Jan 11, 2023

Anyone who has rented out a room or home knows that it can be incredibly rewarding. As a landlord, you get to deal directly with renters and make sure they’re taking good care of your property. Furthermore, as a landlord, you get to deduct the costs of renting from your taxes each year. We will dive into the tax advantages of owning a rental property and help you execute your plan for getting started.

John Jacob Astor- Real Estate and Business Mogul

Be sure to look into all of these tax benefits

• Loan Interest Deductions- if you have a loan on your rental property you can deduct the interest payments on those loans, this includes mortgages, construction or renovation loans and refinancing loans
• Taxes and Licensing Fee Deductions- if you pay real estate taxes or are required to have a rental license to rent out your property you can deduct those charges
• Utility Cost Deductions- if you pay for utilities at your investment property you can deduct those costs, this includes water, electricity, and gas
• Insurance Fee Deductions- if you have insurance on your property you can deduct those fees, this includes fire, flood and theft insurance
• Home Office Expense Deductions- if you manage your rentals from your primary residence you can deduct expenses related to operating your business from home, this includes the office space square footage, the utilities involved as well as the operating supplies
• Deduct Depreciation- every year your property depreciates do to normal wear and tear, this is a tax write off
• Management/Maintenance Fee Deductions- this includes property upkeep, lawn care, marketing costs and legal fees
• Business Travel Expense Deductions- this includes traveling to rental properties to pick up rent or do repairs as well as going put of town to acquire new investments
• Cost for Medical Home Improvement Deductions- if you are making your home wheelchair assessible or putting rails in showers, all of this is a tax write off
• Claim Passive Activity Loss- if you aren't involved in the day to day operations of your investment property and if your rental loss is greater then your passive income by $25,000 you could benefit from this
• Pass Through Deductions- you can avoid paying the tax rates of corporations if you operate your business alone as an LLC or Sole Proprietorship and pay individual tax rates, you can do this with landlord expenses and rental income and losses
• Defer Capital Gains with 1031 Exchange- this postpones the income tax on profits from selling your property as long as you buy another investment property that is similar to the one you sold within 180 days
• Avoid Capital Gains by Investing in Opportunity Zones- invest in rural areas that are in need of economic development and get tax benefits
• Long Term vs Short Term Capital Gains Tax Rates- own your rental property for a year or more and see a significant drop in tax rates. Short term capital gains can be taxed up to 39%, where as long term capital gains are taxed at 0%, 15% or 20%
• Avoid FICA Tax- if you are a self employed investor your rental property income is not considered earned income

Renting out your investment properties can be a profitable venture. Tax deductions can help offset taxes and increase returns. You don’t need a large capital sum to get started. Rentals are tax-friendly and offer plenty of room for growth with little risk involved. If you have an eye for design and aesthetics, investing in rentals can also come with a solid return as well as further opportunities for growth down the line. 

FOLLOW US: