Skip to content
Cha Ching Queen
  • Money MattersExpand
    • Make More Money
    • Spend Less
    • Budget Wisely
    • Financial Planning
    • Reviews & Recommendations
  • Eat WellExpand
    • Bread & Desserts
    • Diets and Eating Habits
    • Healthy Recipes
    • Kitchen Hacks
  • Clean Quickly
  • Live LifeExpand
    • Health & Beauty
    • Family And Relationships
    • Holidays & Gifts
    • At Home
  • Travel Tips
  • About
Cha Ching Queen
ByGreg, CFA Reading Time: 4 minutes
Home » Money Matters » What Taxes Do You Need To Pay On Your Real Estate Investment?

What Taxes Do You Need To Pay On Your Real Estate Investment?

Share on Facebook Share on Pinterest Share on Twitter Share on Email Share on SMS
This post may contain affiliate links. Read the disclosure.

This is a collaborative post by Ellie Jo about taxes. 

Real estate investments are a popular choice for people that want to secure their financial future. The value of property historically goes up. Sometimes there are dips, but over time real estate tends to appreciate.

Plus tenants pay off any mortgages you hold on the house..

So if you can save the money for a down payment on a property, over a long enough time line you may get a great return on your investment. 

us dollar bills calculator
image source: https://www.pexels.com/photo/crop-anonymous-person-calculating-profit-on-smartphone-calculator-near-banknotes-4386321/

Unfortunately, people often forget about taxes when budgeting for a property investment and it comes back to bite them later.

There are a number of different taxes you will have to pay when owning a property. There are also taxes when earning a profit from investments. You need to be prepared to cover these costs. These are the taxes you need to pay when investing in property. 

Table of Contents

  • Real Estate Taxes 
  • Income Tax On Real Estate Taxes
  • Real Estate Depreciation
  • Capital Gains On Real Estate
  • Depreciation Recapture
  • In Conclusion: Real Estate Tax Expenses
  • For More Expenses related to selling a home

Real Estate Taxes 

Real Estate Tax is a tax that you may have to pay on property. There is no federal real estate tax. It all comes down to a state level. In some cases, states will charge a different form of property tax instead.

Either way, it is likely in many places that you will have to pay some kind of tax when owning the property

❣️ Erin's Valentines Deal❣️
Kendra Scott Elisa Pendant Necklace
Kendra Scott Elisa Pendant Necklace

Sterling Silver, Ivory Mother of Pearl Gem, Fine Jewelry for Women. Looks wonderful and easy to clean! ❣️



Check Price

It is calculated as a percentage of the value of the home. You can use a stamp duty calculator to work out how much you will have to pay on the property. It’s important that you do this during the budgeting stage, so you can make sure that you can afford it.

If you forget about paying property taxes, you will struggle to manage your finances when it comes time to close on your new real estate investment. 

Check with the local authorities so you know exactly what kind of property taxes you will have to pay. 

Income Tax On Real Estate Taxes

If you buy a property and rent it out, you must be aware of the tax implications. People are often confused about how the IRS views the money that you earn from rental properties but it’s not as complicated as you might think.

With a rental property, the money that you earn is treated in the same way that any other income is, so you will have to pay standard income taxes on it. This also includes any rental deduction that you agree with the tenant.

For example, if they agree to decorate the home in exchange for a $100 rent reduction for the next few months, that money still counts as rental income even though it hasn’t been paid in cash. 

When calculating the income tax that you owe, there are a lot of deductions that can help you reduce the bill. Any costs associated with maintaining the property are tax deductible. Your mortgage interest, insurance costs and other property taxes are also deductible. 

Real Estate Depreciation

Real estate investors also benefit from a depreciation expense deduction. This is often used by businesses when buying an expensive piece of equipment with a long lifespan. Instead of being deducted in one year, the cost is split over multiple years and deducted each time.

The same can be done with a property investment over a period of 27.5 years, meaning that many investors do not pay income tax on their property as a result. 

Capital Gains On Real Estate

When you sell your real estate there will be a tax on capital gains. The taxes are different if you hold the real estate less than 12 months (aka if you are a real estate flipper).

Depreciation Recapture

Depreciation is a tax deferral, it isn’t tax free. When it’s time to sell there is a “depreciation recapture” tax.  Basically it’s an additional capital gain tax and it’s a real expense. What’s more, is depreciation recapture applies even if you don’t depreciate your real estate.

In Conclusion: Real Estate Tax Expenses

If you manage your tax affairs in the right way, you can save a lot of money. So, make sure that you have a full understanding of exactly what you owe, and consider speaking to an accountant if you are unsure. 

For More Expenses related to selling a home

Infographic on the cost of selling a house with a realtor
By HomeLight Homes
Greg, CFA
Website | + posts

Greg is a Chartered Financial Analyst (CFA) with 22+ years experience in Financial Services. He has held numerous FINRA Securities licenses (series 7, 63, 65, and 66), and is an expert on Investment Products and Financial Planning. Greg has 22+ years experience as a real estate investor and degrees in Psychology and Philosophy.

Greg has been quoted/interviewed in Yahoo Money, Yahoo Finance, USA Today, Authority Magazine, Realtor.com, Business Insider, and others.

Greg is an avid runner, and the father to identical twin girls and their awesome brother. His love of budgeting and his kids led him to join The Great Resignation in 2021.

Disclaimer: Any Financial Tips on ChaChingQueen are general and informational. Speak with a professional about your specific situation.

  • Greg, CFA
    https://chachingqueen.com/author/greg/
    Love Is Taking Flight This Year! Top Valentine’s Day Destinations Revealed
  • Greg, CFA
    https://chachingqueen.com/author/greg/
    Travel Smarter and Save Money: The Benefits of Using an eSIM Card
  • Greg, CFA
    https://chachingqueen.com/author/greg/
    How To Choose The Best Stock Trading App For Your Needs
  • Greg, CFA
    https://chachingqueen.com/author/greg/
    Clever Strategies for Buying a House with Little or No Money Down
Share on Facebook Share on Pinterest Share on Twitter Share on Email Share on SMS
❣️ Erin's Valentines Deal❣️
Kendra Scott Elisa Pendant Necklace
Kendra Scott Elisa Pendant Necklace

Sterling Silver, Ivory Mother of Pearl Gem, Fine Jewelry for Women. Looks wonderful and easy to clean! ❣️



Check Price

Trending Now

How Often Should You Clean Your House: Woman Cleaning Oven

How Often Should You Clean Your House? Room By Room Tips

Woman Doing Laundry Using Earth Breeze Laundry Sheets

Earth Breeze Review: Dehydrated Laundry Sheets

amazon prime box

My Secrets: How To Get Amazon Coupons, Discount Codes, Free Stuff, and Deals

18 Household products you can easily make at home

18+ DIY Household Products You Can Make at Home

Amazon Gift Card

How To Save On Amazon Prime Membership + Prime Benefits

What To Teach Kids About Money

What To Teach Kids About Money: An Expert Weighs In

  • Home
  • About
  • Contact
  • Disclosure
  • Privacy Policy
  • Web Stories
Email Facebook Twitter Instagram Pinterest

© 2023 CHA CHING QUEEN

ChaChingQueen does not provide individual or customized medical, legal, or financial advice. Since each individual's situation is unique, a qualified professional should be consulted about your specific situation before making financial and/or medical decisions.

Cha Ching Queen is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.

  • Money Matters
    • Make More Money
    • Spend Less
    • Budget Wisely
    • Financial Planning
    • Reviews & Recommendations
  • Eat Well
    • Bread & Desserts
    • Diets and Eating Habits
    • Healthy Recipes
    • Kitchen Hacks
  • Clean Quickly
  • Live Life
    • Health & Beauty
    • Family And Relationships
    • Holidays & Gifts
    • At Home
  • Travel Tips
  • About
Facebook Twitter Instagram
Search