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01. This Book
02. Syndicate Boom
03. Get Information
04. Syndicator
05. How much?
06. Depreciation
07. Depreciation Applied
08. Declining Balance
09. Straight Line
10. Paying Taxes
11. Pay Mortgage
12. Income Taxes
13. Paper Loss
14. Tax Shelter
15. Rent?
16. Syndicator Units
17. Wear + Tear
18. Lease-Hold
19. Building
20. Comparison
21. Specialized Properties
22. Growth
23. Leverage
24. Share Growth
25. Why + How
26. Syndicate Agreement
27. Net Lease
28. Long-term Lease
29. No Guarantee
30. Inflation Clauses
31. "Inflation Clause" Works
32. Inflation Clause?
33. Mortgage Due
34. Interest Rates
35. Short Term Mortgage
36. Good Mortgages
37. Refinancing
38. Refinancing Clauses
39. Share of Mortgage
40. Share of Profit
41. Purchase Options
42. How Purchase Options
43. Stunt the Growth
44. "Subordination"
45. Long Term Lease
46. Business Organizations
47. Syndicate Debts?
48. Management
49. Your Consent?
50. Sell Your Unit
51. Investment Trust?
52. Business Syndicate
53. Multiple Properties
54. Dream or Reality?
55. Syndicator's Background
56. Value of Guarantees
57. Look for Yourself
58. Conclusion
Resources
11. You Pay Taxes on the Money Used to Pay Off the Mortgage
Assuming that the syndicate buys a building for $900,000. It pays $300,000 in cash and gives a mortgage for $600,000. It agrees to make constant payments on the mortgage at the rate of $60,000 per year. These payments are to be applied first to 6% interest on the balance which may be due on the mortgage. The rest of the payment is used to reduce the amount of the mortgage. During the first year interest on that mortgage amounts to $36,000, that is 6% on $600,000. The rest of the $60,000 payment, that is $24,000 is applied to repay a part of the principal of that mortgage, or if you want to, to reduce the amount of the mortgage. In other words, at the end of the year, the mortgage would be reduced by $24,000 and there would only be $576,000 owing.
Suppose now that after a number of years the balance still due on the mortgage is down to $300,000 and suppose that the agreement to pay $60,000 every year continues. The interest in that year will amount to 6% of $300,000, that is only $18,000. The remaining $42,000 can now be applied to the reduction of the mortgage. The syndicate continues to pay $60,000 every year to the owner of the mortgage. All other things being equal, it continues to have the same sum available for distribution to you and the other investors. But taxwise, there is a difference. The money it pays out for interest is tax free. Interest is a business expense. The money the syndicate pays out to reduce the mortgage indebtedness is not free of taxes. It is really a payment of the syndicate's debt (not an expense). You do not get any tax reduction just for paying your debts.
The position of the syndicate is not much different from your own. If you earn money, you have to pay taxes on these earnings, and the collector does not care whether you use that money to repay your debts or use it for yourself. So in our case, while the payments to be made on the mortgage remain constant at the rate of $60,000 a year, the amount paid out for interest decreases and correspondingly the expenses which you can deduct on your tax return decrease. The amount being paid out for repayment of the mortgage increases and correspondingly the earnings increase. At least, that's the way it is for tax purposes. That is why you pay higher taxes every year although your distribution remains unchanged.
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