What are the tax implications of buying an investment?
Here’s what you need to know:
Bought Rental Property
As a landlord, you will have income and expenses. Rental income includes payments made by a tenant for the use of property, payments to cancel a lease, advance rent, and any non-refundable security deposit used as a final payment of rent. Expenses such as cleaning, legal fees, management company fees, repairs, and advertising are deductible. The cost of the home and improvements made to the property may be claimed the year done as long as they meet certain requirements, otherwise you must deduct a pre-determined percentage of the cost each year (depreciation).
If your Form 1099-INT or Form 1099-DIV shows you paid foreign taxes, you may be eligible to claim either a credit or an itemized deduction for these taxes. Generally, the foreign tax credit results in a greater tax savings than deducting the foreign taxes as an itemized deduction.
Bought an Interest in a Partnership or S Corporation
If you have invested into a small business you are not eligible to deduct your costs, however, you can reduce your potential profit when you sell. Subtract the amount invested (your purchase price) plus any additional investments while you owned part of the business from the sales price of your investment. Additional investments include cash and non-cash contributions and share of non-dispersed income.
Sold Partnership Interest
When you sell your interest in a partnership or S Corporation, all prior-year unallowed losses are allowed in the year of sale. You should receive a K-1 with the final box checked.
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