One of the biggest advantages of personally owning a residential rental property is the tax benefits that they offer. Rental real estate properties provide more tax benefits than almost any other investment. These tax benefits are often large enough to make the difference between losing money and earning a profit on a rental property. Here are the most significant tax deductions for owners:
Interest – Deducting mortgage interest is often the single biggest deductible expense for owners of residential rental properties. Deductible mortgage interest includes mortgage interest payments on loans used to acquire or improve the rental property. It also includes interest on credit cards for goods or services used in the rental activity.
Depreciation – The deductible depreciation expense is equivalent to a portion of the cost of the property, spread out over several years. The actual cost of the rental property is not fully deductible in the year it is placed into service as a rental property.
Repairs – Homeowners are unable to deduct the cost of repairs they make to their primary residence. However, landlords can deduct the cost of repairs to rental properties. In order to be deductible, the repair must be ordinary, necessary, and reasonable. Rental expenses are deductible in the year the expense is incurred. Examples include fixing broken windows or purchasing parts for repair. Repairs, which are deductible, are easily confused with capital improvements, which must be depreciable. Contact a tax professional at StrataTax to help you identify the difference between a repair and a capital improvement.
Travel – Landlords who drive anywhere for their rental activity are allowed a tax deduction in the form of actual expenses or the standard mileage rate. Actual expenses include gasoline, car maintenance and car repairs. The standard mileage rate is 55.5 cents per mile, as set by the Internal Revenue Service (IRS). There are eligibility requirements pertaining to the standard mileage rate. Please see… Long distance travel, including airfare, hotel bills, and meals related to the rental activity may also be deductible.
Legal and Professional Services – Fees you pay to property management companies, attorneys, accountants and other professionals may deductible if the fees are paid for services related to the rental activity.
Most rental property owners can only deduct up to $25,000 in rental property losses each year. If you own a rental property, consult a tax professional to help you deduct losses arising from rental real estate ownership by identifying deductible real estate expenses. Keep detailed and accurate records of all expenses and financial transactions related to your rental activity.
TAX ADVICE DISCLAIMER:
Please be advised that in order to ensure StrataTax’s compliance with the rules and standards required by the Internal Revenue Service (IRS), we are informing you that any tax advice contained in this communication, including attachments, is not intended or written to be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or promoting, marketing or recommending this transaction or a tax related matter to another party.