It is important to understand the tax implications of your real estate investment before you open your purse strings. Investment in property that is disposed within 12 months of the original transaction will be taxed in the same manner as all other income is taxed. This is known as short term capital gain and is complying with tax formality of this transaction is not very difficult.
On the other hand, holding investment for more than one year is going to create complications. Of course, there are many ways to avoid the complications involved but you will have to work harder and understand the technical aspects better.
Investing in property is different as compared to investing in land. If you want to enjoy the various tax deductions and benefits available related to real estate investment, you should be actively involved in management of the property.
From determination of tenant to fixing the rent-you must have a role to play in all these transactions. On the other hand, handing over the task to an agent and giving complete discretion in the hands of the agent may create complications.
Penalty on tax that has not been paid on time is going to be very heavy. In the long run, you will be better of spending money on a good tax attorney to ensure the formalities are completed. Further, it is advisable to take care of all tax issues the moment the sale is done. The last thing you want is to use all the money obtained from the transaction and find it difficult to pay the tax when the same becomes payable. Make sure you provide adequate provision for tax when computing profits. This will help avoid complications.