Investing in stocks and bonds is subject to additional taxes over and above the simple income tax. Owning rental properties can, however, provide landlords with some generous tax benefits. Even though rental income tax benefits aren’t enough to encourage you to buy rental properties, they’re still worth considering if you’re looking for investment opportunities and important to keep in mind if you’re a landlord.
Tax results can vary depending on the specific facts and circumstances of any person considering or owning a property. If you own a rental property, you should consult your tax advisor or certified public accountant.
Owners of rental properties can take advantage of the following tax benefits:
- The year in which a renter makes repairs is generally deductible. You should consult your accountant if you want to take advantage of depreciation instead of depreciation for larger projects classified as improvements. Carpentry, electrical, plumbing, or heating repairs can lower your rental income.
- Mortgage interest can be deducted by landlords in a variety of ways. Landlords usually claim mortgage interest as their largest deduction. Besides home improvement loan interest, you can also deduct credit card interest on property-related expenses.
- Deductibility of taxes: The deduction is like receiving a gift of cash. There is no cost involved in receiving it. It is possible to deduct both building depreciation and land depreciation each year (land value cannot be deducted).
- Tax deductible marketing: Local newspapers, magazines, or rental property websites can be used to advertise your rental property.
- Expenses related to rental property activity, both local and long distance, may be deducted. The following expenses might be incurred during travel:
Viewing the property with a prospective tenant
Buying a home or conducting market research
Consult your accountant about deductibility of travel, lodging, car rentals, and other expenses you may incur while attending investor seminars
A hardware store is a good place to purchase materials - Independent contractors may charge you fees: You can hire landscapers, painters, and exterior cleaners as independent contractors. If you pay them, you can deduct it.
- Rather than hiring a contractor to perform maintenance or management duties, you can deduct the employee’s wages from income.
Homeowners and mortgage holders must both be insured when investing in a home. In addition to property insurance, liability insurance, and casualty insurance, renters must deduct insurance premiums. - Counties, cities, and schools are all eligible to deduct local property taxes.
- It is normally totally deductible when you lose property as a result of a fire, break-in, or something else beyond your control. Only non-covered expenses would be included in this calculation, including claim deductibles.
- Professional accounting, legal, and management services: These professionals can be hired, and their salaries can be deducted in the year of payment. When you hire a management company to handle all of the headaches of rental property ownership and tenant relations, you can deduct a portion of the cost from your rental income tax.
Losses from rental properties can be used to offset income from other investments in some cases. Can you think of anything that would make you lose money? Depreciation deductions can result in significant income losses without requiring you to add any additional expenditures. Incorporating depreciation and mortgage interest can result in a great cash flow but a paper loss. Check with your accountant to see if this deduction is applicable to you.
Your investment can be enhanced by taking advantage of rental income tax breaks. The benefits of these tax deductions should be discussed with your tax preparer.
During the Coronavirus pandemic, some rental properties may have suffered losses. In 2020, Congress could pass legislation containing tax relief provisions. If these provisions apply to you, consult a tax professional.