Main Content

5 Best Tax Advantages to Owning a Rental Property

By Patrick Wood (From This Article)

What are the 2 certain things in life? Death and taxes, right? Well, I can’t tell you how not to die, but I can tell you the reasons that owning a rental property is one of the best ways to shelter your wealth against taxes.

Deduction on Interest: Interest payments are often a real estate investor’s biggest deductible expense.

Common examples of interest that landlords can deduct include mortgage interest payments on loans used to acquire or improve rental property and interest on credit cards that have been used for goods and services related to your business.

Deduction of Depreciation: The actual cost of a house, apartment building or other rental property is not fully deductible in the year in which you pay for it. However, landlords get back the cost of real estate through depreciation. This involves deducting a portion of the cost of the property over several years.

Repairs: The cost of repairs to a property (provided the repairs are ordinary, necessary and reasonable in cost) are fully deductible in the year in which they are incurred. Good examples of deductible repairs include repainting, fixing gutters, fixing leaks, plastering, replacing broken windows and replacing floors.

Local Travel: Landlords are entitled to a tax deduction whenever they drive anywhere for their rental activity. For example, when you drive to your rental building to deal with a tenant complaint or go to the hardware store to purchase a part for a repair, you can deduct your travel expenses. If you drive a car, SUV, van, pickup, or panel truck for your rental activity (as most landlords do), you have two options for deducting your vehicle expenses. You can:

deduct your actual expenses (gasoline, upkeep, repairs), or

use the standard mileage rate (55.5 cents per mile for 2012). To qualify for the standard mileage rate, you must use the standard mileage method the first year you use a car for your business activity. Moreover, you can’t use the standard mileage rate if you have claimed accelerated depreciation deductions in prior years, or have taken a Section 179 deduction for the vehicle.

Employees and Independent Contractors: Whenever you hire anyone to perform services for your rental activity, you can deduct their wages as a rental business expense. This is so whether the worker is an employee (for example, a resident manager) or an independent contractor (for example, a repair person).

As well as the advantages above, there may be other ways through local programs to protect your wealth. A tax professional should be part of your real estate business team.

With the economy the way that it is, governments everywhere are trying to get more and more of your money every chance that they get. Do yourself a favor and learn all you can about how to protect your wealth.

Facebooktwittergoogle_plusby feather