Token Holders Benefit From Depreciation
Subodh M
Last Update a year ago
Propty token holders benefit from depreciation.
Our accountants use the Modified Accelerated Cost Recovery System (MACRS) method for depreciation purposes, and each property will be depreciated over 27.5 years. This means that although you might be earning income from rents as well as appreciation (on paper, because the property value has increased), the value of the property is actually decreasing on paper for tax purposes.
This may seem confusing and counterintuitive, but it is one of the primary benefits of purchasing and investing in real estate in Canada.
For example, if you've made $200 in income from rents, but the property on paper depreciated (for tax purposes only) by $2,000 and you owned 5% of the holding entity, then you would actually benefit from a paper loss of $100, which would offset your rental income completely.
As a result, even though you've received $200 for the year, you actually incur $0 in nominal income tax liability for that year through property ownership.