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What is a tax shelter?

Question: What is a tax shelter?

(Posted by: Halo on 2008-06-19 14:34:36)

Because I heard that someone can get that if they buy something. like a house, . I have no idea why or what that is


Answers:

Posted by: jtexas on 2008-06-19, 14:50:46

In the broadest sense, any investment that yields a non-taxable return is a tax shelter. A little more precisely, an investment that yields a tax-exempt return equal to or better than non-tax-exempt investments is a tax shelter. In the 80’s you didn’t really call it a tax shelter unless it allowed you to report and deduct losses while paying a cash return. I don’t know if they still have those. A personal residence is a tax shelter because you can be exempt from tax on it’s increase in value (doesn’t mean you are exempt in every case).

  

Posted by: Bibs on 2008-06-19, 14:57:02

If you buy a house you are allowed to deduct the annual cost of mortgage interest on your income tax return. This shelters you from some income tax expense.

  

Posted by: Paul in San Diego on 2008-06-19, 15:08:07

A tax shelter is an investment where you can deduct some of the expenses for income tax purposes. It’s a way to lower your taxable income, sheltering you from having to pay on all of your regular income. Let’s say you make $100,000 a year and buy a house, where the payments are $2000 a month. Since most of that payment is mortgage interest the first few years of the loan, you get to deduct that from your taxable income for the purpose of calculating your income tax. So, you are only taxed on $100,000 minus about $24,000 ($2000 a month X 12 months) for a taxable income of only about $76,000.

  

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