Quote:
Originally Posted by Slava
There were a few scams as well. Something about "buying" the property and renting them out, but not paying the mortgage. By the time the property was foreclosed upon the guys had pocketed some pretty good money. I don't know all of the details (obviously) but this is basically what I've heard.
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I'm not sure, but I think you may be referring to an old tax scam/shelter that's pretty legendary. It involves an indivdiual with a large outside source of income buying a rental unit basically on borrowed money with a ridiculous interest rate. Over time, the interest payments and other costs (like dramatic renovations) associated with the unit creates a loss which he can deduct off of his primary source of income. Later, he can sell the place at a large return, and in effect he's made back his initial investemnt over that period without having to pay any income tax on his primary source of income. Eventually he will have to pay some taxes on the capital gain, but the difference in deferred taxes and income tax results in a significant gain for the indivdiual.
The scheme was used quite often, but the government closed the loophole on it awhile back. However, it always takes them a few fiscal years to catch on to the new "scheme" that's in favor.