When Is Land an Investment Property & When Is it a Rental?
Any land that the owner does not live on falls into the category of investment property, whereas any land that the owner rents to someone else falls into the rental property category. Rental property makes up a subset of investment property.
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Land as Investment Property
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If you own land but do not live on it, it's an investment property. It can be an empty lot across the city from your house, your grandmother's farm in the next state over or even a plantation in Brazil that you invested in through a land management company but have never visited. Any land or property that you own other than your primary residence falls into the investment property category.
Land as Rental Property
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Your investment property becomes rental property when you lease or rent it to other people. If a business rents your vacant lot for use as a parking lot or your grandmother's neighbor starts to lease her farmland, your investment property becomes rental property.
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Taxes
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The importance of ascertaining whether your land is a rental property or simply an investment property lies in the taxes. Landowners holding rental properties can deduct a lot more from their taxes than can landowners holding non-rental investment properties. If you rent out your land, you can deduct any repairs as well as any money spent on gas when attending to tenants and use of a home office. However, renting out your property and dealing with tenants can take a considerable amount of extra time and energy.
Other Types of Investment Properties
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While many people rent out their investment properties, those that prefer not to deal with tenants have several options. Many people simply hold the property and turn a profit on the appreciation when they sell or use the property as a second home or vacation and profit from the eventual sale. Others flip properties, which refers to buying a property in disrepair, fixing it up and then selling it at a profit in a short period of time.
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References
- Photo Credit Ewiges Land image by Rita Scheer from Fotolia.com
