Tax Benefits Available through Investing in Rental Property

February 25, 2019

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Much of the country recently has experienced a weakening in the local real estate market. If that is the case in your local area, now may be an excellent time to make the decision to invest in rental property. Investment real estate provides exceptional tax benefits which can a good deal, a great deal. If you already own a home you may be quite familiar with many of the tax benefits offered by owning rental property. For example, by using a mortgage to purchase rental property you very well may be able to write off your interest payments on your taxes. In addition, you can tape into tax benefits which you may not already be aware of. Many rental property owners find that they can deduct a great many of the expenses incurred in the maintenance of the property. This includes such as items are repairs, utilities and insurance as well as much more. In the event you make the decision to hire a rental agent or a property manager, you will also have the benefit of writing off any fees paid for those services as well. Depreciation deductions can also frequently be written off. In fact, depreciation is frequently one of the best tools available to owners of rental property due to the fact that it provides you with the opportunity to essentially write off the largest expense associated with owning and operating rental property-the price for the property itself excluding the land. It should be noted that depreciation does take place over a period of time. For residential rental property the time schedule is 27 ½ years while commercial property is depreciated over a period of 39 years. This means that if you paid $150,000 for a rental property (less the value of the land), the annual depreciation would be approximately $5,000. You can also frequently include property improvements in your cost basis and depreciate them over time as well. Repairs can typically be deducted during the year in which they occurred. Not sure whether something classifies as an improvement or repair? Keep in mind that improvements will add to the property’s value and prolong the life of the property while a repair is intended to keep the property in good condition. It is also important to remember; however, that landlords are not able to assign a value to their own labor and then deduct the cost of it. Many landlords are also able to deduct the cost of travel, whether it is driving or flying. In the event the travel is not local, you also have the advantage of being able to deduct such costs as hotel bills, airfare and part of the costs of meals. If you choose to operate a home office in order to manage your rental property, you may also be able to deduct specific expenses such as part of your homeowner’s insurance, utilities and home mortgage interest. In order to qualify for this tax benefit, the space assigned as your home office must serve as the primary place of business where you handle matters regarding the operation of your rental property. In essence, the home office area must be used exclusively for business and not for any other purpose. You do not necessarily have to assign an entire room as your home office; however, as long as you can assign a part of the room that is definable as your home office.