DECRYPT – In the context of a rental investment, creating an equity deficit and working so that your expenses exceed your income will allow you to reduce tax.
The little-known practice of land deficit is a very effective tax optimization tool, provided it is used correctly. Unlike most rental investment tax measures, it is not necessary to acquire a property to benefit from it: you just need to renovate a property that is intended to be rented unfurnished. It doesn’t matter if it’s a home you just bought, owned for over 20 years, or inherited.
Understand how it works
To understand the benefit of this benefit, a brief reminder of the principle of property income taxation is necessary. The amount of your taxable income from the property is determined by the difference between the rent you collect and the sunk costs you incur from your tenant, i.e. current property and labor charges. If the difference is positive, the rent is added to your other income and subject to…