A Quick Guide to Investment Property Tax Benefits

by Alexander Griffin
A Quick Guide to Investment Property Tax Benefits

Investment property is a great way to secure your financial future, but it’s important to understand the tax benefits that come with owning such a property. In this quick guide, we’ll outline the key investment property tax benefits  you can expect as an investment property owner. 

So, if you’re considering investing in property, be sure to read on!

What Are Investment Property Taxes?

Investment property taxes are a relatively new issue, but they have been gaining traction as home prices continue to move upwards. Today’s investment properties are easily found online. After a quick Google search, you’ll have several up on your screen in a short amount of time.

The fact that they are easy to find doesn’t change the fact that it is imperative for potential investors to know how to handle the purchase of their new property and any taxes associated with it.

To start, let’s discuss what an investment property is. An investment property is a home that you purchase and rent out to others with the intent to make money from it. This is usually through rental income. 

Typically, these types of properties are found in populated areas, which means they’ll be more expensive than your average home.

It’s important to note that it isn’t necessary to live in the property you plan on renting out. However, it’s the wiser choice sometimes. 

Investment Property Guide: Types of Investment Property Taxes

When investing in a home, there are three main taxes that you must know about. These include: Capital Gains, Dividends, and Interest and Other Investment Income.

In order to fully understand how these affect you as an investor, it is essential to first know what they entail.

Capital Gains

A capital gain is when you sell a property for more than what you paid for it. If this occurs, then the tax man will want some of your money. Specifically, he wants 24% of the difference between what you originally paid and what it’s worth now. This is called your Capital Gain Deduction. It equals the net taxable capital gain.

Once you know your deduction, this is what you do with the rest:

  • If you are under 65 and make a taxable capital gain from the property, then 50% of it is included in your income for the year.  
  • If you are over 65 or have made zero taxable gains during the current year, then 75% of it is included in your income for the year.

When investing in a property, you should remember that you only pay tax on 50% or 75% of your capital gains. This is why some people choose to never sell their investment properties because the long-term capital gain rate is often lower than what they would have to pay as tax.


If you are a business owner with an investment property, then the business can pay dividends at any time during the year. This is true whether it’s quarterly or annually. 

If these dividends pay out to you personally, then they’re taxed according to your top marginal tax percentage bracket. For example, if you are in the 39% bracket, then 39% of each dividend is taxed.

Furthermore, if the dividends are paid to your corporation, then they will be taxed 11.5%. With this, it is important to note that all corporations must pay out 100% of net taxable income as dividends.

 This means that if your corporation earns $100,000 in taxable income, then it must pay dividends of at least $100,000. Alternatively, you can leave the money within the company to be taxed at a later date. This applies when you take out an income draw.

Interest & Other Investment Income

This category includes everything else earned on your investment property. It includes earnings such as interest accrued on the mortgage, rents received if you own a condo, and so forth.

Each of these payments are taxed at your top marginal tax percentage bracket. For example, if you are in the 39% bracket, then 39% of each payment is taxed.

What Is the Best Way to Invest in Property?

Although the tax implication for investment properties divided into three types of income is daunting, being proactive about it is easier than you might think. The first step is to speak to a tax specialist. They’ll ensure that your mind is as clear as possible when it comes time for investing. 

Another option is to use accounting software such as Quickbooks to do the heavy lifting. After all, taxation for investment properties is necessary, but it doesn’t have to be taxing on your mind.

Investment Property Tips: How to Get Started

First of all, don’t quit your job just yet. Before you think about investing in property, it’s important to establish an emergency fund. That way, you can pay for unexpected costs. This should be enough cash to sustain yourself for at least six months if you were to lose your income.

And while some investments allow you to grow money on margin, it’s always smart to leave some cash set aside just in case the market turns.

Not only that, but there are additional investing rules to follow. Check out the highlighted link to learn more.

Take Advantage of Investment Property Tax Benefits

Whether you’re a first-time buyer or experienced investor, there are several investment property tax benefits to take advantage of. The sooner you act, the more time you will have to reap the potential tax savings and invest into your future.

 If you enjoyed reading this content, check out the other articles on our website.

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