Old real estate: less tax
Tax efficiency is nothing new. And with old properties, it is possible to reduce your tax burden through the smart use of real estate losses and buying a property in stages. Ancient real estate also comes with tax reductions. Here’s a snap shot of two possible scenarios.
*Applying real estate losses
Taking out a mortgage to purchase an old property that requires work allows you to take advantage of the “common law” tax regime. This allows you to deduct off your tax bill the entirety of your expenditure on the project (renovation costs, updating fixtures such as the boiler and the windows, interest on your loan, co-op charges, or the cost of insurance you take out against the non-payment of rent). Thus reducing your tax burden.
*Buying reversionary ownership
Buying a reversionary interest in a property allows you to kill two birds with one stone. First, this means of property ownership does not generate rental income and thus, nothing that can be taxed. Second, purchasing a reversionary interest in a property affords you the benefit of a reduction (around 40%) in the price of the property whilst receiving full ownership. The property you have financed is not counted as an asset for taxation purposes. On the creation of ownership in stages, the usufructor’s interest comes to a close. The owner with reversionary interest becomes the property owner in full without having to pay any land transfer tax.
Note: this is a viable solution for those who wish to purchase a rental property without an immediate need for income. Such a purchase is a useful way of planning for retirement so long as you have 15 years or so ahead of you.