a mil of capital gain, and this is not pretend it is real money.

Now at this time it seems fair to me you should have to pay taxes on this capital gain since it is truely income but the Rs say no, its double taxation or some such nonsense. It is truely income and should be taxed as regular income just like Sloride's wages.

So yes, I as a real estate investor benefit from it all and still I can see the basic unfairness to it.

Apologies to our accountant members for my imprecise explanation of the tax laws.

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