No owner would pay more than necessary for utilities or other operating expenses for a rental property. Yet millions of owners pay more taxes on their rental revenue than they must. Why?
Rental real-estate provides more tax benefits than almost any other investment.
Each year, millions of owners pay more taxes on their rental earnings than they should. Why? Because they fail to milk all of the tax repayments available for owners of rental property. Investment real estate provides more tax benefits than just about any other investment.
Regularly these benefits make the biggest difference between losing money and earning a decent profit on a rental property. Here are the top 10 tax deductions for owners of residential rental property:
1. Interest
Interest is sometimes a landlord's single largest deductible cost. Common examples of interest that owners can take include mortgage interest charges on loans used to procure or improve rental property and interest on credit cards for products or services utilized in a rental activity.
2. Depreciation
The cost of a place, residence building, or other rental property is not absolutely deductible in the year in which you pay for it. As an alternative landlords get back the cost of property through depreciation. This involves taking a portion of the price of the property over several years.
3. Repairs
The cost of repairs to income property (provided the repairs are ordinary, mandatory, and reasonable in amount) are fully deductible in the year in which they're incurred. Excellent examples of deductible repairs include repainting, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows.
4. Local Travel
Landlords are entitled to a tax deduction whenever they drive anywhere for their rental activity. For instance, when you drive to your rental building to deal with a renter complaint or go to the hardware store to buy a part for a repair you can take your travel costs.
If you drive a car, SUV, van, pickup, or panel truck for your rental activity (as most owners do), you have 2 options for subtracting your vehicle costs. You can:
- deduct your actual expenses (gasoline, upkeep, repairs), or
- use the standard mileage rate (56.5 cents per mile for 2013). To qualify for the standard mileage rate, you need to 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 previous years, or have taken a Section 179 reduction for the car.
5. Long Distance Travel
If you travel overnite for your rental activity, you can take your airline fare, hotel bills, meals, and other costs. If you plan your trip fastidiously, you can even mix owner business with pleasure and still take a deduction.
Nonetheless IRS auditors closely scrutinize kickbacks for overnite travel? And many taxpayers get caught claiming these reductions without correct records to back them up. To stay within the law (and avoid unwelcome attention from the IRS), you need to correctly document your long distance travel costs.
6. Home Based Office
Provided they meet certain minimal wants, owners may deduct their home office expenses from their taxable income. This deduction applies not only to space devoted to office work, but also to a workshop or any other home workspace you use for your rental business. This happens to be true whether you own your house or apartment or are a renter.
7. Workers and Independent Contractors
If you hire anybody to perform services for your rental activity, you can take their salary as a rental business expense. This is so whether the worker is an employee (as an example, a resident manager) or an independent contractor (as an example, a repair person).
8. Casualty and Theft Losses
If your rental property is damaged or wiped out from a sudden event like a fire or flood, you might possibly be able to acquire a tax deduction for any part of your loss. These kinds of losses are called casualty losses. You sometimes won't be well placed to subtract the entire value of property damaged or demolished by a casualty. How much you may deduct is dependent on what proportion of your property was demolished and whether the loss was covered by insurance.
9. Insurance
You can subtract the premiums you pay for almost any insurance for your rental activity. This includes fire, theft, and flood insurance for rental property, as well as owner culpability insurance. And if you have staff, you can deduct the cost of their health and workers? Compensation insurance.
10. Legal and Pro Services
Ultimately,. You can subtract costs that you pay to lawyers, accountants, real estate management firms, real estate investment consultants, and other execs. You can subtract these fees as operating expenses as long as the costs are paid for work related to your rental activity.
Did You Know?
Did you know that:
- Landlords can increase the depreciation reductions they receive the first few years they own rental property by utilizing divided depreciation.
- Careful planning can enable you to take, in a single year, the cost of improvements to rental property that you would otherwise have to take over 27.5 years.
- You can lease out a holiday home tax free, in a few cases.
- Most little owners can subtract up to $25,000 in rental property losses annually.
- A special tax rule authorizes some landlords to take 100% of their rental property losses every year, regardless of how much.
- Folks who lease property to their family or pals can lose just about all their tax deductions.
If you did not know any of these facts, you might be paying far more tax than you need to. As usual, be absolutely sure to talk with your tax adviser or tax pro.
[Author's note: View our new Better Business Bureau review.]
Rental real-estate provides more tax benefits than almost any other investment.
Each year, millions of owners pay more taxes on their rental earnings than they should. Why? Because they fail to milk all of the tax repayments available for owners of rental property. Investment real estate provides more tax benefits than just about any other investment.
Regularly these benefits make the biggest difference between losing money and earning a decent profit on a rental property. Here are the top 10 tax deductions for owners of residential rental property:
1. Interest
Interest is sometimes a landlord's single largest deductible cost. Common examples of interest that owners can take include mortgage interest charges on loans used to procure or improve rental property and interest on credit cards for products or services utilized in a rental activity.
2. Depreciation
The cost of a place, residence building, or other rental property is not absolutely deductible in the year in which you pay for it. As an alternative landlords get back the cost of property through depreciation. This involves taking a portion of the price of the property over several years.
3. Repairs
The cost of repairs to income property (provided the repairs are ordinary, mandatory, and reasonable in amount) are fully deductible in the year in which they're incurred. Excellent examples of deductible repairs include repainting, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows.
4. Local Travel
Landlords are entitled to a tax deduction whenever they drive anywhere for their rental activity. For instance, when you drive to your rental building to deal with a renter complaint or go to the hardware store to buy a part for a repair you can take your travel costs.
If you drive a car, SUV, van, pickup, or panel truck for your rental activity (as most owners do), you have 2 options for subtracting your vehicle costs. You can:
- deduct your actual expenses (gasoline, upkeep, repairs), or
- use the standard mileage rate (56.5 cents per mile for 2013). To qualify for the standard mileage rate, you need to 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 previous years, or have taken a Section 179 reduction for the car.
5. Long Distance Travel
If you travel overnite for your rental activity, you can take your airline fare, hotel bills, meals, and other costs. If you plan your trip fastidiously, you can even mix owner business with pleasure and still take a deduction.
Nonetheless IRS auditors closely scrutinize kickbacks for overnite travel? And many taxpayers get caught claiming these reductions without correct records to back them up. To stay within the law (and avoid unwelcome attention from the IRS), you need to correctly document your long distance travel costs.
6. Home Based Office
Provided they meet certain minimal wants, owners may deduct their home office expenses from their taxable income. This deduction applies not only to space devoted to office work, but also to a workshop or any other home workspace you use for your rental business. This happens to be true whether you own your house or apartment or are a renter.
7. Workers and Independent Contractors
If you hire anybody to perform services for your rental activity, you can take their salary as a rental business expense. This is so whether the worker is an employee (as an example, a resident manager) or an independent contractor (as an example, a repair person).
8. Casualty and Theft Losses
If your rental property is damaged or wiped out from a sudden event like a fire or flood, you might possibly be able to acquire a tax deduction for any part of your loss. These kinds of losses are called casualty losses. You sometimes won't be well placed to subtract the entire value of property damaged or demolished by a casualty. How much you may deduct is dependent on what proportion of your property was demolished and whether the loss was covered by insurance.
9. Insurance
You can subtract the premiums you pay for almost any insurance for your rental activity. This includes fire, theft, and flood insurance for rental property, as well as owner culpability insurance. And if you have staff, you can deduct the cost of their health and workers? Compensation insurance.
10. Legal and Pro Services
Ultimately,. You can subtract costs that you pay to lawyers, accountants, real estate management firms, real estate investment consultants, and other execs. You can subtract these fees as operating expenses as long as the costs are paid for work related to your rental activity.
Did You Know?
Did you know that:
- Landlords can increase the depreciation reductions they receive the first few years they own rental property by utilizing divided depreciation.
- Careful planning can enable you to take, in a single year, the cost of improvements to rental property that you would otherwise have to take over 27.5 years.
- You can lease out a holiday home tax free, in a few cases.
- Most little owners can subtract up to $25,000 in rental property losses annually.
- A special tax rule authorizes some landlords to take 100% of their rental property losses every year, regardless of how much.
- Folks who lease property to their family or pals can lose just about all their tax deductions.
If you did not know any of these facts, you might be paying far more tax than you need to. As usual, be absolutely sure to talk with your tax adviser or tax pro.
[Author's note: View our new Better Business Bureau review.]
About the Author:
Marco Santarelli
is an investor, author and founder of Norada Real Estate Investments -- a
nationwide real estate investment firm providing turnkey investment property in
growth markets around the United States. For more articles like Top Ten Tax Deductions for Landlords,
please visit our Real Estate
Investing Blog where it was originally published.
is an investor, author and founder of Norada Real Estate Investments -- a
nationwide real estate investment firm providing turnkey investment property in
growth markets around the United States. For more articles like Top Ten Tax Deductions for Landlords,
please visit our Real Estate
Investing Blog where it was originally published.