The Tax Benefits of Owning Rental Properties
If you’re looking to open a new, steady stream of income, one appealing option is going into real estate. More specifically, purchasing properites and then renting them out can bring in a healthy amount of extra case each month. This business can be fruitful if you work hard and have good organizational and management skills. Aside for the possibility of generating good income by collecting monthly rent from your tenants, there are also tax advantages to owning rental properties. When tax time comes, you’ll be pleased to know that Uncle Sam is looking out for you. Here are some ways in which taxes will be on your side when you invest in rental real estate.
Sometimes interest can be your friend, and sometimes it can work against you. When it comes to investing in rental properties, the interest you pay throughout the year can come back in your favor. Much like owning a home where you get a tax break on the interest you pay on your mortgage, those who own properties for rent can enjoy tax incentives on the interest payouts on their units. The more you pay, the better the benefit when it’s time to file taxes.
As long as they directly improve the rental properties, you can also get a nice tax break on anything you spend on repairs. This includes electrical work, plumbing, HVAC work and more. Repair costs can be steep, but if you keep good records, you’ll be able to recoup some of those costs when you file your taxes at the beginning of the following year.
When you own a rental you can deduct any expense you incur related to the operation of that property. These expenses include insurance, condo fees, supplies to maintain the property, HOA dues and fees you spend on attorneys, CPAs and property management companies. All of these are tax deductible. You can even deduct what you spent on utilities throughout the calendar year. Just make sure these expenses are related to the rental activity.
Much like a self-employed person can do with a home office and related equipment, you can deduct deprecation on your rental properties from prior years. Form previous years, you will be able to deduct a portion of the cost each year.
While being a rental investor can be challenging, there are definitely some tax advantages. Consult a tax professional to fully understand everything you can claim on your taxes.