Skip to content
Cha ching queen living a big life on a little budget.
  • DIYExpand
    • Clean Quickly
    • Clever Hacks With Household Items
    • Crafts & Projects
    • Home Improvement
  • Money MattersExpand
    • Make More Money
    • Spend Less Money
    • Manage Money Better
    • Reviews & Recommendations
    • Get Free Stuff
  • Eat WellExpand
    • Breakfast
    • Lunch & Dinner
    • Appetizers, Sides, & Snacks
    • Desserts
    • Food Talk
  • Live LifeExpand
    • Health & Beauty
    • Cloth Diapering
    • Family And Relationships
    • Holidays & Gifts
  • Travel TipsExpand
    • Destinations
    • Attractions
    • Travel Hacks
  • About
  • Subscribe
Cha ching queen living a big life on a little budget.
ByGreg Wilson, CFA Updated onNovember 9, 2023 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?

This post may contain affiliate links. Read the disclosure.

Share with your friends!
FacebookPinterestMessengerWhatsAppEmailShareFlipboardRedditSMSX

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 (or follow our tips to buy with no down payment), then over a long enough time line you may get a great return on your investment. 

We were able to retire young because we invested in read estate. The taxes can be surprising.

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
  • For More Expenses related to selling a home
  • In Conclusion: Real Estate Tax Expenses
  • Next Up From ChaChingQueen

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

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.

Depreciation recapture is a real thing. We’ve sold several houses over the last few years that we held for 15+ years. We’ve had very large tax bills thanks to depreciation recapture.

For More Expenses related to selling a home

Infographic on the cost of selling a house with a realtor
By HomeLight Homes

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. 

Next Up From ChaChingQueen

  • A Basic Overview Of Common Car Expenses
  • Passive Real Estate Investing – How To Get Started
  • Freelancer Taxes: Does Freelancing Affect Taxes?
  • Beginner’s Guide to Stock Investing
  • What Is A Venture Capital Firm?

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, Promo Codes, Free Stuff, and Deals

Text reads: "18 DIY Homemade Household Products you can easily make at home" in colorful handwritten-style font on a dark background.

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

As Seen On
bloomberg logo
business insider logo
msn logo
usa today logo
family handy man logo
yahoo finance logo

  • Home
  • About
  • Press
  • Contact
  • Subscribe
  • Disclosure and Terms of Service
  • Cookie Policy
  • Privacy Policy
  • Web Stories
Email Facebook Twitter Instagram Pinterest

© 2025

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.

  • DIY
    • Clean Quickly
    • Clever Hacks With Household Items
    • Crafts & Projects
    • Home Improvement
  • Money Matters
    • Make More Money
    • Spend Less Money
    • Manage Money Better
    • Reviews & Recommendations
    • Get Free Stuff
  • Eat Well
    • Breakfast
    • Lunch & Dinner
    • Appetizers, Sides, & Snacks
    • Desserts
    • Food Talk
  • Live Life
    • Health & Beauty
    • Cloth Diapering
    • Family And Relationships
    • Holidays & Gifts
  • Travel Tips
    • Destinations
    • Attractions
    • Travel Hacks
  • About
  • Subscribe
Facebook X Instagram
Search
Share to
BufferCopyEmailFacebookFlipboardHacker NewsLineLinkedInMessengerMixPinterestPocketPrintRedditSMSSubscribeTelegramTumblrXVKWhatsAppXingYummly