Owning a real estate property as a rental can be advantageous for its strong investment potential and the ability to generate passive income.
But, there is a lesser known, simple fact about rental real estate properties that will entice a person to look into purchasing a property for the purpose of renting it out: Rental real estate provides more tax benefits than almost any other investment.
As your trusted real estate agent, it is my job to provide you with property owner tips to tuck in your back pocket to help you manage your real estate. That being said, you should know that you are paying too much money if you are not taking advantage of these tax deductions with rental properties.
Top rental property tax deductions
This week, we are going to dive into a few of the 10 most productive rental property tax deductions that you can use from year-to-year to significantly reduce the amount of money you are paying in taxes. The others we will cover in upcoming weeks.
- Interest:
When it comes to deductibles, interest is usually a landlord’s single biggest weapon, or rather, the single largest deductible expense.
Be sure to write off your mortgage interest payments, home improvement loan interests, and even credit card interest on products and services used in your rental property.
- Depreciation for Rental Real Property:
The IRS allows you to claim the depreciation of a rental property every year for 27.5 years. This means that if you use the property for business for more than one year, you can deduct the depreciation of your rental property on your tax return over a long period of time.
Let’s put this into numbers so you can see the full picture— Say you own a $300,000 property, your annual depreciation expense would be: $300,000 (value of the property) divided by 27.5, which equals $10,909. With these conditions, you would be able to deduct $10,909 depreciation expense from your gross taxable rental income each year.
- Pass-through tax deduction:
A pass-through deduction allows U.S. taxpayers to deduct as much as 20% of their business income that comes from “pass-through” entities like LLCs, partnerships, S-corporations and sole proprietorships.
Deducting operating expenses
If you qualify (and most landlords do), you can actually deduct your operating expenses and depreciation costs first and then apply the 20% pass-through deduction to further reduce your tax liability.
A few requirements to qualify:
-Your business (or rental activity) must be for-profit business.
-You must have a “pass-through business,” which basically means that the profits and losses go through the business and you pay tax on the money on your individual tax return.
-You need qualified business income
I hope this article was insightful and provided some clarity on avenues for rental property tax relief.
Reach out to Corey for help
As always, I am here to provide my readers and clients with the information they need to have a comprehensive understanding of everything that goes into owning a property. Tune in next week to hear about a few more rental property tax deductions.
Please don’t ever hesitate to contact me with any questions or inquiries at (619) 568-0568 or info@simonerealestategroup.com.
I would love to hear from you, and am always available for assistance if you are considering taking that next step and purchasing a rental property.
-Corey
