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Investment Property

June 3, 2022 • 2 min read

Investment property can be defined as a portion of land, an existing structure or building, or a property development that is held by an owner or company for the practice of retaining capital income or appreciation from it.

Depending on where you reside, or whether you are a resident or foreigner in the country where you hold an investment property, certain tax regulations could apply.

Additionally, an investment property could be occupied by tenants, or the owners themselves or used for the manufacturing of certain goods or services.

The investment property can range from residential dwellings, retail outlets, spaces, factories, or private land which is due for development. The development thereof can either be done by the owner themselves, government entities, or private land developers.

How are investment properties taxed?

Depending on where you reside, tax regulations will vary across the board. In the United States, the Internal Revenue Services (IRS) regards residential rental property as a taxable income.

The IRS outlines that residents must include all gross income amounts received from a rental property Additionally, the IRS defines rental incomes as, “any payment received for the use or occupation of property.”

While it doesn’t directly specify the type of dwelling, i.e. residential or commercial, it’s still important to consider how tax inclusion and exclusions can differ between these two types of rental properties.

What to include and leave out in your tax return?

Security Deposits: If you intend to return the security deposit to the tenant, you should exclude this from your annual tax return. Only include this amount if the security deposit will be used for advanced rent.

Property or Services in Lieu of Rent: Where you receive services or property instead of money for the rental property, you can include the fair market value of the property or the services in the rental income.

Rental Expenses: Where a tenant pays for certain expenses, i.e. water and sewage, those payments are seen as rental income and are only deductible if it’s considered deductible expenses.

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